A COUNTRY PRIVATE SECTOR DIAGNOSTIC

CREATING MARKETS
IN NIGERIA
Crowding in the Private Sector: Nigeria’s Path to
Faster Job Creation and Structural Transformation

October 2020
About IFC

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Cover Photos: Yosef Hadar, Arne Hoel / World Bank, LAPO, Santos Akhilele Aburime / Shutterstock.com
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

ACKNOWLEDGMENTS

This report was prepared by a core team that includes Olasupo Olusi (co-task team
lead and senior economist), Denny Lewis-Bynoe (co-task team lead and senior
economist), Anita Okemini (private sector development specialist), and Helen Akanisi
(consultant). Other team members include Emilija Timmis (economist), Nneamaka
Okechukwu (private sector specialist), Ubong Awah (senior financial sector specialist),
Jonathan Gigin (senior financial sector specialist), Lindsey Tan Lim (financial sector
specialist), Robert Homans (consultant), Sharon Onyango (financial sector specialist),
Grace Ogola (financial sector specialist), Sara Nyman (senior economist), Jakob Engel
(economist), Yulia Vnukova (consultant), Ayobambo Salami (investment officer),
Ugo Amoretti (senior strategy officer), Muhammad Wakil (energy specialist), Wayne
Omonuwa (consultant), Stefan Apfalter (senior evaluation officer), Farhad Ahmed
(senior transport specialist), Khairy Al-Jamal (senior water supply and sanitation
specialist), Mary Agboli (senior private sector specialist), Olumide Okunola (senior
health specialist), Edda Ivan Smith (senior social development specialist), Victoria
Stanley (senior land administration specialist), David Ivanovic (senior private sector
specialist), Teleola Kola-Edun (consultant), Adetunji Oredipe (senior agriculture
economist), Ibrahim Adamu (country officer); Jacob Adeyemo (consultant), Olumide
Taiwo (consultant), Ifeoma Johnson (program assistant), Oluwatoyin Jinadu (team
assistant), and Irene Marguerite Nnomo Ayinda-Mah (program assistant).

The team acknowledges the guidance of Mona Haddad, Rachid Benmessaoud,

Shubham Chaudhuri, Kevin Njiraini, Eme Essien, Alejandro Alvarez de la Campa,
Rashmi Shankar, Sebastien Dessus, Femi Akinrebiyo, Volker Treichel, Vincent
Palmade, Dilip Ratha, Sonia Plaza, Hiroshi Tsubota, Marco Hernandez, Andrej
Popovic, Michael Wong, Rajul Ashwati, Olivier Mussat, Feyi Boroffice, Ahmed
Rostom, Wenye (Sophie) Dong, James Emery, Khwima Nthara, Jeremy Strauss,
Veronica Navas, Muna Meky, Noora Arfaa, Kofi Nouve, Masami Kojima, Siegfried
Zottel, Luiz Alcoforado, Rogati Kayani, and Bernadette D’Amico in preparing this
report. The team also acknowledges the guidance and comments received from various
ministries and agencies of the government of Nigeria.

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CONTENTS

ACKNOWLEDGMENTS II
ABBREVIATIONS VI
EXECUTIVE SUMMARY VIII
1. INTRODUCTION AND COUNTRY CONTEXT 1
1.1 Volatile Growth and High Inequality despite Significant Resource Base 1
1.2 The Challenges of Nigeria’s Oil-Dependent Economy 3
1.3 Beyond Oil — A Path to Sustainable and Inclusive Growth 7
2. STATE OF THE PRIVATE SECTOR 9
2.1 Predominance of the Micro, Small, and Informal Sector 9
2.2 Low Productivity Prevalent Across Sectors 10
3. CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY 11
3.1 Weak Macroeconomic and Financial Sector Policy Framework 12
Fiscal, Monetary, and Exchange Rate Policies 12
Trade Policies 13
Restricted Access to Banking Services 15
3.2 Infrastructure Deficiencies 20
Inadequate Power Supply 21
Grid Power Supply 22
Off-Grid Power Supply 23
Inadequate Public-Private Partnership Framework 25
3.3 Other Constraints 30
Inefficient Anti-Monopoly and Competition Policies 30
Ongoing Violence and Insecurity 32
Corruption 33
Poor Human Capital 34
Inadequate Skills and Education for Private Sector Jobs 35
Weak Health Outcomes 36
Poor Access to Land Because of Inefficient Land Administration 37
4. IDENTIFYING SECTOR OPPORTUNITIES 39
4.1 Agribusiness 40
4.2 Mining 48
4.3 Manufacturing 54
Potential High-Growth Subsectors 56
4.4 ICT and the Digital Economy 60

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

APPENDIXES 64
A. Choice of Peers: Selecting Comparator Countries 64
B. A Discussion of the 2014–16 Oil Price Shock in Nigeria 66
C. Opportunities for Nigeria: GIFF Methodology 68
D. Identifying Constraints in Enabling Sectors: Nigeria versus Peers 69
E. Public-Private Partnership Opportunities in Infrastructure 71
F. Key Competition Restrictions Identified in Various Sectors 73
G. Identifying Opportunities: Sectors 80
H. Opportunities for Key Minerals in Nigeria 84
REFERENCES 86

NOTES 92

FIGURES
Figure 1.1 Economic and Population Growth (2000–18) 2
Figure 1.2 Recent GDP Growth: Nigeria versus Peers 2
Figure 1.3 Exports of Goods and Services (2013–17): Nigeria versus Peers 4
Figure 1.4 Merchandise Exports Composition (by value) in 2017: Nigeria versus Peers 4
Figure 1.5 Doing Business 2020 Comparison for Nigeria versus Select Peers 6
Figure 1.6 Nigeria’s FDI Trends 6
Figure 1.7 Average FDI Net Inflows 2015–17 6
Figure 2.1 MSMEs in Nigeria by Size 10
Figure 2.2 Ownership of MSMEs in Nigeria by Gender 10
Figure 2.3 Low Productivity across Sectors 10
Figure 3.1 Most Problematic Factors for Doing Business in Nigeria, 2017 11
Figure 3.2 Trade Openness of Goods and Services (2008 and 2017):
Nigeria versus Peers 14
Figure 3.3 Domestic Credit to Private Sector 15
Figure 3.4 Percent of Firms with Bank Loan/Line of Credit 15
Figure 3.5 Comparison of Nigeria’s PPP Frameworks, 2018 26
Figure 3.6 Nigeria’s Score versus Peers’ Scores on Market-Based Competition and
Anti-Monopoly Policy 30
Figure 3.7 Nigeria’s Score versus Peers’ on Perceived Business Risks Related to
Weak Competition Policies 30
Figure 3.8 Share of Firms Experiencing Bribes 33
Figure 3.9 Inflation and Corruption Perception Index 33
Figure 3.10 Nigeria’s Poor Human Capital Outcomes, 2015 35
Figure 3.11 Digital Skills among Population: Nigeria versus Peer Countries 36

