How Nigeria positioned itself for a post-pandemic recovery

Nigeria is home to Africa’s largest economy and population, and is an engine for growth in the continent. While the government is largely reliant on oil and gas revenue, the economy itself is more diversified. Indeed, the non-oil sector accounted for 90.8% of real GDP in the first quarter of 2021. Services were the largest contributor to output over that period, comprising 53.9% of GDP, followed by industry (23.8%) and agriculture (22.4%).

The federal government has been working to improve the business climate to stimulate private sector growth and attract investment. These efforts are reflected in the country’s improved performance in the World Bank’s ease of doing business index, which ranked Nigeria 131st out of 190 countries in 2020, compared to 170th in 2015. While the twin shocks of the Covid-19 pandemic and global oil price crash put a significant strain on GDP growth in 2020, the Nigerian economy is expected to recover over the short to medium term.


The economy experienced a contraction of 6.1% and 3.6%, respectively, in the second and third quarters of 2020 before expanding by 0.1% in the fourth quarter, according to the National Bureau of Statistics (NBS). The recovery seen in the fourth quarter reflected the gradual reopening of business activities following the lifting of social-distancing guidelines and other pandemic-related measures. The country registered real GDP of N19.55trn ($52.2bn) in the final quarter of 2020, up slightly from N19.53trn ($52.1bn) in the same period of 2019. Overall, GDP contracted by 1.9% in 2020, reversing a three-year period of consistent – albeit moderate – expansion. Nonetheless, the economy outperformed many analysts’ expectations, including the World Bank and the IMF’s GDP growth forecast of -4% and -3.2%, respectively, that year.


While Nigeria’s economic growth has traditionally been stymied by issues such as electricity shortages, bureaucracy and a lack of transparency, 2020 was characterised by an economic slowdown brought on by the Covid-19 pandemic and the subsequent international oil price crash. In the second quarter of the year – when containment measures such as stay-at-home orders and lockdowns were first imposed – the economy experienced the steepest drop since 2010. While the contraction eased in the third quarter after the gradual reopening of the economy through to the fourth quarter, the crisis’ impact nonetheless continued to weigh on medium-term growth forecasts. Furthermore, widespread protests in late 2020 as a result of political unrest exacerbated the uncertainty of Nigeria’s economic recovery.

Meanwhile, a decline in demand for oil during the onset of the pandemic as transport and business activities came to a halt saw the global price for the commodity fall significantly. Domestic oil production slowed as a result, and Nigeria cut its benchmark production twice over the course of the year, in line with agreements made by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies to lower crude oil output. Even before the pandemic, Nigeria’s petroleum sector was under pressure after the US – which in the past purchased 40-50% of Nigerian crude oil – experienced a boom in shale oil (see Energy chapter). This left the government short of revenue, while foreign direct investment (FDI) inflows fell from $10.1m in the first quarter of 2020 to $6.6m in the second quarter.

Government Spending

The federal budget has been a key tool to address the economic headwinds brought on by the pandemic, with the government adopting an expansionary stance. In July 2020 the federal government revised that year’s budget, eliminating fuel subsidies and reshuffling allocations to prioritise a N500bn ($1.3bn) support package, equivalent to 0.3% of GDP. The revised budget – valued at N10.8trn ($28.8bn), up from N10.5trn ($28bn) originally – changed the budget oil price from $57 to $28 per barrel to reflect the impact of lower international oil prices on government coffers. Debt servicing was allocated N2.6trn ($6.9bn), while N2.9trn ($7.7bn) was set aside for sinking funds. The package contained several interventions to ease the economic effects of the pandemic, including N120bn ($320.4m) for road construction and maintenance; N75bn ($200.2m) for small and medium-sized enterprises; N56.5bn ($150.9m) for agriculture and enhancing food security; N12.4bn ($33.1m) for mass rural electrification; and N1bn ($2.7m) in financial support to each state. Five months later, in December 2020, a N13.6trn ($36.3bn) budget was passed for 2021: the largest in Nigeria’s history (see analysis).

