Nigeria is making progress with economic reforms that are delivering strong economic fundamentals. The government has maintained prudent macroeconomic policies, strengthened financial institutions and, albeit slowly and unevenly, is undertaking reforms to transform the economy structurally. The reform effort, aided by revenue from high oil prices, has led to significantly improved macroeconomic outcomes, including weaker inflation and strong GDP growth. Real GDP growth rose from 7.0% in 2009 to an estimated 8.1% in 2010. The robust growth in 2010, in the aftermath of the global financial and economic crisis, underscored the resilience of the Nigerian economy and to some extent, the prudence of its economic policies. Medium-term prospects are also bright, with real GDP growth projected to remain strong and stable at 6.9% in 2011 and 6.7% in 2012.

Notwithstanding these positive developments, the Nigerian economy remains confronted by many serious challenges. Structural imbalance and lack of diversification – with the economy excessively dependent on oil – is preventing the domestic economy from flourishing. High youth unemployment, poor infrastructure facilities and widespread insecurity are the key challenges the government will have to take on.

Deepening the reform process is clearly necessary. Medium- to long-term prospects hinge on Nigeria’s addressing key reforms successfully in order to advance infrastructure development and broaden the economic base through enhanced private-sector participation. In addition, containing political, civil and ethnic unrest, especially in the Niger Delta region, remains a challenge for the political stability that is needed to consolidate the achievements of the past few years.

Table 2: GDP by sector (in percentage)

Source:National Bureau of Statistics.

Figures for 2010 are estimates; for 2011 and later are projections.

Table 3: Demand composition

Source:Data from National Bureau of Statistics; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Fiscal Policy

Nigeria has maintained prudent macroeconomic policies, with recent fiscal policy focused on increasing the quality and efficiency of spending. In this regard, greater emphasis has been placed on budget implementation and service delivery. The tax system has been reformed through measures including the restructuring of the Federal Inland Revenue Service (FIRS) to improve revenue collection, broaden the tax base and address tax evasion and avoidance. Efforts have also been made to strengthen interagency co‑ordination on revenue collection as well as to simplify and harmonise tax procedures. The auditing powers of the FIRS have also been strengthened, and in 2007, a tax-policy unit was also set up in the Ministry of Finance to oversee some of these changes.

In 2010, the government conducted a review of the Import Prohibition List and Tariff Structure in light of existing best practices in order to assess the impact of these prohibitions on government revenue and on local industry.

Several measures were pursued in 2010 to block revenue leakages. These included a forensic audit of the Nigerian National Petroleum Corporation (NNPC) and process audits of internally generated remittances from ministries, departments and agencies (MDAs). The government also required MDAs and parastatals to submit their revenue and expenditure estimates. It has enhanced these measures in 2011 by issuing the directive to more than 32 parastatals – including the Nigeria National Petroleum Corporation (NNPC), the Central Bank of Nigeria (CBN), the Federal Inland Revenue Service and other revenue-generating agencies – to submit their budget to the National Assembly, in line with the provision of the Constitution and the Fiscal Responsibility Act.

These policy measures have contributed to improving domestic-revenue mobilisation. In 2009, tax revenue rose to 6.9% of GDP and is estimated to have remained stable at about 6.4% of GDP in 2010. Earlier, however, substantial improvement in 2008 of the overall budget position thanks to the oil windfall had quickly come undone as a result of weaker prices and the declining output associated with regional unrest. The consolidated overall budget surplus was thus substantially reversed in 2009 to become a deficit amounting to 10.4% of GDP, which was then reduced to about 6.8% of GDP in 2010 thanks to a robust economy performance and revenues associated with high oil output. The outlook for the budget is one of relative stability in 2011 and 2012 as expenditures and revenues also remain at stable levels.

There is still some concern, however, about the government’s continued drawdown from the stabilisation fund to finance the budget. Nigeria is expected to save oil revenues above the benchmark price – set at USD 67 per barrel in 2010 – into an “excess crude account” (to be replaced by a sovereign wealth fund). Nonetheless, since 2006 the government has continuously had to tap into the fund to finance the budget. In 2009, about NGN 20 billion was utilised for this purpose. Use of the stabilisation fund to finance the budget is a matter of concern at a time of high oil prices. It emphasises the need for the social crisis in the Niger Delta region to be permanently resolved in order to curtail the disruption of oil production. It also underscores the need for increased domestic-revenue mobilisation from the non-oil sector, particularly through value added taxes (VAT) and company income taxes (CIT).