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Figure 4.1 Opportunities for Agribusiness across Nigeria 41
Figure 4.2 Mining Opportunities in the North of Nigeria 49
Figure 4.3 Economic Complexity 55
Figure 4.4 Manufacturing Subsectors by Development Characteristics 55
Figure 4.5 Blending Plants for Batches 1 and 2 of the Presidential Fertilizer
Inititative 57
Figure 4.6 Entry Rate of New Firms and Innovation among New Firms (2012–17) 61
Figure A.1 Comparisons with Indonesia and Malaysia 65
Figure B.1 Evolution of Government Revenues and Comparisons with
International Peers 66
Figure B.2 Oil Price Shock and Fiscal Indicators 67
Figure B.3 Oil Price Shock and Monetary Indicators 67
Figure C.1 Potential Opportunities based on Growth Identification and Facilitation
Framework for Nigeria 68
Figure D.1 The State of Business Environment “Enablers”: Nigeria versus Peers 69
Figure G.1 Sector Fitness Analysis 82

TABLES
Table 3.1 Sectoral Distribution of Banking Sector Credit, December 2018 16
Table 4.1 GDP and Labor Intensity of Sectors 39
Table 4.2 Production Levels 43
Table 4.3 Profitability of Agribusiness Value Chains 44
Table E.1 Public-Private Partnership Opportunities in Infrastructure 71
Table F.1 Government Interventions that Affect Competition 73
Table G.1 Top 20 Products by Revealed Comparative Advantage 80
Table G.2 Distance Index by Product 81
Table G.3 Potential Opportunities on the Basis of Sector Fitness 83
Table H.1 Opportunities for Key Minerals in Nigeria 84

BOXES
Box 3.1 Raising Long-Term Financing: The Limited Role of Nigeria's Capital
Markets 29
Box 3.2 Innovations for Better Large-Scale Land Investment: FRILIA and LARF 38
Box 4.1 Community Block Farming 45
Box 4.2 Repositioning Nigeria's Insurance Industry to De-Risk Key Sectors like
Agribusiness 46
Box 4.3 Informal Mining in the Gold Subsector 50
Box 4.4 Developing the Leasing Sector: Opportunity for Equipment Financing
for Small Producers 52
Box 4.5 Developing Free Zones/Special Economic Zones: Opportunity for Nigeria 54

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

ABBREVIATIONS AND ACRONYMS

AEDC Abuja Electricity Distribution Company 

ATA Agricultural Transformation Agenda 

BPP Bureau of Public Procurement

BRT  bus rapid transit

BTI Bertelsmann Stiftung’s Transformation Index 

BVN bank verification number 

CBN Central Bank of Nigeria 

CCB Code of Conduct Bureau 

CDA community development agreement 

CPSD Country Private Sector Diagnostic

DFS digital financial services 

ECOWAS Economic Community of West African States

ERGP Economic Recovery and Growth Plan

FAO Food and Agriculture Organization

FCCPC Federal Commission for Consumer Protection and Competition

FDI foreign direct investment

FLP finished leather products 

FRILIA Framework for Responsible and Inclusive Land-Intensive Agriculture 

FZ free zone

GDP gross domestic product

GEM Growth and Employment Project 

GIFF Growth Identification and Facilitation Framework 

ICPC Independent Corrupt Practices and Other Related Offences Commission 

ICRC Infrastructure Concession and Regulatory Commission

ICT information and communication technology

IEFX investors and exporters foreign exchange 

IFC International Finance Corporation

IMF International Monetary Fund

LARF Land Acquisition Resettlement Framework 

LME London Metals Exchange

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 LMIC lower-middle-income countries

LUA Land Use Act 

MFB microfinance banks 

MIREMCO Mineral Resources and Environment Management Committee 

MSME micro, small, and medium enterprises

MTN Mobile Telecommunication Company

MVA manufacturing value-added 

NBS Nigerian National Bureau of Statistics 

NCC Nigerian Communication Commission

NIBSS Nigeria Inter-Bank Settlement System

NIRSAL Nigeria Incentive-Based Risk Sharing System for Agricultural Lending

NSC Nigerian Shippers’ Council 

NSQF National Skills Qualification Framework

NTM non-tariff measure 

OECD Organisation for Economic Co-operation and Development

PET polyethylene terephthalate

PPA Public Procurement Act 

PPP public–private partnership 

PSRP Power Sector Recovery Plan 

SEZ special economic zone

SMDF Solid Minerals Development Fund 

SME small and medium enterprise

SMEDAN Small and Medium Enterprise Development Agency of Nigeria

TCN Transmission Company of Nigeria 

TFP total factor productivity 

UAE United Arab Emirates

UNCTAD United Nations Conference on Trade and Development

VAS value-added service 

VAT value-added tax

WEF World Economic Forum

WTO World Trade Organization

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

EXECUTIVE SUMMARY

Given its resource endowments and market opportunities, Nigeria is uniquely placed
for strong economic growth. Nigeria is rich in agricultural and mineral resources.
Its population of about 200 million people presents a huge market—the largest in
Africa—for domestic production. In addition, a large segment of Nigeria’s labor force
is young and entrepreneurial—5.3 million people entered the labor force in 2018 alone.
Moreover, market access to other member countries of the Economic Community of
West African States (ECOWAS) and the wider African region offers opportunities to
Nigeria’s private enterprises.

However, Nigeria’s resource endowments and opportunities have not translated

into sustained economic growth and shared prosperity for its citizens. Gross
domestic product (GDP) growth, which averaged 8.4 percent per year in the first
decade of the 2000s, has slowed considerably, to around 2 percent in 2018, well
below the average for many of Nigeria’s peers. Poverty has increased, with nearly
half of the population living in extreme poverty (that is, below US$1.90 per day).
Nigeria now hosts the largest number of poor people in the world—surpassing India
in 2018. The rate of unemployment has also risen, reaching 23 percent in 2018.
Likewise, underemployment of labor—at around 20 percent—is rising. Indeed,
Nigeria’s economic performance and development outcomes are diverging from
regional averages and on its current trajectory the country is expected to further lag.
Compounding Nigeria’s challenges is the strong regional disparity in development
outcomes: poverty rates, and human capital indicators—such as adult literacy, primary
school enrollment, and health outcomes—in the northern zones of the country are
significantly worse than those in the southern zones.

The prediction for development outcomes is worrisome and creates a case for urgent
action for faster economic growth and job creation. Prior to the COVID-19 pandemic,
the number of people living in extreme poverty was projected to reach 120 million (or
45 percent of the population) by 2030. The pandemic and impending recession could
further increase the poverty rate and reduce Nigeria’s economic and development
outcomes. Estimates suggest that Nigeria needs investments worth 6–8 percent of GDP
and 40 to 50 million higher-income and higher-productivity jobs by 2030 to reduce
poverty and to help create a more prosperous Nigeria.

