Guidance

Overseas business risk: Nigeria

Updated 3 July 2023

1. Useful Links

FCDO Travel Advice to Nigeria

Exporting to Nigeria

Business Anti-Corruption portal

UK Bribery Act 2010

Operating in High Risk Environments - Advice for Businesses

Department for Business and Trade Nigeria

Nigerian-British Chamber of Commerce

2. Overview

Nigeria is Africa’s largest economy with real GDP estimated at N20.3 trillion end of Q4 2021 in 2020 and the most populous country. Its current population (202 million, World Bank estimate in 2020) is projected to double, reaching approximately 400 million people by 2050. The potential of its markets, human capital, and natural resources is enormous. Nigeria has the world’s 10th largest proven oil reserves, ninth largest proven gas reserves, large seaports connected to global trade routes, vast and underutilised agricultural land, and a large population with a growing middle class. It is geographically well situated as the economic hub for West Africa.

The UK has a long and historic relationship with Nigeria. This creates competitive advantages for UK businesses, including an entrepreneurial diaspora, strong cultural links, good flight connections, and a minimal time difference. Though there was a rapid fall of Nigerian students in the UK in 2015 to 2016 and 2016 to 2017, this stabilised and consequently increased by 35% in 2019 to 2021, to 7,400 Nigerian students.

Total trade in goods and services (exports plus imports) between the UK and Nigeria was £7.5 billion in the four quarters to the end of Q4 2022. UK imports from Nigeria are dominated by petroleum and petroleum-related products. Nigerian vulnerability to the global economic disruption caused by COVID-19 has shaped the pattern of trade in recent times. This is reflected in the top five UK exports to Nigeria in Q4 2022: refined oil, toilet and cleansing preparations, textile fabrics, mechanical power generators, and medicinal and pharmaceutical products.

IMF forecasts the medium-term rate of economic growth in Nigeria at around 3% (compared to a population growth of 2.6%). A stronger set of economic reforms could deliver 4% Gross Domestic Product growth in the medium term. By April 2023, inflation was recorded at 22% as a result of both food price pressures and weak monetary policies. Of particular concern to investors has been the multiple exchange rate system with businesses consistently reporting significant foreign exchange shortages. Significant exchange rate reform commenced on 14 May 2023 aimed at addressing these problems.

The UK offers Nigeria generous unilateral market access preferences on certain goods through the WTO Generalised Scheme of Preferences, and the Developing Countries Trading Scheme. However, uptake is very low due to poor product standards and Sanitary and Phytosanitary (SPS) concerns.

3. Political

Nigeria operates an executive or presidential system of government. This United States-style model was first introduced in 1979, during the last period of civilian rule, and was retained on the return to civilian rule in 1999. General elections held in February 1999 marked the end of fifteen years of military rule and the return to multiparty democracy. This means that Nigerians vote twice in election years, first in national general elections on the federal government, the second at State-level where they vote for their State Governor.

Elections for the Federal Government took place on 25 February 2023, and President Bola Tinubu, from the All Progressives Congress Party (APC) was the successful candidate. Tinubu received over 36% of the vote. Opposition parties have since brought legal challenges against the declaration of Tinubu as the winner of the election. Legal challenges to electoral results are common in Nigeria.

A month later, Nigerian state level elections occurred to elect state governors and state level assembly members. The APC party secured the highest number of seats in the Federal Senate and House of Representatives. President Tinubu has highlighted that he will concentrate on the challenges posed by the economy, Nigeria’s rapidly growing population, and the security situation.

4. Economic

The Nigerian economy is characterised by extreme inequality and significant economic disparities between the North and the South, poor infrastructure, a complex and opaque regulatory environment, corruption, and a fast-growing population. Oil provides the bulk of Nigeria’s government revenue and almost all of its foreign exchange earnings.

