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Last updated: February 2022

Nigeria is sub-Saharan Africa’s largest economy. Nigeria performs broadly in line with its sub-Saharan counterparts on per capita income, business climate and creditworthiness. However, it lags its counterparts on growth. Nigeria’s substantial reliance on oil to drive growth, government revenue and exports leaves it vulnerable to international price fluctuations.

Chart 1 Nigeria At A Glance

The above chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate rank and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2022 and 2026. Business climate is measured by the World Bank’s latest Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other countries in the region.

Economic outlook

After the dual shocks of COVID-19 and lower oil prices in 2020, recovery in crude oil prices and production helped Nigeria’s economy grow 2.6% in 2021. Oil makes up over 80% of Nigerian exports, a third of banking sector credit and half of all government revenues.

The IMF estimates that growth will average about 2.5% per annum through to 2026. Growth will be supported by higher oil prices and financial support from International Financial Institutions, such as the IMF, that will improve US dollar liquidity. The recent adoption of the Petroleum Industry Act has reduced uncertainties that, over more than a decade, significantly weighed on investment in the Nigerian oil and gas sector. Over the next few years, other sectors including agriculture and services are also likely to be supported by increasing government support and improved US dollar liquidity. The government is also attempting to diversify its economy through implementation of the Nigeria Economic Sustainability Plan, which includes a commitment to deliver 5 million new solar connections and a reduction in fossil fuel subsidies.

Over the medium term, growth prospects remain dependent on oil prices and trends in decarbonisation. Key challenges to economic development include insufficient infrastructure, high unemployment, poverty and growing inequality. Although growth prospects are higher than pre-pandemic levels, they remain weaker than before the 2016 oil price shock, contributing to ongoing challenges around economic and social development. Nigeria is expected to be the second most populous country in the world by 2100 according to World Bank projections. This, alongside its youthful population, presents potential opportunities arising from increased demand for consumption and services.

Chart 2 Nigeria Real GDP Growth

Nigeria’s per capita incomes have remained highly dependent on the fluctuations in oil prices. Incomes were impacted severely in 2020 and 2021 due to the double shock of the pandemic and the oil price crash. Economic recovery should support a pick-up in incomes, rising above $3,500 per capita by 2026 according to IMF forecasts.

Chart 3 Nigeria Per Capita GDP

Country risk

Country risk in Nigeria is high. The OECD Country Risk Rating for Nigeria is 6, akin to a speculative grade sovereign rating from major private rating agencies. This indicates a relatively high probability of Nigeria being unable or unwilling to meet its external debt obligations.

Chart 4 Nigeria Overall Risk Ratings
Chart 5 Nigeria Risk Ratings

Nigeria is ranked 114th out of 190 countries on the World Bank’s ease of doing business gauge. Nigeria has improved dealing with construction permits and starting a business in recent years. Although Nigeria lags the regional average on most measures, it is significantly easier to get credit, protect minority investors and enforce contracts in Nigeria.

Chart 6 Nigeria Ease Of Doing Business

The World Bank ranks Nigeria in the bottom quartile for all but one dimension of governance. Nigeria also falls behind the sub-Saharan average on all areas of governance. Nigeria is particularly prone to political instability and violence, including terrorism.

Chart 7 Nigeria Governance Indicators

The risk of expropriation in Nigeria is high, despite having laws that protect against expropriation. A US-owned waste management company was expropriated in 2008. The judicial system is not always independent and is susceptible to pressure from the government. This would make it difficult for investors to seek recourse from the courts.

Chart 8 Nigeria Expropriation Risk

Political risk in Nigeria is high, characterised by a fractious political landscape, military groups and violence that undermines security. The presence of terrorist organisations remains a threat to the security situation.

Cahrt 9 Nigeria Political Risk

Bilateral relations

Nigeria was Australia’s 61st largest trading partner in 2020, accounting for $475 million of goods and services trade in 2020. The pandemic has significantly disrupted trade. Major Australian goods exports include edible products, vehicle parts and accessories, electrical distributing equipment, paper and paperboard and electrical equipment. Export potential to Nigeria is very high owing to its large, young population. Australia’s main goods imports from Nigeria include crude oil, oilseeds and spices.

Chart 10 Australia Nigeria Bilateral Trade

Nigerian student enrolments have continued to fall, but remain much higher than in the 2000s. The ongoing pandemic points to another year of uncertainty for services exports in 2022, including tourism and education. Beyond the pandemic, service exports could benefit from the growing middle class in Nigeria. Growing demand for international education could lift Australian education exports.

Chart 11 Nigeria Student Enrolments

Bilateral investment between Australia and Nigeria is small. Several Australian companies have done business there, including engineering and construction firm Worley Parsons, mining companies Australia Mines and CGA Mining. That said, Nigeria’s willingness to impose capital controls and import restrictions (particularly in agriculture) remains an ongoing constraint on doing business.

Chart 12 Australia Investment In Nigeria