Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax System
Basic data
According to cheeroutdoor.com, Nigeria is currently one of the richest countries in Africa. The backbone of the economy (at least in terms of foreign exchange earnings) is the oil industry. With the government focusing solely on it, there was a gradual collapse of almost all manufacturing sectors as well as agriculture from the 1980s, making the country dependent on imports. Nigeria is carrying out economic reforms, trying to support the creation of new manufacturing sectors, liberalizing the economy (on the other hand, enforcing tough protectionist measures), supporting strategic partnerships with large foreign investors. Nigeria is and will remain a net importer for a long time, the Nigerian market is huge and not yet saturated and can provide great profits. In the future, strong growth is expected in a number of industry and service sectors, which offer great opportunities to both importers and investors. However, the consequences of the 2016 recession and now in the post-covid era have also affected the economic development of the country. The IMF came up with the first growth forecasts for 2021 in the range of -3.4% to -5.4%. The government invested approximately 2.4% of GDP in supporting the economy, and further investments are expected in view of the upcoming implementation of the National Economic Recovery Plan. The pandemic served as the last warning against the country’s economic collapse and should also become an opportunity to implement long-delayed key reforms. The plan envisages a stimulus package of trillion naira (about €billion), hoping to lift the economy to -0.59% of GDP. State investment will focus on key sectors such as agriculture, public sector, housing and road construction, solar energy, social security, SME support, gas pipelines, ICT with an emphasis on supporting domestic production “in all areas where possible”. In an effort to mitigate the effects of a further increase in unemployment, the plan optimistically expects the creation of up to 5 million new jobs in agriculture. In Nigeria, there are currently about 35% of the working population who are without regular or any employment. The fiscal deficit in 2021 should decrease to 3.3% of GDP. The government raised the public debt limit to 40% of GDP.
Nigeria has raw materials, a large market, a convenient location, a labor force – but it faces a number of problems, the most pressing of which is the chronic and total lack of electricity. A persistent problem is the passage of goods through the country’s largest seaports – in particular, long customs clearance times and the collection of high bribes. Despite all the problems mentioned above, the economic environment and political and social conditions of contemporary Nigeria show a higher potential for further development and growth than most sub-Saharan African countries. From the point of view of foreign income, Nigeria still remains a monoculture export oil economy, almost everything is imported, except for strictly limited items (including dairy products). Oil accounts for 90% of the country’s export earnings, and together with gas, 95%. The oil sector also directly generates 16% of GDP at constant prices and 30% of GDP at current prices. Inflation reached 17.8% in the 1st quarter of 2021, for food prices it is almost 25%.
| Pointer | 2019 | 2020 | 2021 | 2022 | 2023 |
| GDP growth (%) | 2.2 | -1.9 | 3 | 3.3 | 3.8 |
| GDP/population (USD/PPP) | 5,362.80 | 5,184.50 | 5,370.00 | 5,640.00 | 5,860.0 |
| Inflation (%) | 11.4 | 13.2 | 17 | 13.7 | 14 |
| Unemployment (%) | 8.5 | 9.7 | 15 | ON | ON |
| Export of goods (billion USD) | 65 | 39 | 47.4 | 62.5 | 64.7 |
| Import of goods (billion USD) | 66.7 | 52.6 | 51.4 | 61.2 | 63.7 |
| Trade Balance (Billion USD) | 2.9 | -16.4 | 0.5 | 6,7 | 6.5 |
| Industrial production (% change) | 2.6 | -4.9 | -5.6 | 9.4 | 13.5 |
| Population (millions) | 201 | 206.1 | 211.4 | 216.7 | 222.2 |
| Competitiveness | ON | ON | ON | ON | ON |
| OECD export risk | 06.VII | 06.VII | 06.VII | ON | ON |
Source: EIU, OECD, IMD
Public finance and state budget
| Public finance | 2021 |
| State budget balance (% of GDP) | -3.6 |
| Public debt (% of GDP) | 21 |
| Current account balance (billion USD) | 1.7 |
| Taxes | 2022 |
| AFTER | ON |
| F.O | ON |
| VAT | ON |
As a result of the noticeable weakening of the naira against the EURO/USD since the first recession in 2016, the Central National Bank (CNB) has been releasing tens of millions of USD from government reserves at regular intervals in order to artificially strengthen and maintain the value of the naira against foreign currencies. At the same time, the CNB has opened opportunities for small and medium-sized enterprises, which can now carry out quarterly foreign trade worth a maximum of USD 20,000. The CNB also contemplated introducing this “facility” even for potential investors who had logically resigned themselves to any attempt to invest in Nigeria due to the unstable currency and these obstructions. The pandemic put Nigeria in a similar situation: President Buhari allocated 761 million euros in conversion to the fight against COVID-19, which forced the amendment of the budget law.