Budget Deficit

In recent years the government has struggled to fully finance the budget, with revenue subject to oil price fluctuations. As a result, the budget deficit has ticked upwards. This trend is expected to continue in the short term, with public debt forecast to rise from N32.2trn ($86bn) in September 2020 to N36.9trn ($98.5bn) by the close of 2021. The government expects to receive N8trn ($21.4bn) in revenue in 2021, N2trn ($5.3bn) of which will come from the oil sector. The total figure is up 37% from the previous year due to an expected increase in oil prices and enhanced efficiency in government-owned enterprises. Nevertheless, the budget deficit is expected to grow from N5trn ($13.4bn) in 2020 to N5.6trn ($15bn) by the end of 2021. This represents 3.9% of estimated GDP, which is above the 3% limit established by the Fiscal Responsibility Act of 2007; however, officials have deemed the effects of the Covid-19 pandemic severe enough to warrant an exception.


According to the Federal Inland Revenue Service (FIRS), Nigeria loses around $15bn a year to tax evasion, despite having doubled its tax base between 2015 and 2020. Several reforms have been implemented to boost tax compliance. Even so, revenue collection remains a significant challenge given the large informal sector, and the country has one of the lowest tax-to-GDP ratios worldwide, at 6% of GDP in 2021. As part of efforts to increase this ratio to 15% by 2023 – the rate cited by the World Bank as essential for economic expansion – in early 2020 the government raised the value-added tax from 5% to 7.5%. To support small businesses it exempted those with less than N25m ($66,800) in annual revenue from corporate income tax. Federal tax authorities are working to shift the focus from revenue collection to tax compliance, with Zainab Ahmed, the minister of finance, budget and national planning, announcing at a virtual conference in February 2021 that it would be the more appropriate measure of performance.

Digitalisation is central to government efforts to improve compliance and untangle the tax system’s complexity. FIRS introduced its online Integrated Tax Administration System in 2014, and in 2017 the authority introduced six electronic tax services: e-registration for new taxpayers, online payment of stamp duties, payment solutions for federal taxes on several platforms, e-receipts, e-filing for tax returns and the electronic issuance of corporate tax clearance certificates. More recently, in 2019 FIRS began accepting e-filings for transfer pricing declaration and disclosure forms, as well as country-specific reporting. State governments are also working to adopt e-services. For example, Lagos tax authorities have developed a self-service portal.

Monetary Policy

The Central Bank of Nigeria (CBN) has played a key role in supporting the economy during the crisis while balancing inflationary pressures, and adopted an accommodative stance to meet these goals. In May 2020 the CBN reduced its benchmark lending rate by 100 basis points to 12.5% – the first reduction since March 2019 – and to 11.5% in September 2020. Following weak performance in the second quarter of the year, central bank authorities aimed to stave off a recession in the third quarter and support sustainable long-term recovery by making credit more affordable and more widely available. The benchmark lending rate was held steady at the CBN’s Monetary Policy Committee meeting in January 2021, with Godwin Emefiele, governor of the CBN, noting at the time that the central bank was facing challenges on a number of fronts, and was working to stimulate growth while keeping inflation in check and supporting the local currency. Other measures were implemented by the central bank over the course of 2020 to stimulate the economy, including an increase in banks’ loan-to-deposit ratio, a reduction in interest rates for key sectors, loan restructuring and regulatory forbearance, targeted credit facilities, intervention funds and a one-year extension of a moratorium on interest payments (see Banking chapter).

Exchange Rate

The value of the naira has eroded in recent years, in large part due to lower international oil prices, a trend which was exacerbated by the pandemic. To shore up the value of the naira, the CBN has created a blended system in which multiple exchange rates are maintained for different types of investors. After a drop in exports and capital outflows in early 2020, the CBN adjusted the official exchange rate by 18% in March and 6% in August of that year, while the investor and exporter window rate – or the market rate – was modified by 5%.

In its 2020 Article IV consultation released in February 2021, the IMF suggested Nigeria establish a single market clearing rate and devalue the local currency by an additional 18.5% to reduce uncertainties for the private sector, lessen foreign exchange shortages and establish policy credibility. However, Nigerian authorities rejected this assessment, arguing that current pressure was due not to the exchange rate but rather international developments, which saw investors exit many emerging markets. Furthermore, the authorities noted that a stable exchange rate would encourage price stability, while devaluation would exacerbate inflation.


Even as the CBN’s accommodative policies work to support economic recovery, the authorities are keenly aware of growing inflation, which has been above the 6-9% target range since 2015. In March 2021 overall inflation hit 18.2% – the highest rate since mid-2017 – before gradually falling to 17.8% in June 2021. According to a report by the NBS that month, all-item inflation on a year-to-year (y-o-y) basis was the highest in Kogi (23.8%), Bauchi (20.7%) and Jigawa (19.8%) states, and the lowest in Cross River State (15.5%), Delta State (15.2%) and Abuja (15.2%). Notably, the traditional gap between urban and rural inflation narrowed, with those living in urban areas seeing a 18.4% increase in prices, while those living in rural areas saw inflation reach 17.2%.