The economy was hard hit by COVID-19, contracting by 1.8% in 2020. It has continued to rebound, largely driven by agriculture, information technology, and goods exports. GDP growth reached 3.4% in 2022. However, Nigeria’s oil production has yet to bounce back to pre-COVID levels. As a result, Nigeria’s economy did not benefit from the recent increase in global oil prices (the average price for Nigeria’s bonny light crude oil was listed at $104.5 a barrel in 2022, peaking at $120 in June 2022).

Slow economic growth and inflation are key concerns. Quasi-fiscal policies, loose financing from the Central Bank of Nigeria (CBN) to the federal government, and inadequate structural reforms to address underlying macroeconomic weaknesses, all continue to limit economic growth in Nigeria. This is evident through reserve losses and significant foreign exchange shortages experienced by the private sector. Reserves have been trending downwards from a high of $47 billion in July 2018, to $35 billion in March 2023.

The latest IMF forecasts project that the Nigerian economy will grow by 3% over 2023 to 2027, just above population growth estimates. This remains insufficient to create the scale of jobs required to reduce poverty being experienced. Too few jobs are being created for the 3.5 million young Nigerians coming of working age annually, adding to the pool of under or unemployed (last reported at 33% in the Fourth Quarter of 2020).

On 26 October 2022, the Governor of the Central Bank of Nigeria announced the introduction of redesigned banknotes and retirement of old notes from 31 January 2023. This deadline has now been extended until December 2023. The aims of retiring old notes are: tackling inflation, promoting financial inclusion and a cashless economy, countering currency counterfeiting, and combatting banditry and kidnappings. Many countries choose to redesign notes and it is a proportionate. However, there was initially a very short deadline of three months and Nigeria lacks the supportive e-infrastructure to go cashless. There was insufficient capacity to print new notes fast enough, and the planned quantity of Naira was too low. Poor people in remote areas were hit hardest.

Nigeria was added to the Financial Action Task Force’s (FATF) enhanced monitoring list on 24 February 2023. However, the economic impact of Nigeria’s FATF grey-listing is likely to be limited in practice. Many UK and foreign businesses are already conducting enhanced due diligence. Nigeria is mentioned second globally in UK Suspicious Activity Reports (SARs) relating to money laundering.

On 14 May 2023, Nigeria substantively unified its exchange rate and allowed the market to determine the exchange rate. This follows a reduction of the fuel subsidy on 31 May when the Nigeria National Petroleum Company Ltd announced increased fuel prices. There will be a period of volatility as the market responds and the new government sets out its and macroeconomic reform plans. Prior to this, Nigeria had resisted reforms agreed with the IMF to ensure that the exchange rate reflects market fundamentals. In March 2023, there was a significant differential between the Investor-Exporter window (the IEFX window serves as the de-facto market rate at N461/US dollar) and the parallel market (roughly N745/US dollar) with multiple windows existing in country. The fuel subsidy had cost $12 billion 2022, equivalent to 2% of GDP.

The large role the oil sector plays in exports and public finances partly masks the economy’s weaknesses such as: a very low revenue to GDP ratio (8% of GDP), low investment (23% of GDP), and weak monetary and exchange rate framework that has worked against economic diversification. By April 2023, inflation reached 22%. This was a result of both food price pressures and global shocks due to Russia’s invasion of Ukraine. The IMF describes Nigeria’s sovereign risk as a ‘moderate’ risk of stress. Public debt increased sharply from 29% of GDP in 2019, to 37% of GDP in 2022, and is projected to rise to approximately 43% in the medium term. Liquidity-based indicators, such as interest payments as a share of government revenues, will continue to be high, putting Nigeria’s fiscal space at risk and making its low debt-to-GDP ratio highly vulnerable to macroeconomic shocks.

