For any business manager or investor looking to enter an emerging market, it is important to be aware of the country’s economic outlook to better understand the macro-trends that are worth paying attention to. Therefore, as a manager looking to enter the Nigerian market, you should familiarize yourself with the Nigerian economy.
Gaining a complete understanding of the Nigerian economy will help you develop a robust plan that will allow your company to take advantage of various market opportunities while simultaneously mitigating risk.
Provided below is a detailed explanation of the Nigerian economy as it previously stood, as it currently stands, and a prediction of its future position. This information will allow your company to assume the most advantageous position in the Nigerian market.
Nigeria has 186 million inhabitants, which makes it the most populous country in Africa. In 2013, Nigeria surpassed South Africa’s economy, thereby becoming the largest economy in Africa with a GDP of $510 billion. Nigeria’s economy has grown significantly since it became a democratic nation in May 1999, shirking several years of military rule. Since then, Nigeria’s economy has managed an average annual GDP growth of 8.6 percent under civilian rule until 2010. This is a drastic change from the 1.5 percent annual growth that the nation saw while under military rule between 1983 and 1999.
The growth of Nigeria’s economy was mainly due to the country’s position as a major crude oil exporter with crude oil accounting for 95 percent of Nigeria’s exports. The global price and demand for crude oil is what caused Nigeria’s economy to flourish. Furthermore, privatization policies, such as that in the telecommunications sector also encouraged economic growth in the region.
However, despite the surge in economic growth, the country is currently seeing a widening gap in regards to income equality. Nigeria boasts the 27th largest economy globally with a current GDP of $406 billion. However, Nigeria currently ranks 134th out of 193 countries in regards to the country’s GDP per capita, which is $2,176. Therefore, it comes as no surprise that 40 percent of Nigerians live below the poverty line.
Recent Times & Nigeria’s Current Economic Reality
In 2014, global oil prices began to drop, which severely affected the Nigerian economy, causing the country’s steady economic growth to slow down significantly. In 2015, the economy slowed sharply, as the annual real GDP growth dropped to 2.7 percent from the 6.2 percent seen in the previous year. By 2016, the Nigerian economy recorded its first recession since 1991 with a growth of -1.5 percent, as oil production shortages exacerbated the decline in oil prices.
Due to the recession and a decline in oil prices, the supply of foreign currency Nigeria once received began drying up. Due to the fact that Nigeria is highly dependent on imports, the country relied on foreign currency, which at the time was difficult to come by, to pay its invoices.
Coupled with the shortage of foreign exchange was the disparity between the official exchange rate regulated by The Central Bank of Nigeria and the black market rate. This disparity created a very complex currency market, which deterred foreign investors and posed significant risks to local businesses involved in trade with foreign entities.
However, the introduction of the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX), also known as the “Investors’ and Exporters’ FX Window,” in April 2017 created more foreign exchange liquidity and stability for Nigerian businesses involved in international trade.
Emerging from the Recession
After five consecutive quarters of negative growth, Nigeria exited the recession in the second quarter of 2017 with a growth rate of 0.72 percent. The economy began recovering in the final quarter of 2017 due to a solid performance in the non-oil sector and recovering oil prices, which caused the GDP to rise and continue a two-year high. Higher crop production bolstered the agricultural sector, ultimately offsetting lackluster activity in other industries.
The Nigerian economy is predicted to grow by 2.5 percent in 2018, which is slightly below the estimated global growth rate of 3.9 percent and an average growth of 3.4 percent in Sub-saharan Africa. However, this estimated growth in Nigeria is an improvement over the 0.8 percent growth experienced in 2017 as the country exited the recession.
Despite the fact that Nigeria is exiting the 2016 recession, the country’s economy is still vulnerable. Political uncertainty associated with upcoming elections, which are due to take place in February 2019, as well as the presence of federal revenues that are still highly dependent on oil prices, leaves a lot of foreign investors and institutions cautious to invest.
Nigeria’s predicted economic growth is even more conservative in comparison to the growth of its neighbor, Ghana. Ghana’s economy is set to grow by 8 percent in 2018, making Ghana’s economy one of the world’s fastest-growing economies this year.
The Nigerian Minister of Finance has disclosed that the nation is targeting 7 percent economic growth in the next three years. According to Mckinsey and PWC, if Nigeria does reach its full economic potential, the country’s annual GDP could exceed $1.6 trillion in 2030 making Nigeria a top-20 economy in the world. The country is in a solid position to benefit from various trends, such as rising demand from emerging economies, growing global demand for resources, and the spread of the digital economy.
Nigeria also has a young and rapidly growing population with a trend towards urbanization. Currently, 75.2 percent of the population is younger than 35 years old. Nigeria is also at an advantageous geographic location in West Africa, which enables trade within the continent, as well as with Europe and North and South America.
With a growing consumer class and a focus on infrastructural development, trade, manufacturing, and agriculture, inclusive growth can be fostered in the Nigerian economy, which will raise farm incomes and create more formal urban jobs.
Companies and investors that want to succeed in Nigeria will have to focus on striking the right balance of achieving both short- and long-term goals in a consumer-centric market that holds the promise significant long-term growth.
To achieve this, you have to be willing to establish a real presence in Nigeria by building a reliable professional network, fully understanding your potential customer base, providing basic and tangible solutions offered at a price at which people are willing to pay, while working to spur economic growth that raises the standard of living of the general populace.