The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
Executive Summary
Nigeria’s economy – Africa’s second largest in 2023 – experienced real GDP growth of 2.9% (according to the IMF) in 2023 following a GDP real growth rate of 3.3% the previous year. The IMF also forecasts a growth rate of about 3.3% in 2024 while the Nigerian government predicts a more robust 3.8% growth rate in 2024. Inflation reached a 28-year high of 28.9% in December 2023, driven mostly by rising energy prices, after the removal (and later partial reinstatement) of a fuel subsidy, and rising food costs, with food inflation reaching 33.9% in December 2023. The sharp increase in the costs of wheat, rice, and other staple cereals, as well as the increased cost of fertilizer, exacerbated food security concerns. The IMF forecasts continued rising inflation in early 2024 before slowing and averaging 26% for the year. Nigeria’s poverty levels continued to worsen; according to the World bank, the rate of poverty grew from 44% of the population in 2021 to 46% in 2023, equating to 104 million people – the world’s second-largest poor population after India.
Bola Tinubu was inaugurated as president in May 2023 and has enacted some necessary, but difficult, economic reforms that include liberalizing the foreign exchange market and clearing over $4 billion in foreign exchange backlogs. Additionally, he removed a costly fuel subsidy, which cost the government over $10 billion in 2022 annually. To mitigate the impacts of rising inflation and currency depreciation, however, Tinubu quietly partially resumed subsidizing fuel in late 2023 before ultimately eliminating it completely in 2024. Following the liberalization of the foreign exchange market, the naira depreciated by more than 50%, going from roughly N450/$ in January 2023 to N1,035/$ in December 2023. While these actions immediately worsened inflation, they are expected to improve foreign currency inflows and investments, create jobs, lower inflation, and produce more robust economic growth, all of which would serve to reduce poverty in the medium to long term.
Corruption is a serious obstacle to Nigeria’s economic growth and is often cited by domestic and foreign investors as a significant barrier to doing business. Nigeria ranked 150 out of 175 countries in Transparency International’s 2022 Corruption Perception Index, compared to its 2021 rank of 154. Among other complaints, businesses report that corruption by customs and port officials often leads to extended delays in port clearance processes and to other issues importing goods.
Nigeria’s trade regime is protectionist in key areas. High tariffs and prohibitions on many import items have the aim (if not the effect) of spurring domestic agricultural and manufacturing sector growth. The government provides tax incentives and customs duty exemptions for pioneer industries including renewable energy. Low oil exports, rising prices for imported goods, and Nigeria’s reinstated gasoline subsidy regime continued to exert pressure on the country’s foreign exchange reserves in 2023.
Nigeria’s underdeveloped power sector is a bottleneck to broad-based economic development and forces businesses to generate a significant portion of their own electricity. Many of these businesses rely on generators powered by more expensive diesel to run their operations, further contributing to rising prices. Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be weakened by regulatory uncertainty, deficient infrastructure, government subsidies, and limited domestic natural gas supply.
Security remains a concern to investors in Nigeria due to violent crime, kidnappings for ransom, and terrorism in certain parts of the country. The ongoing Boko Haram and Islamic State in West Africa (ISIS-WA) insurgencies have included attacks against civilian and military targets in the northeast of the country. Nigeria has experienced a rise in kidnappings for ransom and attacks on villages by armed gangs in the North West and North Central regions. Criminal attacks on oil and gas infrastructure in the Niger Delta region that restricted oil production in 2016 have eased, but high levels of illegal bunkering and oil theft have left the sector in a similar state of decreased output.
To access the ICS, visit the U.S. Department of State Investment Climate Statements website.