Since its independence in 1960 from the United Kingdom, Nigeria’s economy base transitioned from agriculture to crude oil and gas. After five years of strong economic growth, Africa’s largest economy faced a recession in 2016. However, during the 2nd quarter of 2017, Nigeria technically came out of a recession, with a GDP growth driven mainly by the strong performance of the agricultural sector and a rebound in oil & gas production. The country faces many challenges but also offers many opportunities.
Key Assets
Between 2011 and 2015, Nigeria’s GDP saw average growth of 4.8% per annum, mainly based on high oil prices. Nigeria is ranked the largest oil producing country in Africa, and is ranked 11th worldwide. Nigerian oil, called Bonny Light, is of very high quality. Production averages 1.8 mbd, a substantial amount of which is being processed in the Port of Antwerp, Belgium. Although it accounted for only 10% of GDP, it represented 94% of export earnings, and 62% of government revenue over the period of 2011-2015. This led to a strong decline in foreign exchange reserves and a strong depreciation of the Naira, losing half of its value against the dollar. Consequently, foreign investment also declined sharply, from USD 8.9 billion in 2011 to USD 3.1 in 2015, and unemployment increased dramatically, leaving the country’s economy in turmoil.
The Nigerian economy went into recession in 2016, due to declining oil prices and declining oil production in the Niger delta. During the 2nd quarter of 2017, Nigeria technically came out of a recession, with a GDP growth heading for a 2% rise by the end of 2017, driven mainly by the strong performance of the agricultural sector and a rebound in oil & gas production. Foreign reserves are rising and trade is improving, but unemployment and food prices are also on the increase, and with a population growth rate of 2.7%, income per capita will actually decline further in 2017.
The economy is expected to continue to grow by 2.6% in 2018 and by 3.1% in 2019. While oil exports have risen, the non-oil sectors should also recover. This growth could be overshadowed by instability in the Niger Delta, a weak fiscal position and foreign exchange distortions.
The Urge to Diversify
In 2015, President Buhari was elected and began implementing economic policy reforms to address the macroeconomic challenges and structural imbalances. As the country realised its dependency on oil, the government sought to diversify by using the money gained from oil to achieve this. Aware of the need to create better infrastructure, roads and invest in agriculture, it devised a first strategy followed by a five-year plan.
Thus, in 2016, the Strategic Implementation Plan (SIP) was launched with the aim of restoring macroeconomic stability, growth and diversification of the economy, competitiveness & business environment, as well as governance and security.
Following the SIP, the Nigerian Economic Recovery and Growth Plan (ERGP) 2017- 2020 was launched. The plan has five key objectives – stabilising the macro-economic environment, achieving agriculture and food security, ensuring energy sufficiency (power and oil products, improving transport infrastructure and driving industrialisation by focusing on Small and Medium Sized Enterprises – that are tied into already crafted, longer-term growth plans for the Nigerian economy.
The ERGP outlines various plans all of which have the same goal: To create 7% growth by 2020 and 15 million new jobs. The plan lays out all the different phases to create a better economy and restore growth. It is precise and ambitious but has a very narrow timeframe.
What’s different?
The authorities have set up a delivery unit within the Presidency that will monitor all the ERGP priorities. Oil production will not only be increased but also privatised. Its revenues will be used to diversify the economy, creating multiple engines of growth. Previous strategies will be strengthened so as to address the challenges of each sector and help them grow. There will be a stronger collaboration between the public and private sector through partnerships. Finally, budget and planning ministries have been merged to improve monitoring and implementation.
Focus on the Nigerian People
Social programme, job creation and youth empowerment will allow economic growth to be inclusive and put the human factor at the heart of the economy. This implies a stronger focus on education and health, meaning Nigeria will have to bridge the current skill gap, which implies that it should provide adequate and specific education.
A Competitive Economy
To have a more competitive economy, there is need for serious investment in the infrastructures. Roads, rails, power, ports and connectivity need to be addressed in this order. The plan counts on public private partnership arrangements to address this vast array of works to be carried out.