The inflation rate in NG fell to 15.4%. Food price inflation fell sharply to 17.21% in November 2021 from 18.34% recorded in October 2021. Food inflation fell to its lowest level in the last 14 months. Food inflation is caused by increased insecurity and kidnappings in the north of the country and their impact on access to farms or transportation of goods. The Nigerian government, through the Central Bank, continues to support intervention programs in various sectors of the economy to help entrepreneurs worst affected by the pandemic, as well as maintaining restrictions on foreign exchange and the importation of certain goods aimed at stimulating domestic production and diversifying the economy. However, the practical impact is the devaluation of the naira in the official market from 379 naira/USD to 410Naira/USD (in the parallel market from 480 to 510 naira/USD due to panic and speculative buying), and from the point of view of expats, the long-term lack of milk and milk and other products of European origin on the local market. Despite the rising price of oil (now over $100/barrel), Nigeria’s foreign reserves are dwindling. This is due to a decline in purchases by Nigeria’s main buyer, India, which has slowed its purchases due to the pandemic, and foreign investors’ wariness of Nigeria’s bond market due to high inflation and low yields.
Public finances will remain in deficit at an estimated 3.3-3.5% of GDP for 2021-25, the rise in world oil prices is not expected to reduce this deficit. The public debt is also expected to increase from the current 27% to 40% of GDP. In order to regulate the deficit, the government is considering a gradual increase in VAT up to 15%.
Banking system
The Central Bank of Nigeria (CBN) has a regulatory and control role. It is also responsible for creating and following monetary, credit and exchange policy. Both the government and the private sector are pushing for lower interest rates and thus better availability of credit. The CBN, on the other hand, is trying to curb inflationary pressures, maintain monetary stability and face the shortage and high demand for foreign currencies. For this reason, it increased the interest rate to 13% (made loans more expensive), limited the amount of local currency (and the possibility of granting loans) by setting 75% mandatory limits for bank reserves of state entities, 20% for private entities. Efforts to maintain the exchange rate of the Naira against major international currencies during the pandemic period, when the country’s foreign exchange earnings fell and demand increased, were not successful. There are 21 commercial banks, over 800 small financial institutions operating in Nigeria, three discount banks and 5 development financial institutions. The strongest banking institutions: Zenith Bank, First Bank, Ecobank Nigeria, United Bank for Africa (UPC), Citibank Nigeria Ltd. All these banks have an A+ ranking, i.e. they meet international standards, especially when it comes to the granting of letters of credit in the case of foreign transactions. The Nigerian banking sector is still growing and services are gradually improving. A local project can be financed with a loan from any Nigerian commercial bank. To a limited extent, insurance companies, development companies and pension funds also provide loans. However, the interest rates are high (17% on average) and the loans are short-term. The African Development Bank provides loans to Nigerian exporters through the Central Bank of Nigeria, the Nigerian Export-Import Bank (NEXIM), the Bank of Industry (BOI) or a licensed commercial bank. However, the willingness and ability of local banks to lend is currently at a low level – the provision of loans to the private sector is stagnant. Certain activities in this field are ongoing, but they are limited and focused mainly on lending to large corporations with whom banks already have historical experience and trust.
Tax system
The collection and administration of taxes in Nigeria is complicated – there is a lot of ambiguity, taxes are collected unevenly and non-transparently. The main laws governing tax collection are: Federal Inland Revenue Service(Establishment) Act, Companies Income Tax Act, Capital Gain Act, Petroleum Profit Tax Act, Personal Income Tax Act, VAT Tax Act. Taxes are collected by the Federal Inland Revenue Service and State Boards of Internal Revenue. Tax evasion is common – companies often collude with tax collectors.
The Nigerian tax system at the federal level consists of the following 8 basic taxes:
- Companies Income Tax – basic rate of 30% of profit
- Withholding Tax
- Petroleum Profits Tax (PPT)
- Value Added Tax (VAT) – 7.5%
- Education Tax (Education Tax) – 2%
- Tax from capital gains (Capital Gains Tax)
- Fees assessed to companies (Stamp duties involving a corporate entities)
- Personal Income Tax – depends on income in the range of 7-25%
In addition to these federal taxes, there are a number of fees and taxes levied by the governments of individual states of the federation and local (regional) governments.
The basic corporate income tax rate is 30% of total profit/income, the minimum tax is 0.5% of turnover. Reduced tax (20%) applies to:
- small companies (with the status of so-called SME – Small Scale and Medium Enterprises), whose annual turnover is less than 1 million Naira,
- companies in preferred sectors (manufacturing, agricultural production, mining of solid minerals) and companies whose entire production is exported,
- for the first 5 years from the company’s registration
Currently, no major changes in the amount and collection of taxes are planned.
