Overview: Nigeria’s economy is struggling to leverage the country’s vast wealth in fossil fuels in order to displace the crushing poverty that affects about 57 percent of its population. Economists refer to the coexistence of vast natural resources wealth and extreme personal poverty in developing countries like Nigeria as the “paradox of plenty” or the “curse of oil.” Nigeria’s exports of oil and natural gas—at a time of peak prices—have enabled the country to post merchandise trade and current account surpluses in recent years. Reportedly, 80 percent of Nigeria’s energy revenues flow to the government, 16 percent cover operational costs, and the remaining 4 percent go to investors. However, the World Bank has estimated that as a result of corruption 80 percent of energy revenues benefit only 1 percent of the population. During 2005 Nigeria achieved a milestone agreement with the Paris Club of lending nations to eliminate all of its bilateral external debt. Under the agreement, the lenders will forgive most of the debt, and Nigeria will pay off the remainder with a portion of its energy revenues. Outside of the energy sector, Nigeria’s economy is highly inefficient. Moreover, human capital is underdeveloped—Nigeria ranked 151 out of 177 countries in the United Nations Development Index in 2004—and non-energy-related infrastructure is inadequate.
During 2003–7 Nigeria is attempting to implement an economic reform program called the National Economic Empowerment Development Strategy (NEEDS). The purpose of NEEDS is to raise the country’s standard of living through a variety of reforms, including macroeconomic stability, deregulation, liberalization, privatization, transparency, and accountability. NEEDS addresses basic deficiencies, such as the lack of freshwater for household use and irrigation, unreliable power supplies, decaying infrastructure, impediments to private enterprise, and corruption. The government hopes that NEEDS will create 7 million new jobs, diversify the economy, boost non-energy exports, increase industrial capacity utilization, and improve agricultural productivity. A related initiative on the state level is the State Economic Empowerment Development Strategy (SEEDS).
A longer-term economic development program is the United Nations (UN)-sponsored National Millennium Goals for Nigeria. Under the program, which covers the years from 2000 to 2015, Nigeria is committed to achieve a wide range of ambitious objectives involving poverty reduction, education, gender equality, health, the environment, and international development cooperation. In an update released in 2004, the UN found that Nigeria was making progress toward achieving several goals but was falling short on others. Specifically, Nigeria had advanced efforts to provide universal primary education, protect the environment, and develop a global development partnership. However, the country lagged behind on the goals of eliminating extreme poverty and hunger, reducing child and maternal mortality, and combating diseases such as human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS) and malaria.
A prerequisite for achieving many of these worthwhile objectives is curtailing endemic corruption, which stymies development and taints Nigeria’s business environment. President Olusegun Obansanjo’s campaign against corruption, which includes the arrest of officials accused of misdeeds and recovering stolen funds, has won praise from the World Bank. In September 2005, Nigeria, with the assistance of the World Bank, began to recover US$458 million of illicit funds that had been deposited in Swiss banks by the late military dictator Sani Abacha, who ruled Nigeria from 1993 to 1998. However, broad-based progress has been elusive and has not yet become evident in international surveys of corruption. In fact, Nigeria ranked 152 out of 159 countries in Transparency International’s 2005 Corruption Perceptions Index and placed 94 out of 155 countries in the World Bank’s 2006 Ease of Doing Business Index. Corruption mostly harms Nigerians themselves, but the country is widely known around the world for a fraudulent activity known as the “419” scam, which seeks to extort money from foreign recipients of letters and emails with the promise to transfer a nonexistent windfall sum of money.
Gross Domestic Product (GDP): In 2005 Nigeria had a gross domestic product (GDP) of US$132.9 billion. GDP rose by 5.6 percent in real terms over the previous year. GDP per capita was about US$1,000, using the purchasing power parity method. Using the Atlas method based on a three-year moving average exchange rate, however, per capita GDP was US$390, lower than in 1960 when Nigeria declared independence. About 57 percent of the population lives on less than US$1 per day. In 2005 the GDP was composed of the following sectors: agriculture, 26.8 percent; industry, 48.8 percent; and services, 24.4 percent.
GOVERNMENT Budget: In 2005 Nigeria’s central government had expenditures of US$13.54 billion but revenues of only US$12.86 billion, resulting in a budget deficit of 5 percent. Nigerian tax authorities face the challenge of widespread tax evasion, which is motivated by complaints about corruption and the poor quality of services.
Inflation: In 2005 Nigeria’s inflation rate was an estimated 15.6 percent. Nigeria’s goal under the National Economic Empowerment Development Strategy (NEEDS) program is to reduce inflation to the single digits.