Table 4: Public finances (percentage of GDP)

Table 5: Current account (percentage of GDP)

Source:Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)

Nigeria’s emerging economic relations revolve around its role in supplying other economies with oil and natural gas, even as the country seeks to diversify its exports, harmonise 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. Over the past decade, the makeup of Nigeria’s donors and investors has changed significantly, with new entrants from countries of the South playing an increasingly important role. China, India, Brazil and other developing countries are providing Nigeria with new sources of financing, enabling Nigeria to lessen its dependence on traditional donors from countries of the North.

China-Nigeria relations date back to 1972, when diplomatic relations were established between the two countries. Today, China-Nigeria relations span a wide spectrum of areas including politics, trade, investment, aid, technology, science, culture, education, health and military. China is now one of Nigeria’s top-ten trading partners. In addition, China has shown interest in investing in all sectors of the Nigerian economy. The growing economic ties between China and Nigeria are such that, today, Nigeria has become China’s third biggest trading partner in Africa after South Africa and Egypt. The value of bilateral trade between China and Nigeria accounts for more than 14% of the total trade between China and Africa.

 

China and Nigeria have entered into several bilateral agreements since 2001. Economic ties between the two countries gained momentum following the April 2006 visit to Nigeria by Chinese President Hu Jintao. Nigeria and China signed four Agreements and three Memoranda of Understanding (MoUs) in a range of programmes intended to enhance their economic ties. Most significantly, Nigeria contracted to sell China 50 000 bpd of crude oil and China signed contracts to explore at least four oil blocks in the country and repair the Kaduna refinery. China’s investments in the oil sector will also result in the building of a power-generation station that is expected to add substantial megawatts of electricity to Nigeria’s power sector. Other agreements covered: concessionary export grants to support the development of infrastructure; the training of Nigerian officials and medical personnel in comprehensive malaria prevention and control; the supply of anti-malaria drugs in support of Nigeria’s Roll Back Malaria programme; setting up a team of experts for a Nigeria-China friendship cultural project; and an MoU between the Federal Ministry of Science and Technology and Huwaei Technologies on the provision of National Information Communication Technology Infrastructure Backbone.

 

As part of efforts to help Nigeria diversify its economy, China has recently increased its volume of agricultural imports from Nigeria. By end-2010, Nigeria had exported about 80 000 tonnes of cassava to China, with orders to supply another 102 000 tonnes. China is also importing sesame seed from Nigeria and has indicated willingness to buy more Nigerian agricultural produce. In addition, there are currently over 400 Chinese agricultural experts in Nigeria involved in the construction of small earth dams.

 

By the end of 2010, China had set up more than 30 solely funded companies and joint ventures in Nigeria. The notable projects executed by China in Nigeria include the Abuja All-Africa Games village and the rehabilitation of the Nigerian railway system. The 2009 fifth Session of the Nigeria-China Joint Commission for Economic and Technical Cooperation has provided the roadmap for future co‑operation between the two countries in the following directions: Chinese banks are encouraged to establish their presence in Nigeria; Chinese investors are encouraged to participate in the development of the Nigerian gas sub-sector and to increase crude-oil import from Nigeria; China is to speed up the development and completion of free trade zones, such as the Lekki and Ogun/Guangdong Free Trade Zones; and China is to co‑operate with Nigeria in the area of capacity building.

 

India’s relations with Nigeria were originally built upon historical and political considerations. Economic links between the two countries are now stronger, with Nigeria being India’s biggest trading partner in Africa. Bilateral trade between the two countries was estimated at about USD 8.7 billion in March 2010, with Nigeria’s exports to India at around USD 7.3 billion. In 2010, Nigeria was the largest African crude-oil supplier to India, at about 400 000 bpd.

 

Indian investments in Nigeria cover areas such as manufacturing, pharmaceuticals, plastics, engineering, information technology and communication. Indian companies have invested in the Ajaokuta Iron and Steel Industry, as well as the Aladja Steel complex in the Delta state. Nigeria has actively encouraged Indian companies to invest and expand Nigeria’s mining and development of coal, gold, iron, ore, chrome, lead and other mineral resources.

 

Nigeria’s other significant emerging economic relations are with Brazil. Nigeria is a major supplier of petroleum to Brazil. In 2005, Nigeria and Brazil also signed an agreement to develop ethanol fuel. The ethanol-fuel programme is expected to benefit Nigeria to the tune of USD 100-130 million per year.

Nigeria goes to the polls in both presidential and parliamentary elections in April 2011. If elections are successful, this will mark another milestone in the country’s growing democratic dispensation. In January 2011, President Goodluck Jonathan, who in May 2010 had been sworn in as the new president after the death of President Umaru Yar’Adua, won the ruling PDP party’s nomination as its presidential candidate and is therefore the leading candidate for the presidency.