High dependency on crude oil exports has contributed to increasing poverty and
inequality. Nigeria’s oil and gas sectors generate on average more than half of fiscal
revenues and nearly 90 percent of the nation’s exports. Although a series of reforms
in the early 2000s helped to raise productivity and growth (especially in the services
sector) and increased non-oil contribution to GDP to 90 percent (compared with
68 percent in the late 1990s), the oil and gas sectors continue to dominate Nigeria’s
economy. High dependency on oil exposes the country’s growth performance to
the boom and bust cycle of oil prices, which creates economic uncertainty and
dissuades investment. The shock of the unprecedented collapse in oil prices during
the COVID-19 pandemic comes on the heels of a weak recovery from the 2014–16
oil price crash, which led to dramatic revenue shortfalls and debt buildup and

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precipitated the recession of 2016. Also, oil dependency will deepen the imminent
recession from the fallout of COVID-19. Moreover, the challenging governance
framework of Nigeria’s oil industry, together with increased competition in the
global oil industry, and traction with curbing the use of fossil fuels because of climate
change effects, will diminish the oil sector’s long-term contribution to the economy.
In the absence of adequate fiscal buffers and low non-oil revenues, public finance
will become increasingly vulnerable to oil price shocks, hampering the government’s
ability to invest in needed infrastructure and to provide vital services. The recent oil
price crash during the first quarter of 2020—precipitated by the failure of two major
producers (Saudi Arabia and Russia) to reach an agreement on production cuts and
the subsequent oil price war, and the outbreak of the COVID-19 pandemic, which has
devastated global oil demand—reinforces the argument that an over-dependency on oil
exports creates substantial risk to Nigeria’s public finances.

Equally, Nigeria’s weak economic policy framework has impeded growth and
development. Government policies and programs in the real sector (for example,
the 2011–15 Agriculture Transformation Agenda and the 2007 National Integrated
Industrial Development Strategy) that were developed to promote growth, drive
non-oil exports, and create jobs have been poorly designed, inconsistent or short-
lived, and weakly implemented. Moreover, important reforms under the 2017–20
Economic Recovery and Growth Plan (ERGP) have been delayed. As a result, targets
for output diversification, growth, and job creation have not been met. For example,
manufacturing value-added (MVA) has fallen dramatically during the past 20 years
and is well below the MVA of regional peers such as Côte d’Ivoire and Ghana,
while GDP growth—projected under the ERGP to average about 4.6 percent a year
(2017–20) and to peak at 7 percent by 2020—is well below this target. In addition,
the 3.75 million new jobs expected to be created annually under the ERGP have not
materialized.

These policy challenges, which also reflect weak institutions, are eroding the social
contract between the government and the private sector and are creating a difficult
business environment in Nigeria. Nigeria lacks strong institutions that can deliver
public services and economic opportunities efficiently and effectively and this has led to
a high cost of doing business—to the detriment of the private sector. Consequently, the
trust between the government and the private sector has eroded over the years. While
improving, Nigeria’s business environment ranks 131 out of 190 countries on the 2020
World Bank Doing Business Index, well below its aspirational peers. Also, foreign
direct investment (FDI) to Nigeria has progressively declined since 2011, reaching
about US$2 billion in 2018—the lowest level since the early 2000s. Ghana has now
overtaken Nigeria as the largest recipient of FDI in West Africa.

Leveraging the World Bank’s Systematic Country Diagnostic (2019) for Nigeria, this
Country Private Sector Diagnostic (CPSD) argues that Nigeria must focus on a wider
private sector–led growth strategy based on its considerable factor endowment and
market opportunities. Addressing the deficiencies in Nigeria’s policy framework and its
infrastructure sector that are stifling growth would enable the Nigerian private sector
to create millions of quality jobs for its rising population, mitigate Nigeria’s economic
vulnerability by diversifying exports, and reduce inequality and instability by driving
economic activity in underdeveloped regions.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Three key features of Nigeria’s economy uniquely position the country for a strong
non-oil sector growth that leverages the private sector. First, the country’s rich
agricultural and mineral resource base provides the opportunity to significantly
expand food manufacturing and resource-based manufacturing, especially in the
lagging North. Second, Nigeria’s relatively large, fast-growing, and urban domestic
population, and regional integration with ECOWAS, provide a ready market base
for Nigerian food products, consumer goods, building materials, and services (such
as financial, transportation, and digital). Third, with a large, young entrepreneurial
population, Nigeria is well-positioned to increase productivity and innovation through
digital entrepreneurship.

SECTOR OPPORTUNITIES
There is significant potential for accelerating growth and export diversification
through increased private investment in sectors such as agribusiness, mining,
manufacturing, and the digital economy.

Agribusiness can be transformative for Nigeria, especially for the northern zones.
Nigeria has excellent agroclimatic conditions that could support the cultivation
of a wide range of agricultural products across the various regions of the country.
There is an abundance of arable land (82 million hectares), less than half of which
is currently under cultivation, and an abundance of water resources, including large
bodies of surface water, rainfall, and three of the eight major river systems in Africa.
These conditions are ripe for the development of crops, such as cassava, citrus, cocoa,
sesame, sugarcane, and tomato. These crops offer significant opportunities for private
investment, based on value addition and intensity of processing, and offer opportunity
for significant multiplier effects on employment and wealth generation, especially in the
lagging northern part of the country. At the current low processing levels, businesses
in the cocoa and sesame industries have significant potential to add value. Equally,
cassava is a versatile product, with derivatives being used for alcohol, animal feed,
flour, fuel (ethanol), starch, and sweeteners, all of which are possible areas for further
processing. Cocoa beans and sesame seeds are already two of Nigeria’s top non-oil
exports (representing 17 percent and 16 percent of non-oil exports, respectively, in
2017); with further support they could help Nigeria achieve its objective of export
diversification. Cash crops like citrus, cocoa, and sesame provide cash incomes, thus
increasing the levels of disposable income for Nigeria’s poorest households and helping
to improve food security. The northern region has a comparative advantage in the
production of four of the six crops—citrus, sesame, sugarcane, and tomato—given its
suitable climatic and soil conditions.

Nigeria’s more than 40 mineral deposits, including clay and kaolin, coal, gold,
gypsum, iron ore, lead and zinc, phosphate, and tin, across 500 locations, could
generate billions of dollars in revenues and create jobs in commercial mining all
over the country. Bitumen, gold, iron ore, and limestone are some of the most highly
valued minerals in the country. Presently, quarrying dominates the mining sector’s
output, accounting for more than 90 percent of it. Products such as granite, gravel,
marble, sand, and other construction materials are in high demand locally because of
a combination of a growing housing deficit and infrastructure development projects.
The metal ores subsector, which accounts for less than 10 percent of output, is growing
especially fast—recording a growth rate of 22.8 percent between 2016 and 2018.

