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Doing Business in Nigeria

Nigeria, among other Sub-Saharan African countries, is a focus market under the U.S. Government policy directive, “U.S. Strategy toward Sub-Saharan Africa,” under which the United States will pursue four objectives in the region: strengthening democratic institutions; spurring economic growth, trade and investment; advancing peace and security; and promoting opportunity and development.  The U.S. Commercial Service (CS) in Nigeria is also actively supporting this directive under Presidential initiatives such as the Doing Business in Africa campaign and Power Africa.
 
Nigeria has a record of steady growth and improved political stability. Recent rebasing of Nigeria’s GDP makes it the largest economy and market in Africa and the 26th largest in the world.  Nigeria’s annual growth rate averaged 7 percent over the past decade.  Almost 40 million Nigerian live in consuming class households.  As a result, the country is regarded as one of the fastest growing economies in the world with the GDP in 2015 US$510 billion.  To sustain this annual growth rate, the GON is liberalizing Nigeria’s economy, promoting public-private partnership and encouraging strategic alliances with foreign firms, especially for infrastructure development and technology acquisition in critical sectors such as security, power generation, transportation, and healthcare.  
 
The considerable strides that Nigeria have made in the recent decade have not been fully recognized outside the country, because Nigeria’s security challenges have gained more coverage in the media that its economic successes.
 
Nigeria is the key driver of international trade in all of West Africa, which consists of sixteen countries.  Market analysts from the National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) claim that Nigeria accounts for over 40 percent of imports in the sub-region and ranks among Africa’s largest consumer markets.  
 
According to Nigeria’s National Bureau of Statistics (NBS) (see http://www.nigerianstat.gov.ng), imports from Asia accounted for 44.6 percent of Nigeria’s imports in 2015, while imports from Europe and the Americas accounted for 33.6 percent and 14.1 percent, respectively.  NBS reports a 24.5 percent cumulative decline in imports, more than in 2014, with imports of machinery, boilers, transport equipment, manufactured goods, and commodities dominating Nigeria’s imports from around the world.  Exports of crude oil and petroleum products, which accounted for over 99 percent of 2013 exports to the United States, have declined drastically, due to the U.S. shale oil boom, with Nigeria’s exports to Asia (China, India, Japan, and South Korea) accounting for 42 percent of Nigeria’s crude sales in 2014, of which the portion to the United States was only three percent.
 
Developments in key industry sectors such as Oil and Gas, Power Generation, and Construction indicate that Nigeria offers U.S. exporters significant opportunities.  Nigeria ranks as Africa’s largest oil producer and the twelfth largest in the world, producing high-value, low-sulfur content crude oil.  A more than six-year-long effort to reform Nigeria’s oil and gas legal framework has created uncertainty that has delayed billions of dollars in potential investment in this sector.  The National Assembly is expected to begin reviewing the most recent version of a Petroleum Industry Bill (PIB), which seeks to incorporate and update 16 different laws that regulate the sector.  International oil companies operating in Nigeria have expressed concern that the latest version of the PIB would boost Government of Nigeria (GON) royalty and tax revenues to a level that makes new investment unprofitable.  The GON has previously argued that the PIB reflects current internationally-accepted industry contract standards.  Following successful and peaceful national elections in March 2015, many industry observers are looking to the new government to resuscitate the bill; however, many are doubtful of its passage.
 
Over the next two-to-three years, U.S. exporters of power generation, transmission, and distribution equipment and services will have major potential business opportunities in Nigeria.  The Government of Nigeria (GON) recently announced that Nigeria requires about $3.4 billion to upgrade its transmission grid to enable effective release of all generated power to increase capacity from less than 5,000 MW to10,000 MW and 20,000 MW by 2014 and 2016, respectively.  Market intelligence from industry contacts suggests that the GON will remain strongly committed to power sector reform.  U.S. exporters of electrical components and parts will have commercial opportunities in this sphere as well as in renewable energy.
 
In the construction sector, the GON has identified a number of road and housing development projects.  These present possibilities for U.S. construction and real estate developers and heavy equipment manufacturers.  Some of the projects involve construction of “new alignments” (green field projects) and improvement of “existing alignments” (brown field projects).  Green field projects include the construction of a Golden Triangle Super Highway that will connect key hubs of economic activity and add an additional 5,000 KM to the national network of roads in Nigeria.  Another is the construction of a Second Lagos Outer Ring Road to decongest traffic in the Lagos metropolitan area and improve movement of goods from the Lagos Sea Ports.  The ongoing GON mandate to the Federal Housing Authority (FHA) to construct 800,000 housing units throughout Nigeria, with the Federal Mortgage Bank providing financing support, also offers opportunities to U.S. land developers for exports of housing equipment and services.
 
Similar trade opportunities exist for U.S. exporters in other leading industry sectors such as aerospace (aircraft and parts); agricultural products (wheat, dairy, poultry, wines, and packaged food) and equipment; automobiles, trucks, buses, automotive parts, and accessories; computer hardware and software; education; environmental services; security and safety equipment, accessories, and services; franchising; healthcare services and medical equipment; marine vessels; and telecommunications equipment and services.


Commercial lending interest rates remain very high (ranging from 20 percent to 35 percent), despite government efforts to lower them. This is fueling demand for credit facilities by Nigerian importers.  A “Wholesale Dutch Auction System” for foreign exchange trading that was introduced in 2006, and which has helped slow reserve losses while allowing the exchange rate to be more market-determined, was suspended in 2013 and replaced with a retail version requiring dealers to reveal the identities of buyers.  As of September 2015, the exchange rate was at N198.50:US$1.00. 
 
Nigeria is Africa’s most populous country, accounting for approximately one-sixth of the continent’s people and 2.4 percent of the world’s population.  It is arguably one of the most culturally diverse societies in the world, with approximately 250 ethnic groups among its estimated 180 million people.  The dominant and most influential ethnic groups according to the National Population Commission (NPC) are: Hausa and Fulani in the north (29 percent), Yoruba in the southwest (21 percent), Igbo in the southeast (18 percent), Ijaw in the Niger Delta (10 percent), Kanuri in the north (4 percent), Ibibio in the Niger Delta (3.5 percent), and Tiv in the north-central (2.5 percent).  While Nigeria’s diverse nationalities and cultures offer incredible opportunities for business, they sometimes present challenges, especially in designing sales promotions and advertising that match various cultural perceptions, religious practices and traditional values.  For instance, while the use of certain female portraits may not raise an eyebrow in the south, it may fuel a product/service boycott in the north.  U.S. exporters and their local partners are advised to pay close attention to some of these nuances and market realities.
 
As the largest economy in Africa, and as a gateway to fifteen smaller West African countries and a net importer of most high precision equipment, Nigeria can be a very rewarding market for U.S. companies that take the time and effort to understand its market conditions and opportunities, find the right partners and clients, and take a long-term approach to market development.

Please read the latest Country Commercial Guide for Nigeria, an excellent starting point for everything you need to know about exporting and doing business in Nigeria.


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