 

The political violence that had been caused by intra-party disruption within the PDP and has been a bane on Nigeria’s democratic process took a back seat as a result of President Jonathan’s convincing win in securing the ruling party’s presidential ticket with over 66% of the vote, which reduces the chances of violence fostered from within the PDP. This argues favourably for the forthcoming April 2011 polls. Ethnic violence, however, remains endemic throughout the oil-producing Niger Delta region, where militants are involved in regular hostage taking, extortion and destruction of property, primarily targeting foreign oil firms.

 

There is also sectarian violence, which continues to flare up on a regular basis across northern Nigeria. Violence between groups competing for scarce land and water resources in the Plateau State killed hundreds in early 2010. In 2009, a Muslim sect, Boko Haram, launched attacks against government targets in northern Nigeria. While alarming, this sectarian violence does not threaten Nigeria’s overall stability, nor does it carry with it the same degree of adverse economic impact as does the violence in the Niger Delta area.

Nigeria’s progress in human-development indicators is rather mixed, and suggests that more needs to be done in all areas. The 2010 Human Development Index gave Nigeria a score of 0.423, ranked the country 142 out of 169 countries and placed Nigeria in the Low Human Development category. Nigeria’s low ranking reflected slow progress in health indicators such as infant mortality rate, under-five mortality rate and the HIV/AIDS prevalence rate.

The government’s success in addressing the HIV/AIDS pandemic is dampened by the fact that in 2010, an estimated 3.6% of the population were living with HIV/AIDS. Although HIV prevalence is lower in Nigeria than in other African countries such as South Africa and Zambia, the size of Nigeria’s population (around 150 million) means that by the end of 2009, there were between 2.9 and 3.6 million people living with HIV/AIDS. Moreover, between 170 000 and 260 000 people died from AIDS in Nigeria in 2009. The pandemic, which is claiming so many lives, is at the same time rolling Nigerians back in terms of average life expectancy, which declined in 2009 to 48 years for women and 46 years for men, versus in 1991, when the average life expectancy was 54 years for women and 53 years for men.

In the effort to address the health needs of Nigerians, in December 2010 the government launched the 2010-2015 National Strategic Health Development Plan (NSHDP) and signed a compact with Health Development Partners. The NSHDP is a successor to the previous Health Sector Reform Programme (2003-2007) and ensures alignment and harmonisation of efforts between the government and its development partners. The NSHDP has eight priority areas: Leadership and Governance for Health; Health Services Delivery; Human Resources for Health; Financing for Health; National Health Information System; Community Participation and Ownership; Partnerships for Health; Research for Health.

 

In order to meet its health goals, however, Nigeria needs to tackle such socio-cultural factors as poverty, ignorance, harmful religious practices and biases. To achieve the desired results, there is a need for proper sensitisation of the population on health issues and for the involvement of traditional institutions. For example, the 2009 resistance of parents to the government’s polio-immunisation efforts, especially in the northern part of the country, was finally tackled with the involvement of traditional institutions.

 

In the education sector, the government is addressing some of the problems that have bedevilled the education system by increasing spending on education, especially through Universal Basic Education (UBE), aimed at providing free education for all pupils at the primary and junior secondary school levels. The UBE has been successful in increasing the primary-school enrolment rate from 84% in 2000 to 90% in 2009. The total secondary-school enrolment rate has also risen, from 34 to 38% during the same period.

 

Nonetheless, Nigeria’s education system is currently facing considerable disarray. The country’s state universities have tended to be closed for months on end as a result of strikes. In 2009, Nigerian universities were shut down for five months, affecting an estimated 10 million students. In the same year, only 25% of Nigerian students passed the Senior Schools Certificate Examination.

 

Unemployment continues to be a major problem despite recent strong economic growth. According to the Finance Ministry, unemployment in Nigeria stands at about 19.7%, but according to analysts, the real unemployment figure might be higher if rural and urban joblessness amongst Nigerian youths were factored into the equation. Underemployment is also a serious problem in Nigeria. Total underemployment in 2009 was estimated at 21.3%; the figures for the rural areas and the southern region being 20.5% and 26.2%, respectively.

The government aims to undertake some direct action to generate employment. A Public Works Programme is scheduled to commence across the 36 states and the federal capital territory in 2011. This programme will engage private-sector contractors to implement simple, labour-intensive public works in areas such as the renovation and maintenance of buildings: schools, hospitals, road rehabilitation, etc.