Agriculture, Forestry, and Fishing: The agriculture, forestry, and fishing sector constitutes about 26.8 percent of gross domestic product but employs 63–70 percent of the workforce. Agricultural products include cassava (tapioca), corn, cocoa, millet, palm oil, peanuts, rice, rubber, sorghum, and yams. In 2003 livestock production, in order of metric tonnage, featured eggs, milk, beef and veal, poultry, and pork, respectively. In the same year, the total fishing catch was 505.8 metric tons. Roundwood removals totaled slightly less than 70 million cubic meters, and sawnwood production was estimated at 2 million cubic meters. The agricultural sector suffers from extremely low productivity, reflecting reliance on antiquated methods. Although overall agricultural production rose by 28 percent during the 1990s, per capita output rose by only 8.5 percent during the same decade. Agriculture has failed to keep pace with Nigeria’s rapid population growth, so that the country, which once exported food, now relies on imports to sustain itself.
Mining and Minerals: Nigeria has abundant deposits of solid minerals, including barites, coal, columbite, gemstones, gold, graphite, gypsum, kaolin, marble, ore, salt, soda, sulfur, tantalite, tin, and uranium. Nevertheless, the mining industry, which exported significant amounts of coal and tin until the 1960s, has declined as publicly controlled infrastructure has deteriorated and the petroleum industry has grown in importance. Today mining accounts for only 1 percent of gross domestic product and is a minor employer. Mining suffers from extremely low productivity and high production costs. Annual coal production is only about 100,000 tons, well below an estimated capacity of 5,000 tons per day. Furthermore, it is sporadic. Nigeria is seeking to reinvigorate its mining industry through privatization and deregulation.
Industry and Manufacturing: Industry accounts for 48.8 percent of Nigeria’s gross domestic product (GDP), much of which is attributable to the lucrative energy sector, and it employs about 10 percent of the labor force. In 2004 oil’s share of exports was 95 percent, compared with only 1 percent for manufacturing. By contrast, manufactured goods constitute the largest category of imports. Also in 2004, the capacity utilization rate of industry stood at 50 percent, a relatively low rate that policy makers hoped to increase by reversing capital flight and removing impediments to private-sector activity.
Energy: A member of the Organization of the Petroleum Exporting Countries (OPEC), Nigeria has proven oil reserves of 35.9 billion barrels, the tenth largest reserves in the world. Most of the reserves are located in the Niger River Delta. In 2005 Nigeria produced about 2.5 million barrels per day (bpd) of oil, approximately 2.2 million bpd of which were exported. Nigeria ranks as the world’s eighth largest exporter of oil and the United States’ fifth largest source of imported oil. Nigeria hopes to increase production over the next five years but faces pressure from OPEC not to exceed its quota, which is set at 2.3 million bpd. In February 2006, the steady flow of Nigerian exports was hampered by attacks against oil facilities and kidnappings of oil workers staged by militants upset with the distribution of oil profits within Nigerian society. In fact, damage to one of Royal Dutch Shell’s export terminals led to a temporary 25 percent reduction in Nigeria’s oil exports. Continued violence could pose another impediment—in addition to OPEC’s concerns—to Nigeria’s plans to boost production.
Proven natural gas reserves are estimated at 185 trillion cubic feet, the seventh largest reserves in the world and the largest in Africa. In 2002, the latest year for which reliable data are available, Nigeria produced 501 billion cubic feet (bcf) of natural gas, 276 bcf of which were exported. Recoverable coal reserves amount to 209 million short tons (mmst). In 2003 Nigeria produced 0.1 mmst, all of which was consumed domestically. Nigeria’s coal industry suffers from extremely low productivity and high transportation costs.
Only 40 percent of Nigeria’s population has access to electricity, although the government plans to expand access to 85 percent of the population by 2010 through a rural electrification program. In 2003 Nigeria produced 15.59 billion kilowatt-hours of electricity, exceeding domestic consumption of 14.46 billion kilowatt-hours. Nigeria’s electric network operates well below its capacity of 5,900 megawatts, and power outages are commonplace. Foreign electric power companies have been encouraged to build independent power plants to help meet the demand for electricity.
Services: Services accounted for an estimated 24.4 percent of gross domestic product and employed roughly one in five workers in 2005. The most important branch of the services sector is banking and finance.