The early market reaction to these economic reforms that have been embarked on has been strongly positive (for example reduction in Eurobond yields). In recent years a particular concern to investors was the multiple exchange rate system. Businesses reported significant Foreign Exchange (FX) shortages, which had to be met by a combination of delayed payments and the use of their own FX funds and purchases in the parallel market. Foreign Direct Investment (FDI) is currently low at around 1% of GDP, with weak investor appetite partly a result of this overvalued exchange rate.

Bureaucratic and burdensome customs procedures also add significant costs and delays to cross border trade. Energy access remains a challenge to businesses and households. Power outages are frequent, leading to widespread use of back-up generators, again adding significant costs to business operations.

With UK and international support, notable progress is being made in the upskilling of the workforce, particularly in the technology and digital space. Nigeria has a growing tech and creative industry attracting a young, passionate, and talented workforce. In November 2022, the Minister of Industry, Trade, and Investment of Nigeria and the UK’s Trade Envoy to Nigeria held the eighth meeting of the Economic Development Forum (EDF), with a focus on enhancing bilateral trade.

The Companies and Allied Matters Act (CAMA) and the Petroleum Industries Bill were passed into law in 2021, giving some clarity to the private sector. Both laws have significant possibilities of improving the ease of doing business in Nigeria. However, implementation will be imperative. UK companies should seek professional legal advice should they have, or be considering, entering into agreements in Nigeria. The British High Commission is ready to support UK companies seeking to invest or operate in Nigeria.

5. Labour and human rights

Nigeria has a democratic framework which guarantees human rights within its constitution. It has an independent judiciary and a strong civil society.

6. Child labour

Nigeria’s laws regarding minimum age for child labour are inconsistent.

Article 59 of the Labour Act of 1974 sets the minimum age of employment at 12, and is in force in all 36 states of Nigeria. The Act permits children of any age to do light work alongside a family member in agriculture, horticulture, or domestic service. Nigeria adopted the Child Rights Act (CRA) in 2003, which incorporated the principles of the UN Convention on the Rights of the Child, and provided a comprehensive framework for preventing and responding to violence, abuse, neglect and exploitation of children. However, this law must be ratified by each State to become law in its territory, and it is not yet universal.

The CRA restricts children under the age of 18 from any work aside from light work for family members. However, Article 59 of the Labour Act applies these restrictions only to children under the age of 12. This language makes it unclear what minimum ages apply for certain types of work in Nigeria. Children are therefore vulnerable to dangerous work in industrial undertakings, with machines, and in domestic service.

7. Modern slavery

Nigeria is in the top three countries of origin for modern slavery victims in the UK. The UK is supporting Nigeria’s drive to clamp down on human trafficking and prevent vulnerable people from falling prey to traffickers. The Government of Nigeria adopted the Trafficking in Persons (Prohibition), Enforcement and Administration Act on 26 March 2015.

8. LGBT persons

In May 2013, Nigeria’s House of Representatives voted to pass the Same-Sex Marriage Bill, which prohibits gay marriage and public displays of affection between same-sex couples and apportions up to fourteen years in prison to those engaged in same-sex relationships. It also allows punishment for those knowingly associating with members of the LGBT community or aiding these individuals in becoming married or pursuing that lifestyle. The Bill criminalises any association with gay identity and the promotion of lesbian and gay rights, such as gathering privately with gay people.

9. Rights of association (trade unions)

Nigeria’s constitution guarantees the rights of free assembly and association and protects workers’ rights to form or belong to trade unions. Several statutory laws nonetheless restrict the rights of workers to associate or disassociate with labour organisations.

10. Bribery and corruption

10.1 The UK Bribery Act

Bribery undermines democracy and the rule of law, and poses very serious threats to sustained economic progress in developing and emerging economies, and to the proper operation of free markets. The UK’s 2010 Bribery Act was intended to respond to these threats and to the extremely broad range of ways that bribery can be committed. The Bribery Act applies to non-UK companies operating in the UK and also to UK companies working overseas.

