Nigeria: What next for West Africa’s powerhouse?
With elections approaching, change is afoot in Nigeria. Keen to pursue new opportunities and drive the country forward, what does the future hold for one of Africa’s largest economies? Following her recent visits to the country, Marie El-Hawat, Associate Director, Anglophone Africa at British Arab Commercial Bank (BACB) shares her thoughts on the forces at play in the region.
Nigeria is one of Africa’s largest and most important economies: one in five Africans are Nigerian, and that proportion is only set to grow. As one of the powerhouse economies in West Africa, the economy offers huge opportunities, particularly in the county’s largest city, Lagos. Nigeria’s GDP is around USD 441bn, the highest in Africa, and only one of three economies on the continent with a GDP over USD 400bn.
Like other emerging markets, Nigeria faces challenges. Despite its large – and growing – GDP a major wealth disparity exists in the country. According to the World Bank, 40% of Nigerians live below the national poverty line, lacking access to education, electricity, and safe drinking water. This pandemic exacerbated these problems and Nigeria is now recovering from the deepest economic recession since the 1980s.
As the pandemic receded, international investors have expressed renewed interest and cautious optimism towards Nigeria. The country’s economy grew 3.65% in the immediate aftermath of the pandemic and is forecast by the IMF to grow 2.9% in 2023; this growth has also come with high levels of inflation, which stood at 21.34% as of December 2022.
In coming weeks, presidential elections will occur to replace current president Muhammadu Buhari, who has now served for two full terms, the constitutional maximum for Nigerian presidents.
There are four presidential hopefuls of note: Atiku Abubakar, Bola Ahmed Tinubu, Peter Obi and Rabiu Musa Kwankwaso. The presidential frontrunners are largely aligned in focus: they want to reform the Nigerian economy and build opportunity in the country. And for an economy where almost 90% of export value comes from oil, fossil fuels are high on the agenda.
There is recognition of the need to diversify Nigeria’s economy, however in the short-term investment in existing facilities and construction of new infrastructure is underway. A concerted effort to tackle oil theft – defined as the organised, large-scale siphoning of oil from Nigeria’s pipelines – will also be a key priority for the new government. This is estimated to have cost the Nigerian economy USD 2 bn between January and August of 2022 alone, more than its annual healthcare budget.
In 2022, oil exports from Nigeria were at their lowest level in 25 years – just 1.18 million barrels per day in August. Estimates show that more than a quarter of oil produced in the country (437,000 barrels per day) was being stolen. Alongside this there is a recognised need for refinery capabilities to be improved in the region. Currently, most oil extracted in Nigeria is processed abroad, before reimportation. The imminent opening of the Dangote refinery hopes to end this as Nigeria eyes self-sufficiency.
The project will increase Nigeria’s refinery capabilities by 147% and comes alongside the reopening of the Trans-Niger Pipeline, which can transport 180,000 barrels of crude oil per day. Nigeria, like many other oil-reliant economies, is looking to diversify. But this boost from fossil fuel refinery could result in the necessary reinvestment into the future of the country.
For the presidential hopefuls then, there is an aligned sense of focus and drive towards growth and opportunity. Despite trepidation that online polls are skewing the results towards the sentiments of the younger, more internet-savvy population, most Nigerians are excited about the prospect of change, in whatever form it may come.
Opportunities for growth
Efforts to increase the level of intra-African trade are ongoing, at present this represents 12% of trade, compared to intra-continental trade in Europe (69%) and Asia (53%). This is set to increase as trade is formalised and further encouraged by deeper economic integration.
Nigeria has tended to focus on protecting businesses and encouraging growth within the country, declining some significant agreements – including the Economic Partnership Agreement (EPA) between the EU and ECOWAS in 2018. Nigeria also initially declined to sign the African Continental Free Trade Agreement (AfCFTA). Just a year later, however, the country reversed this decision, it is hoped that this shift in direction will allow Nigeria to reap the benefits of reduced tariffs and collaborative structure.
With the pandemic fading, increased intra-African trade presents an area of opportunity not just for Nigeria, but for the continent at large. As the third-largest intra-African trader, behind South Africa and the Democratic Republic of the Congo, Nigeria plays a key strategic role in the supply of goods across the continent and in further driving the implementation of the AfCFTA. Nigeria now aims for 80% of its exports remain on the continent. And as other economies on the continent develop, it is likely that this will be energy focused in support of industrialisation.
There are also plans for the Nigerian economy to diversify in coming years, as Europe and Asia begin to shift away from fossil fuels. The Central Bank of Nigeria is now moving to support the agricultural sector, to increase capabilities in soft commodity exports. Renewable energy and tourism are also being explored. Nigeria has plans to reach net zero by 2060, driven by a focus on solar and hydrogen energy. The nation is also looking to expand its electric vehicle industry, as a way to boost industrialisation and create jobs.
Nigeria’s services sector has also seen rapid expansion in recent years and is a market which leading from the front when it comes to diversification. Worth almost USD 4bn in 2021, business services like call centres, translation and technology support are increasingly being outsourced to countries like Nigeria.
Supporting trade in a specialist market
Like much of Africa, Nigeria suffers from the trade finance gap that impacts the continent’s supply chains. To encourage greater engagement from global traders in markets such as Nigeria and to help plug the trade finance gap, the role that specialist banks take in mitigating risk and providing cash flow solutions is significant. This work often requires a high level of market expertise. Banks such as BACB offer on-the-ground knowledge and a deep understanding of the region, built through strong client relationships and a longstanding dedication to the markets it serves.
Working with banks such as BACB can also allow economies like Nigeria to capitalise on intra-African trade, leveraging international network of banking partners and representative offices, markets that were once relatively untapped – like North Africa – can become hotbeds of opportunity.
With the presidential elections just weeks away, Nigerians and, indeed, the rest of the Africa await the results, hopes are high that strong leadership will bring reforms to the energy sector, and diversification to the economy, resulting in further prosperity to the country and wider region. And with turbulence continuing in global markets, the steadfast commitment to Nigeria, by banks like BACB will continue to drive trade in the region and play a vital role plugging the continent’s trade finance gap.