Banking and Finance: Nigeria’s banking sector is undergoing consolidation under the supervision of the Central Bank of Nigeria, which has regulatory authority over the entire financial sector. Marginal banks have been closed, and 25 relatively well capitalized deposit banks have emerged. Even before the consolidation, loan assets and deposit liabilities were highly concentrated. In addition to deposit banks, Nigeria has hundreds of community banks and a small number of specialized development and mortgage banks. A similar consolidation is planned for the insurance sector. Contrary to modern practice, many financial transactions in Nigeria are conducted in cash rather than with bank letters of credit.
Tourism: In 2003 Nigeria received 2.4 million tourists. The largest contingents came from Niger (503,066), Benin (318,716), and Ghana (167,167). In 2002 tourism receipts totaled US$263 million. The Nigerian government encourages its citizens to visit tourism destinations within the country through various financial incentives. Concerns exist regarding the quality of amenities and personal safety.
Labor: In 2005 Nigeria had a labor force of 57.2 million. In 2003 the unemployment rate was 10.8 percent overall; urban unemployment of 12.3 percent exceeded rural unemployment of 7.4 percent. According to the latest available information from 1999, labor force employment by sector was as follows: 70 percent in agriculture, 20 percent in services, and 10 percent in industry. Labor unions, which have undergone periods of militancy and quiescence, reemerged as a force in 1998 when they regained independence from the government. Since 1999 the Nigerian Labor Congress (NLC), a union umbrella organization, has called six general strikes to protest domestic fuel price increases. However, in March 2005 the government introduced legislation ending the NLC’s monopoly over union organizing. In December 2005, the NLC was lobbying for an increase in the minimum wage for federal workers. The existing minimum wage, which was introduced six years earlier but has not been adjusted since, has been whittled away by inflation to only US$42.80 per month.
Foreign Economic Relations: Nigeria’s foreign economic relations revolve around its role in supplying the world economy with oil and natural gas, even as the country seeks to diversify its exports, harmonize tariffs in line with a potential customs union sought by the Economic Community of West African States (ECOWAS), and encourage inflows of foreign portfolio and direct investment. In October 2005, Nigeria implemented the ECOWAS Common External Tariff, which reduced the number of tariff bands. Prior to this revision, tariffs constituted Nigeria’s second largest source of revenue after oil exports. In 2005 Nigeria achieved a major breakthrough when it reached an agreement with the Paris Club to eliminate its bilateral debt through a combination of write-downs and buybacks. Nigeria joined the Organization of the Petroleum Exporting Countries in July 1971 and the World Trade Organization in January 1995.
Imports: In 2005 Nigeria imported about US$26 billion of goods. In 2004 the leading sources of imports were China (9.4 percent), the United States (8.4 percent), the United Kingdom (7.8 percent), the Netherlands (5.9 percent), France (5.4 percent), Germany (4.8 percent), and Italy (4 percent). Principal imports were manufactured goods, machinery and transport equipment, chemicals, and food and live animals.
Exports: In 2005 Nigeria exported about US$52 billion of goods. In 2004 the leading destinations for exports were the United States (47.4 percent), Brazil (10.7 percent), and Spain (7.1 percent). In 2004 oil accounted for 95 percent of merchandise exports, and cocoa and rubber accounted for almost 60 percent of the remainder.
Trade Balance: In 2005 Nigeria posted a US$26 billion trade surplus, corresponding to almost 20 percent of gross domestic product.
Balance of Payments: In 2005 Nigeria achieved a positive current account balance of US$9.6 billion.
External Debt: In 2005 Nigeria’s external debt was an estimated US$37.5 billion, but at midyear Nigeria and a group of international creditors known as the Paris Club agreed to eliminate all US$31 billion of the country’s bilateral debt. Under the agreement, the Paris Club would write off US$18 billion of bilateral debt, and Nigeria would pay back the remainder. Nonbilateral debt owed to multilateral development banks and commercial banks was not affected by the agreement. The significance of this breakthrough is illustrated by the fact that prior to the agreement, external and domestic debt combined constituted 70 percent of gross domestic product.
Foreign Investment: In 2003 Nigeria received a net inflow of US$1.2 billion of foreign direct investment (FDI), much of which came from the United States. Most FDI is directed toward the energy sector.
Foreign Aid: As of October 2005, World Bank assistance to Nigeria involved 19 active projects with a total commitment value of about US$1.87 billion. Since Nigeria joined the World Bank in 1961, the World Bank has assisted it on 120 projects. In October 2005, the International Monetary Fund approved a two-year “policy support instrument” designed to promote the growth of the non-oil sector and to reduce poverty.
Currency and Exchange Rate: The Nigerian currency is the naira (NGN). As of mid-June 2006, the exchange rate was about US$1=NGN128.4.