11. Bribery and corruption in Nigeria

Corruption is a significant obstacle to doing business in Nigeria: companies are very likely to encounter bribery and other corrupt practices. Corruption risks are pervasive throughout all institutions, but in the oil sector particularly. According to Transparency International’s Corruption Perceptions Index (CPI) Nigeria ranks 154 out of 180 countries. For comparison, the UK is ranked 11.

Corruption is criminalised primarily by the Criminal Code and the Corrupt Practices and Other Related Offences Act. Accepting or giving gifts as well as the facilitation of payments is illegal, and individuals can be penalised with up to seven years imprisonment. Despite a strong legal framework and the work of anti-corruption agencies in Nigeria, corruption is still an issue. In practice, there is still an expectation from many that gifts, bribery, and facilitation of payments will be made. There have also been reports of fixing or adjusting tenders to suit preferred suppliers in advance.

12. Terrorism

There is a high threat of terrorism in Nigeria. Attacks could be indiscriminate, including government, security, and educational institutions, international organisations, as well as public venues and areas such as restaurants, bars, markets, hotels, shopping centres, places of worship and other areas frequented by expatriates, foreign tourists and business travellers. There is a threat of kidnapping throughout Nigeria. Kidnappings can be for financial or political gain, and can be motivated by criminality or terrorism. Westerners have been the target of kidnapping. Recent incidents have occurred in Northern Nigeria and in the Delta region.

Read the FCDO’s travel advice for Nigeria for more information on the threat of terrorism.

13. Security

Visitors to Nigeria should always check the latest FCDO safety and security advice before travelling, bearing in mind any specific threats affecting areas of the country they intend to visit. The FCDO advises against travel to several areas of Nigeria. Before considering travel to areas to which the FCDO advises against all, or all but essential travel, you should seek professional security advice. The DBT team in Nigeria can put you in touch with professional security advisors in country.

There is a high threat of terrorist and criminal kidnappings in Nigeria. Since 2019, there has been an increase in kidnappings for ransom by criminal gangs in Northern Nigeria. The threat level of such attacks, particularly in Northern Nigeria, is increasing. Visitors to Nigeria are advised to follow news reports and be alert to developments that might trigger civil unrest, as violence can erupt quickly and without warning. If you are working in Nigeria, you should follow your employer’s local security guidelines. You should also regularly check FCDO Travel Advice or register for email updates.

14. Organised crime

Organised crime is widespread in Nigeria. The main areas of organised crime activity are: cyber-crime, drug trafficking, human trafficking, and kidnapping for ransom.

15. Intellectual property

Nigeria is a signatory of the World Intellectual Property Organization and the WTO TRIPS agreement. Registration of patents and trademarks are the responsibility of the Nigerian Trademark Patents and Designs Registry (which is part of the Commercial Law Department of the Ministry of Industry, Trade, and Investment). Enforcement of intellectual property ownership remains a problem in Nigeria, despite the existence of copyright laws and enforcement efforts. British businesses looking to protect their intellectual property rights in Nigeria should seek advice from a local lawyer or IP advisor before they start selling into the Nigerian market. A list of lawyers can be provided by the DBT team.

16. Department for Business and Trade (DBT) contacts

The DBT team in Nigeria are based in Lagos and Abuja. Although covering every sector, their main focus is on clean energy, healthcare, education, technology, creatives, security and defence, infrastructure and agriculture. DBT services include giving practical advice to UK companies, identifying and resolving market access barriers, commissioning reports, finding reliable agents and partners in Nigeria, holding promotional events, advocating and/or lobbying on behalf of UK companies and arranging or facilitating meetings with relevant government officials.

DBT has developed a wide range of expertise and contacts to help guide UK businesses through the process of setting up business and/or selling into the Nigerian market. UK Export Finance is also available to exporters looking to do business with Nigeria. They have built good relations with a number of local banks on the ground.

For more information and advice on doing business in Nigeria, please contact the DBT team in Nigeria. Email: DBT.Africa@fcdo.gov.uk