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 EXECUTIVE SUMMARY

Manufacturing presents opportunities for growth, especially via the development of

fully functioning free zones/special economic zones (FZs/SEZs). Given the significant
demand for and the availability of raw materials, subsectors such as chemicals, leather,
and construction materials could significantly contribute to job creation, absorbing the
labor that could be lost because of increased efficiencies in agricultural productivity.
The chemicals sector presents attractive opportunities for private investment.
Chemicals, including medicaments, polymers of ethylene and propylene, pneumatic
tires of rubber, insecticides and fungicides, mixtures of odiferous substances, and
mixed fertilizers, accounted for 9.5 percent (or about US$3 billion) of Nigeria’s
imports in 2017. Those chemicals can be produced in Nigeria because several of them
are products of petroleum or natural gas. The leather industry, already a top foreign
currency earner and critical job creator, has the potential to grow further. In addition,
an abundance of construction materials, such as granite, marble, and sand, combined
with a growing domestic demand for affordable housing to support Nigeria’s growing
population, makes the construction subsector ripe for investment.

Digital entrepreneurship can accelerate the pace and inclusiveness of economic

activity and has the potential to contribute to Nigeria’s economic transformation.
According to the Nigeria Digital Economy Diagnostic Report by the World Bank,
currently Nigeria is capturing only a fraction of digital-enabled growth and it needs
to strategically invest in the foundational elements of its digital economy to keep pace.
Nigeria’s thriving community of technology entrepreneurs includes one of the biggest
e-commerce markets in Africa—estimated at $12 billion—with 87 Nigerian platforms
and 2.9 million employees. Fintechs have flourished and innovation hubs have
doubled in the past two years. Digital financial services (DFS), which remain largely
untapped opportunities, offer significant benefits through enhanced financial inclusion,
especially in rural areas, and digital entrepreneurship.

To fully harness the potential of these sectors, Nigeria will need to address some
critical constraints:

• Agribusiness: Improve access to quality input, skills, machinery and modern

agricultural technology, and market information, all of which can be private sector
driven, by developing agricultural digital ecosystems and through various social
enterprises. Provide access to finance, including through value-chain digitization.
Develop agriculture-specific infrastructure such as irrigation and storage through a
public–private partnership (PPP). Promote successful business models like community
block farming, which helps to de-risk agribusiness for smallholders. Develop
agriculture insurance to support farmers during adverse climate events.
• Mining: Develop geological and geophysical data for commercial mining in
conjunction with the private sector. Improve geoscience skills and knowledge by
increasing institutions offering specialized training. Develop financing for mining
including the leasing sector to provide access to necessary equipment. Formalize
artisanal mining; and operationalize the Community Development Agreement of the
Mining Act to minimize hostilities and disruptions to mining.
• Manufacturing: Develop FZs/SEZs by updating the regulatory framework.
For chemicals, implement policies that support the consistent supply of gas and
feedstock, such as the gas flare prohibition and punishment bill and the national
Gas Flare Commercialization Programme, as well as moving to market-based gas
pricing. For leather, formalize raw leather producers to strengthen their capacity

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

for handling and processing raw hides and skins using enhanced technology and
collection and treatment facilities, and to increase their access to finance. For
construction materials, improve regulation and the management of quality to
enhance competitiveness.
• Digital/information and communication technology sector: Harmonize
right of way policy for critical digital infrastructure and review national spectrum
policy to optimize usage. Additional policy measures are needed to promote DFS; to
continue to prioritize the digitization of government payments, social transfers, and
tax collections; to increase digital literacy; and, to enhance digital skills.
More broadly, the growth of these sectors and the wider private sector has been
stymied by a number of cross-cutting constraints.

Key cross-cutting constraints

Private firms identified the weak economic policy framework, which was manifested
in various macroeconomic, trade, and financial sector challenges, as a critical cross-
cutting constraint to private sector development and investment. Surveys, including
the World Economic Forum’s (WEF) Executive Opinion Survey of the Global
Competitiveness Report (2017) and the World Bank’s enterprise survey (2014),
also cite infrastructure deficiencies (especially in the power sector) as one of the top
constraints. In the interviews conducted in preparation for this CPSD report, private
sector representatives added insecurity, corruption, anti-competitive practices in some
key industries, poor human capital development, and inefficient land administration to
the list of important constraints.

1. Weak economic policy framework

In the context of the macroeconomic environment, fiscal and exchange rate policies,
especially in the aftermath of the 2014–16 oil price shock, have in some cases
distorted markets and created uncertainty for investors. Nigeria’s fiscal envelope is
too small (largely because of low non-oil revenues) to efficiently deliver public services
that can make the private sector more competitive. Furthermore, some government
expenses such as petroleum subsidies are inefficient. Since 2017, the Central Bank of
Nigeria (CBN) has been operating multiple foreign exchange windows, which have
distorted private sector activities. Reform measures will involve, on the fiscal side,
greater mobilization of non-oil revenues and a review of inefficient spending. Following
through on unifying all CBN-administered exchange rates into a single market-driven
window is needed to eliminate market distortions and allow exchange rate flexibility.

Trade policies stymie the export competitiveness of the industrial sector and
encourage smuggling. Nigeria has a protectionist trade regime, which limits
opportunities and raises costs for the private sector. The absence of a coherent trade
policy for an extended period led to an uncoordinated protectionist trade regime
spearheaded by monetary, fiscal, and bureaucratic agencies. These policies include
non-tariff measures (NTMs) such as the CBN’s restriction of foreign exchange for
importing 43 goods; the import prohibition list on 23 “prohibited” products and
21 “absolutely prohibited” products imposed by the Nigeria Customs Service; and
bureaucratic rules in favor of local content requirements, especially in the oil and gas
and information and communication technology (ICT) sectors, which are incompatible
with World Trade Organization (WTO) rule. Policy options include the development

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of a new trade policy; tariff measures such as substituting import bans with tariffs;
and reforming NTMs to focus on phasing out distortionary NTMs, such as foreign
exchange restrictions and import prohibitions.

Some policies and practices restrict access to bank services. Domestic credit to
Nigeria’s private sector—about 10.5 percent of GDP in 2019—is well below peers
like South Africa (139.0 percent) and the average for Sub-Saharan Africa (about
45.5 percent). Few firms, mostly large ones, can access credit because of the limited
availability of medium- to long-term credit tenors, high collateral requirements, and
high interest rates, especially for micro, small, and medium enterprises (MSME).
Commercial banks are reluctant to lend to MSMEs at affordable rates as a result of
(a) the existing unlevel playing field and market distortions resulting from the CBN’s
subsidized development finance initiatives, (b) the government’s crowding out of the
private sector, (c) relatively incomplete financial information and infrastructure, (d) a
weak debt resolution and loan recovery framework, (e) a weak microfinance sector,
and (f) MSMEs’ lack of technical capacity to make successful loan applications.