Food inflation, meanwhile, has continued to increase, reaching 21.8% in May 2021, led by higher prices for breads and cereals; potatoes, yams and other tubers; meat; vegetables; fish; soft drinks; milk, cheese and eggs; and oils and fats.

Food inflation had been on the rise since the closure of land borders with Niger, Chad, Cameroon and Benin in August 2019, which was aimed at preventing smuggling and facilitating local production. Higher prices have been further exacerbated by poor storage facilities, flooding during the wet season and insecurity in the south of the country as desertification pushed herders from the north into the traditionally agricultural region. This trend was also accelerated by pandemic-related trade and logistics disruptions, as well as a decision by the CBN in September 2020 to ban the use of official market dollars for the payment of food imports.

Food inflation has had a stark effect on Nigerians’ spending power, with the average household spending almost 60% of its income on food. Indeed, on average Nigerians spent twice as much on the same food in 2021 as in 2016. According to the NBS, the cost of food increased the most in Kogi, Enugu and Kwara states in June 2021, with food inflation recorded at 30.3%, 25.2%, and 24.8%, respectively. Meanwhile, food inflation was lowest in Bauchi State (19%), River State (18.9%) and Abuja (17.1%).

While the decision made by the federal government in late December 2020 to reopen borders in line with Nigeria’s ratification of its membership in the African Continental Free Trade Area did not ease food inflation in the short term, it remains to be seen whether it will have a longer-term deflationary effect – especially as import bans on rice, poultry and other products were maintained.


The global oil price crash in early 2020 – which saw Brent crude prices reach a 17-year low – and the economic impact of the Covid-19 pandemic had an exacerbating effect on Nigeria’s trade negative balance. Nigeria closed 2019 with a trade deficit of N579.1bn ($1.5bn) – the first deficit recorded since mid-2016 – which more than quadrupled to N2.7trn ($7.2bn) by the fourth quarter of 2020.

While Nigeria’s export performance slowly improved towards the end of 2020, it ended the year with its total trade value down 10.3% compared to 2019. The country exported N3.2trn ($8.5bn) worth of goods in 2020, with crude oil exports accounting for N2.4trn ($6.4bn) of the total, noncrude oil exports N568.2bn ($1.5bn) and non-oil exports N241.3bn ($644.3m). The total value of exports rose by 6.7% in the fourth quarter of 2020 compared to the previous quarter, but fell by 33.3% y-o-y. On an annual basis, the combined value of total exports in 2020 was down 34.8% from the previous year. Agricultural exports expanded the most over the course of 2020, up 19.2% by value, with major traded products including fermented and raw cocoa beans, sesame oil, cashew nuts, shea nuts, and palm nuts and kernels. The export of raw material goods also increased, up 0.7% y-o-y. The value of other export baskets, meanwhile, decreased over the same period, with manufactured exports down 53.7%; solid mineral exports 46.2%; energy goods 40.3%; crude oil 35.7%; and other oil products 17.1%. Nigeria’s major export trading partners in the fourth quarter of 2020 were India, which accounted for 17.1% of total exports; Spain (9.8%); South Africa (8%); the Netherlands (6.1%); and the US (5.3%).

Meanwhile, the total value of imports reached N5.9trn ($15.8bn) in 2020, up 17.3%. This rise was led by agricultural imports (78.6%), followed by raw materials (72.5%), solid minerals (39.3%), other oil products (15.1%) and manufactured goods (6.5%). Energy goods exports were the only category to see a decline in value that year, down 24.1%. Nigeria’s major import trading partners in the fourth quarter of 2020 were China, accounting for 28.3% of total imports; India (8.5%); the US (7.6%); the Netherlands (7.2%); and Denmark (5.4%).


Nigeria received substantially less investment in 2020. According to the fourth quarter 2020 “Nigerian Capital Importation” report by the NBS, the country received $9.7bn in capital inflows for the whole of the year, which includes portfolio investment, FDI, and other investments such as loans, trade credits and currency deposits. This figure was down 59.7% from the $24bn invested in 2019, and a little more than half of the $16.8bn in inflows seen in 2018. Bonds, other capital and currency deposits saw the largest drops in investment, down 77.8%, 75.7% and 72.1%, respectively, while equity inflows and FDI expanded by 11.3% and 10.1%, respectively. Capital importation is expected to remain subdued in the short term as the economy recovers from the pandemic, with the Nigeria Employers Consultative Association forecasting muted performance until the third quarter of 2021.

