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Why Nigeria?

Summary

Area (land plus water): 923,768 km2 (356,669 mi²)

Population: 183.6 million (2016) (40% under age 25)

Population growth rate (change): 2.8%

Population density: 200.1 people per km²

Urban population: 47.8%

Capital city: Abuja

Official language: English

Currency: Nigerian Naira (NGN)

Nominal GDP: US $406 billion

Real annual GDP Growth: -1.5%

GDP per capita: US $2,210.6

Annual inflation rate: 15.7%

Unemployment rate: 12.7%

General government gross debt: 18.6% of GDP

Fiscal balance: -4.4% of GDP

Current account balance: US $2.6 billion (0.6% of GDP)

Exports of goods to UK: £1,496 million

Imports of goods from UK: £1,271 million

Inward direct investment flow: US $3.1 billion

Exports & imports as share of GDP: 30.4%

[Source: mostly FCO Economics Unit, Apr 2017]

 

Geography

A warm and tropical country just north of the equator, the Federal Republic of Nigeria is located in central-west Africa on the Gulf of Guinea in the eastern Atlantic Ocean. With a population of over 180 million people, Nigeria borders Cameroon and Chad in the east, Benin in the west and Niger in the north.

It is made up of 36 states grouped into 6 main geopolitical zones: North Central, Northeast, Northwest, Southeast, South and Southwest.

At the centre of the country is the nation’s capital – Abuja, also known as the Federal Capital Territory.

There are two main seasons in Nigeria- the ‘rainy season’ and the ‘dry season’. The southern part of the country, also the most fertile part of the country, is especially humid because it experiences the heaviest amount of rainfall; while the north has a much hotter and drier climate with vast expanses of savannah and grassland.

Nigeria is also home to two of the major rivers in Africa – the Niger River (third-longest river in Africa) and the River Benue. Each flowing from the west and east respectively, they converge at Lokoja and flow south through the Niger Delta into the Gulf of Guinea.

Nigeria Map PNG

General overview

Nigeria has very similar business and legal practices to the UK, and while there are several ethnic tribes and dialects, Yoruba, Igbo and Hausa being three of the major groups, English is still the generally-spoken language.

The home of Africa’s largest economy and biggest oil producer also has a growing populace of over 180 million – the largest in Africa.

Lagos State, Africa’s busiest business and economic centre, is the country’s most populous city and ranked 1st in the top biggest cities for doing business in Africa with a population reputed to be over 21 million.

One in every four Africans is believed to be Nigerian, and the UN projects it to be the world’s third largest country by 2050, overtaking the US with an estimated population of over 400 million.

[Source: FCO Overseas Business Risk/gov.uk]

 

Government overview

Political situation

The governing of Nigeria has had a tumultuous history, but great and positive strides towards a free and fair republic were made in 2015 when the national elections brought about the first democratic transition of power in the country’s history.

With a political campaign drive that centred on anti-corruption and focused on reform, including a clear agenda to clean up Nigeria’s Federal- and State-level Governments, President Muhammadu Buhari of the ‘All Progressives Congress’ (APC) coalition won the election with 54% of the vote, succeeding the incumbent President, Goodluck Jonathan of the ‘People’s Democratic Party’ (PDP) to be the next ruling President for the next four years.

[Source: FCO Overseas Business Risk/gov.uk]

 

Economic overview

With an abundance of natural resources, and a growing middle class, Nigeria’s economic potential is considerable. However, since the oil boom of the 70s, Nigeria has had an unhealthy dependence on crude oil, accounting for over 95% of its export earnings, 75% of government revenue, but contributing less than 14% of the country’s GDP.

Nigeria is ranked globally by the World Bank at 138th out of 190 in the 2016-17 Ease of Starting a Business rankings, but 27th out of 47 in Sub-Saharan Africa, primarily as a result of bureaucracy, corruption and poor power.

It has the world’s 10th largest proven oil reserves and 9th largest proven gas reserves; but the global drop in the price of crude oil, Nigeria's top export and almost all receipts of foreign currency, has led to a very difficult fiscal year for the nation, much like other oil-producing countries.

A constrained government revenue means that the government no longer has a large fiscal reserve to buffer federal budgets from revenue shortfalls, which in turn has limited the government’s spending power and ultimately led to the devaluation of the Naira.

Capital controls like the severe restrictions on 41 classes of imports, (on top of the list of items already banned from importation), restrictions on interbank lending and trading of FOREX, and restrictions on the movement of foreign currency out of the country made it more difficult to access foreign exchange through official channels, severely hampering the availability of foreign exchange for Nigerian importers, and helping the unofficial black market boom – increasing the disparity between official and black market rates by 10% to 15%. It created a disconcerting situation for international investors as existing investors struggled to import raw materials and repatriate earnings, whilst new investors waited for an adjustment to the Naira and the uncertainties surrounding the new legislations before putting new money in.

Unrest in the Niger Delta and Northeast region has also had adverse effects on the economy, with Boko Haram and other insurgents in the oil-producing zones vandalising some pipelines. Despite being plunged into the country’s worst economic crisis in 25 years, Nigeria is still considered one of the most promising emerging markets in the world, and both the IMF and World Bank, have forecast Nigeria’s economy to start seeing as much as 2.5% growth in 2017.