To address these issues, the following steps should be taken, among others: (a) Careful
assessment of the effectiveness of CBN’s subsidized development finance schemes in
the medium term. This assessment should reorient schemes in such a way to address
key risk factors influencing MSME lending and market-based pricing, and should
identify financially sustainable solutions to encourage the banking sector to engage
in risk-based pricing of financial products; (b) the government should look to balance
external and domestic sources for its financing to avoid crowding out the private sector;
(c) the coverage of the credit bureau should be extended to include a larger segment
of the bankable population through integrating nontraditional credit providers into
the credit reporting system, including leveraging technology available with mobile
money operators; (d) the government should prioritize the development of stand-alone
legislation to address current deficiencies in the insolvency framework to better protect
creditors’ rights; (e) the CBN should overturn its reversal of the decision to lower
the minimum capital requirement for subtier 2 unit microfinance banks (MFBs) and
revert to earlier minimum capital requirements, and require higher minimum capital
requirements for new licenses for MFBs, and (f) the government should promote
financial literacy and the digitization of financial records of MSMEs and support the
deployment of incentive-based business information platforms, to improve access to
finance.

2. Infrastructure deficiency
Infrastructure gaps are a major deterrent to private sector growth and overall
economic development in Nigeria. The country has long struggled with poor access to
and an unreliable power supply. About 60 percent of Nigeria’s population has access to
electricity, lower than most peers and the average for lower-middle-income countries
at 86 percent. Most households and businesses receive less than five hours of power
per day. The inconsistent electricity supply has driven most businesses to acquire
inefficient diesel-powered generator sets that are two to three times more expensive
than power from the grid or to adopt nascent off-grid solutions largely delivered
through solar power systems. The poor maintenance of power plants, the limited
capacity of the existing gas pipeline, payment risks to gas producers due to market
liquidity constraints, transmission system losses due to limited wheeling capacity, and
a non-cost reflective tariff regime, have all been identified as key culprits in Nigeria’s

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

power sector challenges. Although the government partially privatized power assets,
the desired efficiency improvements in electricity delivery have not materialized. Fiscal
constraints resulting from the 2020 oil price shock and the COVID-19 pandemic
are exacerbating the implications of the delayed implementation of the 2017 Power
Sector Recovery Plan (PSRP). The Order on Transition to Cost Reflective Tariffs in
the Nigerian Electricity Supply Industry has set the framework to transition to cost-
reflective tariffs by June 30, 2021.

Off-grid solutions have the potential to provide households and businesses access
to electricity. However, their large-scale adoption is hindered by limited demand
assessment, high cost structure, limited technical expertise, and a lack of customer
awareness and trust of solar powered solutions. Full implementation of the PSRP is
required to stabilize the grid power market. In addition, several measures could help
to increase supply of and demand for off-grid solar: (a) a review of import duties on
off-grid components to ensure the fair treatment of importers of components and
developers, while also encouraging local content development; (b) better engagement
with distribution companies in mapping clusters suitable for off-grid solutions; (c)
investment in training last-mile technicians to support off-grid solar companies; and,
(d) reducing the overall cost of installation and maintenance.

Addressing the infrastructure gap requires significant investment, which the

government alone cannot meet. Nigeria needs to invest US$3 trillion in infrastructure
over the next 30 years—about US$100 billion annually until 2045. However, the
government’s capacity to mobilize resources, allocate them effectively, manage
innovative funding models, and provide oversight for infrastructure is weak. There is
enormous scope for public-private partnerships. These partnerships could potentially
represent 40 percent of Nigeria’s infrastructure needs, but currently they are not
extensively used. To unleash PPPs, the law governing them needs to be reviewed
to clearly state roles and responsibilities of each institution, including identifying
a lead institution to drive PPPs, considering their capacity and convening power.
Furthermore, the government’s capacity to develop PPP projects should be enhanced.
Successful implementation of PPPs would require supporting states and line ministries;
and setting up a project preparation facility with adequate funding and technical
assistance for project preparation in areas such as engineering, legal, and structured
financing.

Other constraints
Market-based competition and anti-monopoly policy are perceived to be weak
in Nigeria. A high concentration across many key markets reflects the impact of
government interventions and raises barriers to entry. Regulatory obstacles to
competition exist in various sectors such as agribusiness (seed and fertilizers),
manufacturing (polyethylene terephthalate, cement), and ICT (digital and financial
services). The passage of the Competition Act in 2019 provides the opportunity to
develop a functional framework to curb anticompetitive firm behavior, such as abuse
of market dominance and cartels, and to achieve competitive prices for consumers.
Successful implementation of the Competition Act will depend on the new Federal
Competition and Consumer Protection Commission (FCCPC) being able to operate
independently.

xiv
 EXECUTIVE SUMMARY

Land-based investments in Nigeria are undermined by ambiguous and inconsistent

land administration. Two pieces of legislation govern the use and development
of land: the Land Use Act (LUA) of 1978, which is incorporated into the 1999
constitution and governs land ownership rights and transactions; and the Urban and
Regional Planning Act, Decree No. 88 of 1992, which provides a framework for land
management. Despite the adoption of LUA more than 40 years ago, the regulations
necessary to further guide states and guarantee consistency in implementation of
the law still have not been enacted. In addition, the co-existence of customary and
religious land practices with these statutory land laws results in confusing frameworks
of land administration. Legal reforms are needed. In the absence of these reforms,
innovative instruments such as the Land Acquisition and Resettlement Framework and
the Framework for Responsible and Inclusive Land-Intensive Agriculture should be
considered.

Governance challenges such as ongoing conflicts (for example, the Boko Haram
insurgency) and corruption are having devastating consequences. The World Bank
Group has placed Nigeria on its list of fragile and conflict-affected situations for
2020. Conflicts limit opportunities for private investment, gainful employment, and
infrastructure development. Private enterprises in agribusiness and mining sectors,
especially those located in the northern region, point to insecurity as the main threat
to their enterprises. Nigeria is ranked 144th out of 180 countries on Transparency
International’s Corruption Perception Index 2018. About 30 percent of firms report
experiencing at least one request for bribe payment—higher than the 25 percent
average for Sub-Saharan Africa. Corruption hinders efficient public service delivery
and investment and distorts the Nigerian private market. The current government has
shown a keen interest in tackling these issues. The deployment of digital technology
to government processes and procedures will help to increase transparency and reduce
corruption.