The top-three sectors for capital inflows in 2020 were banking ($3.75bn), finance ($1.89bn) and capital markets ($1.85m). Manufacturing ($913.9m), telecommunications ($417.5m), agriculture ($324.6m) and trade ($287.9m) attracted significant amounts of foreign investment as well. The country’s urban centres of Lagos and Abuja attracted the vast majority of investment, at $8.3bn and $1.3bn, respectively. Conversely, 26 states received no investment that year, highlighting an opportunity for the federal government to enact policies that will encourage more equitable distribution. The UK was the largest contributor of foreign investment in Nigeria as a whole, with approximately $4.2bn, followed by the UAE ($899.4m), the Netherlands ($890.6m), South Africa ($875.9m) and the US ($742m).


In the fourth quarter of 2020 Nigeria was home to a labour force of 69.7m people aged between 15 and 64 who are able and willing to work, according to the “Labour Force Statistics: Unemployment and Underemployment Report” released by the NBS in March 2021. This was down 13.2% from the 80.3m-strong workforce recorded in the second quarter of 2020. The total number of employed individuals declined from 58.5m to 46.5m – 30.6m of which were fully employed, or working 40 or more hours a week; and 15.9m of which were underemployed, or working between 20 and 29 hours a week. The unemployment rate, meanwhile, rose from 27.1% to 33.3% over the same period.

Rural residents were more likely to be both unemployed and underemployed than those living in urban areas. Of those living in rural areas, 34.5% were unemployed and 26.9% were underemployed in the fourth quarter of 2020, compared to 31.3% and 16.2% living in cities, respectively. The states with the highest rates of unemployment at the close of 2020 were Imo (56.6%), Adamawara (54.9%) and Cross River (53.7%), while Olsun (11.7%), Benue (12%) and Zanfara (13%) had the lowest rates. In terms of gender disparity, women were unemployed (35.2%) and underemployed (24.2%) at higher rates than men (31.8% and 21.8%, respectively).

Youth Employment Initiatives

Youth unemployment is a long-standing challenge for Nigeria, given the country’s young and growing population. The Covid-19 pandemic exacerbated this trend, with youth unemployment increasing from 29.7% in the third quarter of 2018 to 34.9% in the second quarter of 2020 and 42.5% by the close of the year – the highest among all age groups.

In a bid to address youth unemployment, in late September 2020 the central bank published the guidelines for the N75bn ($200.3m) Nigerian Youth Investment Fund (NYIF), aimed at creating 50,000 jobs between 2020 and 2023. Under the auspices of the NYIF, the authorities aim to improve youths’ access to finance and boost their managerial capacity. Following a successful pilot phase, which saw more than 5200 beneficiaries receive loans of N1.6bn ($4.3m), an additional 10,000 youth were shortlisted to secure funding under the NYIF programme as of mid-October 2021.

In January 2021 the federal government launched another initiative dedicated to boosting youth employment. The N52bn ($138.8m) Special Public Works (SPW) programme seeks to offer 774,000 youth and other participants three-month, lowskilled jobs. The programme provides jobs such as drainage digging and clearance, traffic control and street cleaning. Officials have highlighted the fact that the SPW programme is the largest job-creation initiative to date, and while the N20,000 ($53.40) wage per month is below the minimum wage of N30,000 ($80.10), the programme aims to tide over young workers during the pandemic. In mid-August 2021 the federal government approved the extension of the SPW programme beyond 2022.


Nigeria faced significant headwinds in 2020; however, stimulus spending and targeted budgetary allocations eased the impact of the pandemic for businesses and individuals alike. These efforts have laid the groundwork for economic recovery, with the IMF projecting that GDP will recover from the contraction in 2020 to expand by 2.6% in 2021. However, the international fund expects medium-term recovery to be slow without continued intervention – a challenge given Nigeria’s fiscal constraints. Indeed, GDP growth is forecast to stay around 2.6% for 2022-26. A slow global recovery, green energy trends and OPEC quotas are expected to place downward pressure on Nigeria, emphasising the importance of a concerted effort to fuel its rebound. There are several factors that could help towards this end, such as the expected opening in 2022 of a $10bn oil refinery that will ease the current account balance, increase levels of domestic oil production and, in turn, boost GDP.

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The Report: Nigeria 2022

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