[Source: International Monetary Fund/WEO January 2017 Update]

 

Benefits to UK businesses

Ties between Nigeria and the UK may have been deep-rooted in our historical and political origins, but over the years it has evolved into a more dynamic relationship that includes education, trade, arts and culture.

The UK and Nigeria have an excellent commercial relationship with over £6.1 billion worth of trade per year; it is also the 2nd largest African market for goods. UK companies are extremely well-known in Nigeria, and UK brands (especially luxury goods) are in very high demand. With over 18,000 Nigerians studying in the UK and over 130,000 visitors each year, Nigerians are recognised as being one of the biggest visitors and spenders in the UK. Some stores have put up signs in Hausa, one of Nigeria’s official languages.

Nigeria has one of the lowest income tax rates in the world, 7%-24%, and therefore the growing consumer base of Nigerians has a lot more disposable income. However, in 2016 the country’s economic growth stalled – the consequence of an oil-dependent economy – as persistently low oil prices took their toll and plunged Nigeria into a recession.

Lately, the current administration has taken a different approach towards reviving the economy and is taking several steps to grow other sectors aside from just oil and gas with the launch of the Economic Growth and Recovery Plan (EGRP) in April 2017 – a medium-term plan that outlines 60 bold initiatives, and aimed at diversifying the nation’s portfolio to focus on agriculture, industrialisation, energy and social investment and puts a brighter forecast on more-robust Public-Private Partnerships.

Contact a DIT export adviser at: https://www.contactus.trade.gov.uk/enquiry/topic  for a free consultation if you are interested in exporting to Nigeria.

Export Finance is available to exporters looking to do business with Nigeria, and UK Export Finance (UKEF) has built good relations with a number of local banks on the ground in Nigeria.

Contact UKEF about trade finance and insurance cover for UK companies. You can also check the current UKEF cover position for Nigeria. See: https://www.gov.uk/guidance/country-cover-policy-and-indicators#nigeria.

[Source: FCO Overseas Business Risk/DIT/gov.uk]

 

Growth potential

The Nigerian Government has made several strategic moves since the new administration was elected, such as reducing the cost of governance; enforcing the Treasury Single Account, imposed in an effort to fight the corruption entrenched within the country’s bodies and institutions; and putting an embargo on foreign currency dealings in an attempt at preserving the Naira and forcing domestic enterprise.

Directed at bringing the country back out of recession, some of these policies have not had the desired results and the knock-on effect of a devalued currency, reduced FOREX reserves and vacillating government legislations have meant that other areas like construction, manufacturing and retail have also taken a hit. The downward pressure on Nigeria’s currency, and the Federal Government strongly resisting calls to devalue the Naira, saw inflation rise rapidly from 13.7% to 18.72% between April 2016 and January 2017.

Rather than float the national currency that once stood at NGN 1 to US $1, or drain foreign exchange reserves, the Central Bank of Nigeria (CBN) supported its policy of bolstering the Naira through drastic capital controls. These restrictions were part of the government’s import substitution policy that placed trade restrictions, local content requirements, high tariffs and importation bans on international investment, with the aim of developing domestic capacity to produce and manufacture products and services which the government believes can be produced domestically rather than being imported.

Now the administration has been largely forced to review its stance on some of these measures, and in June 2016, more than a year after resisting calls to float the Naira, the CBN has withdrawn its subsidising measures and introduced a new, more flexible, foreign exchange policy that supports a single market structure at the interbank rate managed via the Thompson Reuters platform.

This current directive has expectedly begun to generate interest amongst market analysts as it abolishes the preferential treatment of any sector, fosters a more efficient and competitive FX market, and also provides direct and additional funding to banks to meet the needs of Nigerians for personal and business travel, medical needs and tuition, easing the hold of the black market over foreign transactions. A knock-on effect expected to have more positive results.

Following the actions of the CBN, the value of the Naira against the Dollar continues to appreciate, gaining almost 15% between February and May 2017. Inflation has also begun to see a decline, easing to 17.26% in March 2017 – the lowest it has been in five months.

With increased budgetary allocations to the Niger Delta amnesty and development programmes, coupled with a new focus on executing the EGRP, there is a prospective change in the relationship between the public and private sectors based on a more-enhanced partnership.

[Source: FCO Overseas Business Risk/DIT/gov.uk]

 

Trade between the UK and Nigeria

Goods exported to Nigeria are fairly diverse and constantly evolving. Machinery, aircraft, ships, trains, road vehicles and petroleum products make up the majority of the UK’s goods exports apart from service exports.

[Source: DIT/gov.uk]

In addition:

Contact a DIT export adviser at: https://www.contactus.trade.gov.uk/enquiry/topic for a free consultation if you are interested in exporting to Nigeria.

Contact UK Export Finance (UKEF) about trade finance and insurance cover for UK companies. You can also check the current UKEF cover position for Nigeria. See: https://www.gov.uk/guidance/country-cover-policy-and-indicators#nigeria.

[Source: DIT/gov.uk]


 

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