Nigeria’s poor human capital outcomes adversely affect labor quality, productivity,
and economic growth. In light of the COVID-19 pandemic, these poor outcomes
may be exacerbated without appropriate interventions. The government’s low
expenditure on health and education contributes to a large skills gap. The quality of
education is poor in Nigeria; adult literacy rates are lower than in peer countries. In
2016, government expenditure on health was 0.6 percent of GDP in Nigeria—South
Africa’s was 4 percent, Côte d’Ivoire’s was 2 percent, and Ghana’s was 2 percent. Not
surprisingly, Nigeria significantly lags peers on key maternal, nutrition, and child
health service indicators. More funding and equipment are needed for the government
technical colleges. Equally important is broadening the scope of the National Skills
Qualification Framework to include more sectors. As Nigeria seeks to move its health
systems toward universal health coverage, policy makers must identify and ensure
appropriate roles for private providers and health markets. Doing so will require
a synergistic relationship between the public sector and the private sector with the
implementation of a deliberate policy and a strategic framework with tailored solutions
to local environments.

These constraints, together with cumbersome and expensive procedures, reduce the
incentive to formalize business activity, resulting in the highest rate of informality in
Sub-Saharan Africa and low productivity. A large shadow economy has developed
that is a constraint to economic growth. Nigeria’s private sector—although large and
vibrant—is predominantly informal and operates at relatively low levels of productivity

xv
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

within an uncompetitive market. Despite the existence of several multibillion dollar

domestic and foreign firms, informal MSMEs—numbering more than 40 million—
dominate Nigeria’s enterprise landscape, account for 84 percent of the total labor
force, and contribute 48.5 percent to nominal GDP and about 7.3 percent of export
revenues. Only about 58 percent of firms in Nigeria formally registered at the time
they started operations, compared with 84.1 percent in Sub-Saharan Africa as a whole.
Reducing the cost and the number of procedures for registering a business could help
to incentivize firms to formalize.

This CPSD can be a source of additional insight to guide policy makers during President
Muhammadu Buhari's second term and the recovery from the COVID-19 pandemic
and oil price shock. The CPSD’s recommendations are key inputs into the IFC’s
Country Strategy for Nigeria and the World Bank’s Country Partnership Framework.
The following table summarizes important actions suggested by this CPSD.

KEY CONSTRAINTS SUGGESTED ACTIONS

Weak macroeconomic Fiscal, monetary, and exchange rate policies

and financial policy
framework • Follow through on unifying all CBN-administered exchange rate windows
into a single market-driven window.
• Introduce comprehensive tax policy and administration reforms (for example,
establish consolidated/harmonized state revenue codes and expand
electronic tax payments).
• Bolster fiscal responsibility framework and intergovernmental fiscal
coordination by incentivizing states to fully implement the 22-point Fiscal
Sustainability Plan.
Trade policies
• Update Nigeria’s Trade Policy Framework.
• Reform tariff measures: simplify multiple duties and charges on imports and
substitute import bans with tariffs.
• Reform NTMs: review existing NTMs for their distortionary impact and phase
out foreign exchange restrictions on 43 imported goods by CBN and phase
out import prohibitions on 44 products by the Nigeria Customs Service.
Banking sector policies
• Discontinue CBN’s subsidized development finance initiatives.
• Balance external and domestic sources for government financing to avoid
crowding out the private sector.
• Integrate nontraditional credit providers into the credit reporting system to
increase the coverage of credit bureaus.
• Enhance creditors’ rights by prioritizing the development of stand-alone
legislation to address deficiencies in the insolvency framework and by
establishing specialized commercial and small claims courts with a clear
mandate to adjudicate commercial cases expeditiously.
• Overturn the CBN’s reversal of the decision to lower the minimum capital
requirement for subtier 2 unit MFBs and revert to earlier minimum capital
requirements.
• Promote financial literacy, the digitization of financial records of MSMEs and
support the deployment of incentive-based business information platforms.

xvi
 EXECUTIVE SUMMARY

Infrastructure POWER
deficiencies
Grid
• Ensure the implementation of the Power Sector Recovery Plan (PSRP). An
interministerial strategic team may need to be established to oversee the
implementation of the PSRP.
Off-grid
• Review import duties on off-grid components to ensure the fair treatment of
importers of components and developers.
• Support distribution companies in mapping of clusters suitable for off-grid
solutions.
• Develop community engagement programs for mini-grid operators within
the host community.
• Invest in training last-mile technicians to support off-grid solar companies
and to lower the costs of installation and maintenance.
Public-Private Partnerships
• Review public-private partnership (PPP) law to make sure it clearly states
the roles and responsibilities of each institution, considering the capacity and
convening power of each one.
• Develop a PPP pipeline based on sector assessments to create a roadmap for
mobilizing private financing.
• Enhance the capacity to develop PPP projects in government through
technical/financial support to state governments and line ministries.

SECTOR OPPORTUNITIES SUGGESTED ACTIONS

Agriculture • Incentivize disruptive technologies in agribusiness, including through social

enterprises and value-chain digitization, to allow farmers access to quality
inputs.
• Support community block farming and/or aggregate farmers into
cooperatives and outgrower plans to improve productivity and farmers’
bargaining power.
• Invest (through PPPs) in critical infrastructure (cold storage, warehouses, and
transportation systems) that allows for reduction in postharvest losses.
• Adopt the framework for agriculture insurance.

Mining • Develop geodata policy and data protocols to support the transparent use of
and the dissemination of geodata to potential investors.
• Develop an ecosystem of financing, including the leasing sector.
• Formalize artisanal mining (for example, through a gold purchase program).
• Operationalize the Community Development Agreement of Mining Act to
minimize hostilities and the disruption of mineral exploration.

xvii
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Manufacturing • Special economic zones: Update the regulatory framework for SEZs.
• Chemicals: Implement policies that support the consistent supply of gas
and feedstock, such as the gas flare prohibition and punishment bill and
the national Gas Flare Commercialization Programme, as well as move to
market-based gas pricing.
• Leather: Prioritize the availability of chemicals for improved leather
production and promote formalization in the primary segment to improve
technical capability and quality.
• Construction materials: Improve quality and standards to enhance
competitiveness.

ICT/digital economy • Harmonize “right of way” policy across the country for consistency.
• Optimize spectrum management, by reallocating used spectrum.
• Implement the Strategic Roadmap for a Digital ID System in Nigeria.
• Remove the overlap of responsibilities between different entities responsible
for regulating the ICT sector.
• Continue to accelerate the digitization of government payments, social
transfers, and tax collections, including via a related awareness and training
program.
• Advance digital literacy in the economy, both for youth and adults.

