Economic Outline

Economic Indicators

Africa’s leading economy, Nigeria - in close competition with South Africa - has a population of more than 230.8 million people (CIA). Worldwide, it is the 39th-largest economy by GDP volume. However, Nigeria's economy is highly dependent on oil and is therefore very vulnerable to fluctuations in crude oil prices and production. If over the past decade economic growth reached 2.5% on average, the Covid-19 pandemic and the fall in oil prices caused the economy to contract in 2020. Nevertheless, economic growth rebounded in 2021 (+3.3%) and 2022 (+2.9%) supported by a buoyant services sector and increased revenues from oil and gas exports. According to the IMF, GDP growth reached 2.8% in 2023, slightly below population growth dynamics. Improved oil production and anticipated better harvest in the second half of the year are positive indicators for 2024 GDP growth, projected at 3.2%. However, challenges such as high inflation, naira weakness, and policy tightening are expected to pose obstacles.

The new government assumed office amid a challenging economic landscape characterized by sluggish growth, low revenue collection, escalating inflation, and persistent external imbalances accumulated over years. Encouragingly, recent enhancements in revenue collection and oil production have been observed. However, Nigeria's limited revenue mobilization continues to hinder the government's capacity to address shocks effectively and foster sustainable long-term development. Non-oil revenue collection saw a modest improvement of 0.8 percent of GDP in 2023, partly attributed to the depreciation of the naira. Fitch forecasted that the budget deficit narrowed by 0.2pp in 2023, reaching 5.2% of GDP, as robust non-oil revenue growth and the removal of fuel subsidies were counteracted by elevated capital spending and lower-than-expected oil profits from the Nigerian National Petroleum Corporation Limited. A 1.1% pp increase in government revenue was projected for 2023-2025, totaling 8.5% of GDP, supported by heightened government initiatives to boost non-oil tax revenue. This supported the forecast for the budget deficit/GDP to contract to 5.0% and 4.6% in 2024 and 2025, respectively. The debt-to-GDP ratio was estimated at 38.8% in 2023 by the IMF, with a relatively stable outlook over the forecast horizon. Nigeria's public debt (excluding CBN loans) maintained a relatively long average maturity of 9.7 years. The securitization of NGN23 trillion of CBN loans at a reduced interest rate of 9% contributed to managing general government interest expenses. However, with interest expenditure reaching nearly 42% of revenues, the overall interest burden remains elevated (Fitch Ratings). Nigeria's inherently high inflation surged further, averaging 25.5% year-on-year in the third quarter of 2023, up from 20.3% in the corresponding period of 2022. This increase was partly attributed to the removal of fuel subsidies and naira devaluation. Fitch anticipates inflation to ease to 21.1% in 2024 from an average of 24.8% in 2023, supported by reduced deficit monetization. Overall, fiscal consolidation, economic diversification, inclusive growth and security issues are the main priorities. The main obstacles to development in Nigeria are the inappropriate energy supply, deficient transport infrastructures, inefficient judiciary system, widespread corruption, together with high inflation. The gap between the official value of the naira and its value on the black market is substantial and the banking system is fragilized by the deteriorating quality of assets.

Despite the country's dynamism, the real challenge for Nigeria is the risk of a demographic explosion: according to the United Nations, the population of Nigeria could reach 730 million inhabitants in 2100. Concerns regarding this potential boom are exacerbated by the fact that half of the inhabitants live below the poverty line; pandemics are rampant (HIV, tuberculosis), infant mortality is high and the country struggles with significant levels of inequalities. According to the Nigerian Bureau of Statistics, unemployment stood at 5% in 2023; however, a high proportion of the active workforce is under-employed or employed in the informal sector. The overall GDP per capita was estimated at USD 5,884 in 2022 by the World Bank, but about 8% of Nigerians are deemed food insecure (IMF).

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