Earning a spot in the top 100 of the World Bank’s Doing Business report is the target set by the presidency. Currently, Nigeria is ranked 145th on 190 in the Doing Business Index 2018 of the World Bank, a substantial improvement compared to its 2016 ranking, mainly due to improvement in administrative procedures. Major obstacles to doing business remain the allocation of property permits, electricity supply and import/export constraints.[1]
New technologies and digital-led strategies for growth are also included in the growth and recovery plan. The Smart Nigeria Digital Economy Project aims to increase the contribution of the sector to the GDP. This initiative will be reinforced by expanding broadband coverage, increasing e-government and establishing ICT cluster. This also includes building skills through education and training.
Macro-Economic Stability
One of the priorities to establish a stable macro-economic environment is to control inflation, which rose from 9.6% in 2015 to 18.55% for 2016; have stable exchange rates and sustainable fiscal and external balances. Alignment of trade, fiscal and monetary policies will be crucial to achieving this. Of course, non-oil revenues must be increased and accelerated to diminish dependency and cost-cutting measures will be taken. For example, the increase in the VAT rate for luxury items from 5 to 15% will allow 350 billion to be raised annually, from 2018 onwards.
The Importance of Agriculture
The potential for improvement in agriculture is tremendous in Africa and Nigeria is no exception. In recent years, growth has shown a staggering improvement, with 4.88% in the third trimester of 2016. If economic growth is important, food security is an even more important matter. Less dependency on imports, more jobs and inclusive growth are the key factors to engage fully in agriculture.
Energy self-sufficiency
Three objectives have been defined to pave the way for energy sufficiency. The first is to increase oil production to 2.2 million barrels per day (mbpd) in the short term and to 2.5 mbpd by 2020. This should allow government revenues to increase by 800 billion Naira. The second is to expand the power sector infrastructure to be able to supply 10 GW of operation power capacity, which is key to the development of the business environment. Finally, the third objective is to boost local refining for self-sufficiency. Instead of exporting crude oil, business could refine the oil locally, reducing imports by 60% by 2018. Of course, that is on the condition that all infrastructure works are carried out.
Revitalizing Industries
The plan aims to accelerate the National Industrial Revolution Plan, designed to accelerate the build-up of industrial capacity within Nigeria. It aims to develop four industry groups where Nigeria already holds a competitive edge: Agribusiness and agro-allied, solid minerals and metals, oil and gas-related industries and construction, light manufacturing and services.
The Zero Oil Initiative aims to boost the supply of foreign exchange through non-oil sectors by driving growth in five areas: export sectors – policies for 11 major products, new markets, domestic sourcing, export incentives & funding and export projects and investment in each state.
Incentives for Investors
While the plan holds much good news for the Nigerian economy, it also includes a simplification of doing business which many investors will appreciate.
The following are some of the elements that will be facilitated or reformed:
- entry and exit of goods
- 3-day deadlines for pre-ship inspection to issue clear certificates of inspection
- facilitation of entry and exit of people
- e-visa application-on-arrival procedures no later than 2018
- clear information on the immigration website with regard to visa and permit instructions
- improve the ranking in the World Bank’s Doing Business so as to make the top 100
- clarify the documentation needed for small businesses
- clear set of guidelines for small businesses offering services to the government
IMF Backing
In total, the government has laid out 60 strategies to transform the economy, each with a clear plan and budget. The plan was backed by the International Monetary Fund on 19 April 2017, by the Assistant Director and Head of Fiscal Policy and Surveillance Division, Catherina Pattillo. According to her, the plan will tackle diversification and the need to build revenues and improve structure.
The plan, however theoretical, aims to dramatically change the economy by 2020 and to change the economic landscape from head to toe: lower inflation, more jobs, improved competitiveness, greater availability of foreign exchange, inclusive growth. While the conflicts in the Niger Delta are one threat, the short span of time is another, not forgetting the vast amount of investment needed by the private sector in order to achieve all objectives. The road is challenging but the plan’s ambition is backed by a strong determination of the Presidency and a vital need to change the economy.
Nigeria’s exports and bilateral relations – Through the eyes of the expert
Nigeria’s exports are directed mainly at India (16.8%), Spain (12.1%), the United States (10.2%), the Netherlands (7.8%), and France (7.2%), totalling 54% of Nigerian exports.