xviii
1. INTRODUCTION AND
COUNTRY CONTEXT

1.1 VOLATILE GROWTH AND HIGH INEQUALITY DESPITE

SIGNIFICANT RESOURCE BASE
Nigeria’s wealth has not translated into sustained economic growth and shared
prosperity for its citizens. Abundant natural resources (including land and marine,
diverse energy sources, commercial deposits of minerals and metals) and human
capital1 (a population of about 200 million people with a young labor force, and
a strong entrepreneurial culture) places Nigeria at a unique advantage. However,
GDP growth, which averaged 8.4 percent annually in the 2000s (see figure 1.1), has
been volatile and slowed considerably, averaging about 2 percent the past five years
(2014–18). Sluggish growth continued in 2019, when real GDP grew at 2.2 percent.
Growth is now lagging that of peers (see figure 1.2). 2 In the face of faster population
growth, the weak GDP growth is putting downward pressure on living standards.
In 2018, the poverty rate was about 44.2 percent—representing about 87 million
people—the highest among peers by international standards.3 The slow pace of job
creation in the face of a rapidly growing labor force (for example, 5.38 million net
new entrants in 2018, according to the National Bureau of Statistics 2019) pushed
the rate of unemployment from 9.9 percent in the third quarter of 2015 to about 23.1
percent in the third quarter of 2018. Labor force underemployment also increased,
from 17.4 percent to 20.1 percent, over the same period. Human capital outcomes
are relatively poor; Nigeria ranks 152 out of 157 countries on the World Bank’s 2018
Human Capital Index because of inadequate health and education systems. With the
fallout from the COVID-19 pandemic (see the Addendum to CPSD on COVID-19),
a recession is imminent, and Nigeria’s GDP is forecasted to contract in 2020 and
potentially in 2021.

1
 NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

FIGURE 1.1 ECONOMIC AND POPULATION GROWTH FIGURE 1.2 RECENT GDP GROWTH: NIGERIA VERSUS
(2000–18) PEERS

6000 16 7

REAL GDP, POPULATION GROWTH RATE (%)

14 6
PER CAPITA GDP (US$, PURCHASING

REAL GDP GROWTH (ANNUAL %)

5500
12 5
POWER PARITY, 2011)

5000 10 4
4500 8
3
6
4000 2
4
1
3500 2
0 0
3000
–2 –1
2500 –4 –2
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018

2013

2014

2015

2016

2017

2018
NIGERIA GDP PER CAPITA NIGERIA POP. GROWTH RATE NIGERIA STRUCTURAL PEERS (AVERAGE)
NIGERIA GDP GROWTH RATE SUB-SAHARAN AFRICA GDP ASPIRATIONAL PEERS (AVERAGE) REGIONAL PEERS (AVERAGE)
GROWTH RATE

Source: Staff calculations based on International Monetary Fund data and World Development Indicators.
Note: Structural peers include both lower- and upper-middle-income countries that resemble Nigeria in the key economic structure and performance indicators—
such as Algeria, Egypt, India, Indonesia, and Iran. Aspirational peers are countries that Nigeria can potentially improve toward to match their economic
performance—such as Brazil, Colombia, Malaysia, Mexico, Peru, Russia, and South Africa. Regional comparators are countries that are geographically close and
exhibit similar economic characteristics (Angola, Cameroon, Côte d’Ivoire, Ethiopia, Ghana, Kenya, Senegal, Tanzania, and Uganda).

Nigeria also faces a widening income gap and strong regional and gender disparities
in development outcomes. The Gini coefficient, a statistical measure of economic
inequality in a population, increased from 0.36 to 0.42 between 2011 and 2016,
contradicting trends in other African countries (World Bank 2016b). Poverty rates
in the northern region (made up of the north central, northeast, and the northwest
regions) are significantly higher than in the South. In 2016, 87 percent of all poor
people in the country lived in the North, which has been experiencing persistent
upward poverty trends since 2011. Nearly half of the most impoverished communities
are in the northwest region of the country. In contrast, the southern part of the
country achieved significant poverty reduction between 2011 and 2016. Poverty rates
in the southern zones were about 12 percent in 2016. Other indicators, such as infant
and maternal mortality rates, literacy and school enrollment rates, and gender equality
also lag in northern states. For example, 42 percent of adults in the North had no
education, compared with 13 percent in the South. More than two-thirds of girls in
the North ages 15–19 are unable to read, compared with less than 10 percent in the
South. Nigeria also scores low on gender equality, ranking 133rd out of 149 countries
in the World Economic Forum’s Gender Gap Index, with particularly low relative
scores on educational attainment and political representation (World Economic Forum
2018). Men are twice as likely as women to have wage employment when working
(World Bank 2019a). Gender discrimination is also categorized as high, with Nigeria
among the 10 percent of countries worldwide exhibiting the highest levels of gender
discrimination (OECD 2014).

2
 1INTRODUCTION AND COUNTRY CONTEXT

Urgent action is required to address Nigeria’s challenges. Under present conditions,

the number of people living in extreme poverty is projected to reach 120 million (or 45
percent of the population) by 2030.4 Estimates suggest that 40 to 50 million higher-
income and higher-productivity jobs will be needed to employ Nigeria’s population
by 2030 to reduce poverty and to help create more inclusive growth (World Bank
2015). Inequality may worsen because of the COVID-19 pandemic—the poor, whose
livelihood mostly depends on daily labor, are likely to be disproportionately affected.
Faster and more inclusive economic growth will decrease the number of people living
in poverty, and will help the country evolve into a prosperous nation. Otherwise, there
is a risk of social instability.

1.2 THE CHALLENGES OF NIGERIA’S OIL-DEPENDENT

ECONOMY
The economy’s dependence on oil is a root cause of Nigeria’s weak growth and low
development outcomes. Nigeria is one of the least diversified exporters in the world.
Shortly after independence in the 1960s, crude oil exports became the mainstay
of the economy, which led to decades of productivity decline in historically export
competitive sectors such as agriculture and manufacturing. A series of reforms5 in
the early 2000s helped to improve productivity6 and growth (especially in the non-oil
sector) and to diversify the economy. As a result, the non-oil sector now accounts for
about 90 percent of GDP, compared with 68 percent in the late 1990s. However, the
oil sector still generates more than half of fiscal revenues and nearly 90 percent of the
nation’s already low exports relative to peers (see figure 1.3). The nation’s endowment
in agriculture and other resources (including gas) has added limited value, especially
when comparing manufacturing exports with peers (see figure 1.4).7 Consequently,
the economy is highly sensitive to the boom and bust cycles of oil prices that create
macroeconomic volatility, stymieing private investments. An example is the oil price
downturn and negative production shocks (between 2014 and 2016) that devastated
Nigeria’s public finances and precipitated the recession of 2016 (see the appendixes
for further discussions). The recent crash of oil prices by as much as 65 percent in
the first quarter of 2020—precipitated by the failure of two major producers (Saudi
Arabia and Russia) to reach an agreement on production cuts and the subsequent oil
price war, along with the ongoing COVID-19 pandemic, which has devastated global
oil demand—has led to a significant cut in the federal government’s budget for 2020,
demonstrating the substantial economic risks of over-dependency on oil exports.