Nigeria’s imports show that the country imported goods mostly from China (16.0%), Belgium (12.3%), the Netherlands (9.7%), the United States (7.5%) and Italy (6.2%), accounting for a total of 51% of imports.
Despite the intense trade flows between EU countries and Nigeria, the Nigerian government has so far held off on signing the Economic Partnership Agreement (EPA), which has already been formally agreed between EU and ECOWAS, and whose objective is to lower tariffs of goods entering the EU.
Trade between Belgium and Nigeria
In 2016 Belgium accounted for 21.1% of all exports from the EU to Nigeria, making it the 2nd largest exporter in the EU to Nigeria, after the Netherlands with 26.1% and before France with 13%. With regard to imports from Nigeria, Belgium holds 8th place within the EU, accounting for 0.8%. The balance of trade between Nigeria and Belgium is traditionally in favour of Belgium.
Various qualities of refined oil accounted for 76.3% of the value of the 2016 export flow from Belgium to Nigeria, and for 32.7% (in particular crude oil) of the value of import from Nigeria to Belgium. Food products and animal products are the two other main import products from Nigeria, with 27.8% and 20.8%, respectively.
According to the Belgian Agency for Foreign Trade, a total of 1,002 Belgian companies exported to Nigeria in 2016.
Proposals for an Economic Mission of Belgian Businesses to Nigeria
Bilateral relations between Nigeria and Belgium are traditionally good, and some Belgian companies have contributed for many years to the expansion of the Nigerian economy, in the industrial sector as well as in the agribusiness, in particular in the field of palm oil production and processing, with the first Belgian investment going back more than 30 years.
More recently, Belgian companies have invested in areas such as the dredging of rivers, the creation of artificial land for residential or industrial developments close to Lagos, and logistics, where there is still a lot that needs to be done.
Belgian know-how is welcome in various sectors, such as bio-engineering in crops and cattle-breeding, transport management, environmental protection, water sanitation, electricity generation and distribution. Improvements in the electricity generation systems and distribution networks are essential for the development and diversification of the Nigerian economy.
In this respect, I wish to welcome the initiative of the CBL-ACP Chamber of Commerce to start organizing an economic mission to Lagos in March 2018, a mission that will certainly be to the mutual benefit of Belgium and Nigeria.
Stéphane De Loecker
Ambassador of the Kingdom of Belgium to the Federal Republic of Nigeria
Some of the major Belgian companies in Nigeria are SIAT (oil palm and rubber plantations and in-vitro cloning of elite planting material), CFE (construction), Nigerite/Eternit and ZETES. Two Belgian dredging companies are also involved in important projects in the field of port development in Lagos and Port Harcourt. The land reclamation of the Eko Atlantic project in Lagos is being carried out by Dredging International, which is also involved in dredging projects near Bonny Island and Port Harcourt. Its competitor Jan De Nul was contracted in 2015 for the land reclamation project, where Nigerian giant entrepreneur Aliko Dangote will build his petroleum refinery and fertilizer plant. Some Nigerian industries have also shown a keen interest in the position Belgium takes as a centre for the shipping and maritime industry.
Belgian Success Stories
Dredging International – Land Reclamation at Eko Atlantic Project
2016 was another very busy year for DEME in Nigeria. Eko Atlantic City in Nigeria is one of the most ambitious real estate developments in Africa. The new city is being built on Lagos’ Bar Beach – on land that is reclaimed from the sea. The City is being constructed in six phases which will ultimately result in the creation of 9 km² of prime land, requiring a reclamation and sand winning of no less than 100 million m³. In early November 2016, DEME completed phase 3 of the project with the TSHDs ‘Breughel’ and ‘Breydel’.
Belgian dredging contractor DEME recently signed a contract with South Energyx Development FZE for the development of the remaining phases of the EKO Atlantic City project in Lagos. Some 500 hectares of land have been created so far.
The company’s involvement in the optimization process and the coordination efforts with local authorities have been important factors that influenced both feasibility and the continuation of the project. Phases 3 to 6 of this prestigious project include the reclamation of 42 million m³. Works will be executed over a period of 3 to 4 years.
[1] Stéphane De Loecker, Belgian Ambassador to Nigeria