3
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

FIGURE 1.3 EXPORTS OF GOODS AND SERVICES (2013–17): FIGURE 1.4 MERCHANDISE EXPORTS COMPOSITION (BY
NIGERIA VERSUS PEERS VALUE) IN 2017: NIGERIA VERSUS PEERS

Exports (% of GDP) Percent of Value of Exports

100 93.9 83.2 70.3 67.3 53.4 47.0 42.3 36.4 28.5 22.5 16.6 10.9 6.8
90
80 14.2
70 11.0 46.1
60
50 22.1 91.2
28.1 67.2
40
25.4 38.7
30
16.4 19.4
20
8.5
MOROCCO 34.90

RUSSIA 26.68
MEXICO 34.50

10 2.7
GHANA 30.75

KENYA 16.48
SOUTH AFRICA 30.61

SUB-SAHARAN AFRICA 25.74

LMIC 24.73
MALAYSIA 71.83

INDIA 21.24
CHINA 21.87

NIGERIA 13.91
INDONESIA 21.61

BRAZIL 12.14
EGYPT 14.12
COTE D'IVOIRE 37.12

3.4 8.3 13.3 13.3 21.2 14.2 29.5 41.5 60.5 10.3 69.2 43.0 2.0
0
CHINA
MEXICO
INDIA
MALAYSI A
EGYPT
SOUTH AFRICA
INDONESIA
BRAZIL
KENYA
RUSSIA
COTE D'I VOI RE
GHANA
NIGERIA
AGRICULTURE FUELS AND MINING MANUFACTURING

EXPORTS (% OF GDP) Source: World Development Indicators. Source: World Trade Organization.
Note: LMICs = lower-middle-income countries.

Besides oil price volatility, several other issues are exacerbating the uncertainty
about the long-term viability and sustainability of Nigeria’s oil dependency. Failure
to modernize the governance framework for the oil industry has created uncertainty
and has limited investment.8 Furthermore, it constrains the fiscal envelope and the
government’s ability to deliver public services. By international standards, Nigeria’s
competitiveness in oil production is low because of the comparatively high oil royalties
and taxation regime,9 combined with one of the highest costs to produce oil.10 In
addition, militancy in the Niger Delta—the main oil producing area—and the frequent
vandalization of oil pipelines pose further risks to Nigeria’s oil production. At the same
time, Nigeria’s oil industry is facing increased competition. Technological advances
that allow extraction in previously inaccessible locations means that more countries,
even in Africa (for example, Ghana, Kenya, Mozambique, Tanzania, and Uganda), are
discovering and producing oil. Nigeria’s crude oil customers (such as the United States)
are now purchasing from other countries and substituting their demand with shale oil
obtained through fracking—the injection of fluid into shale beds at high pressure to
free up petroleum resources. Concern over the adverse impact of fossil fuels on climate
change and the development of alternative (clean) energy sources such as biofuels also
may reduce the relevance of crude oil in the future.11

4
 1INTRODUCTION AND COUNTRY CONTEXT

Nigeria’s weak economic policy framework is the second major issue contributing to
the country’s weak growth and development outcomes. Over the years, government
policies and programs to promote growth, drive non-oil exports, and create jobs have
been poorly designed, inconsistent or short-lived, and inadequately implemented.
Agriculture policies and plans tend to change frequently and to differ in focus and
approach (for example, from the 2011–15 Agricultural Transformation Agenda
to the 2016–20 Agriculture Promotion Policy) usually in response to changes in
political leadership. This creates uncertainty for investors and results in performance
that is below expectations.12 In the manufacturing sector, the National Integrated
Industrial Development Strategy (2007) and the Nigeria Industrial Revolution Plan
(2014)—aimed at increasing the manufacturing sector’s contribution to GDP—have
not produced the desired results. Manufacturing value-added (MVA) has fallen
dramatically during the past 20 years, from 17.4 percent of GDP in 1998, to 8.7
percent of GDP in 2017—below the MVA of regional peers such as Côte d’ Ivoire
(12 percent) and Ghana (11 percent).13 More recently, key macroeconomic reforms
proposed under the Economic Recovery and Growth Plan 2017–20 (ERGP) have not
advanced, and are holding back private investments.

These policy challenges also reflect weak governance; weak institutions are eroding
the social contract14 and creating an environment that is not conducive to business in
Nigeria, relative to peers. Strong public institutions can provide faster, more inclusive,
and sustained delivery of public services, which reduces the costs of operating in
the private sector. However, Nigeria’s institutions struggle with the delivery of
public services (health care, education, security, etc.), the provision of economic
opportunities, or the enforcement of the rule of law.15 In addition, transparency,
accountability, and sustainability in the management of public resources, and policy
coordination among all three tiers of government (federal, state, and local) and across
sectors have been difficult to achieve (World Bank 2019b). The cost of operating in this
business environment is relatively high and as a result, trust between the government
and the private sector has eroded. Despite recent progress,16 Nigeria’s business
environment ranks 131 out of 190 countries on the 2020 World Bank Doing Business
Index, well below its aspirational peers—Malaysia (12), Indonesia (73), and South
Africa (84) (see figure 1.5). When looking at key indicators such as “Paying Taxes,”
“Trading Across Borders,” “Registering Property,” and “Getting Electricity,” Nigeria
ranks 159th, 179th, 183rd, and 169th, respectively, out of 190 countries.

5
 NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

FIGURE 1.5 DOING BUSINESS 2020 COMPARISON FOR NIGERIA VERSUS SELECT PEERS

STARTING A BUSINESS SCORE

100
OVERALL EASE OF DOING BUSINESS DEALING WITH CONSTRUCTION PERMIT
80

60

RESOLVING INSOLVENCY 40 GETTING ELECTRICITY

20

ENFORCING CONTRACT REGISTERING PROPERTY

TRADING ACROSS BORDERS GETTING CREDIT

PAYING TAXES PROTECTING MINORITY INVESTORS

NIGERIA MALAYSIA INDONESIA SOUTH AFRICA

Source: World Bank Group 2019a.

The challenging business environment has contributed to a large shadow economy and
low foreign direct investment (FDI). UUnder the tough business environment, a large
shadow economy17—estimated at 56.2 percent of GDP—has developed (Schneider,
Buehn, and Montenegro 2010) and has constrained overall economic growth as vast
sections of the private sector “hide in the shadows” or stay below the radar of formal
regulation. FDI to Nigeria has progressively declined since 2011, reaching about US$2
billion in 2018—its lowest level since the early 2000s (see figure 1.6). Nigeria’s share of
FDI to Sub-Saharan Africa has equally diminished. Ghana has overtaken Nigeria as the
largest FDI recipient in West Africa for the first time in several years (see figure 1.7).

FIGURE 1.6 NIGERIA’S FDI TRENDS FIGURE 1.7 AVERAGE FDI NET INFLOWS (2015–17)

10 40 Avg. FDI net inflows (% GDP)

35
PERCENT OF SUB-SAHARAN AFRICA

8
30
US$, BILLIONS

6 25
FDI INFLOWS

20
4 15
10
2
5
6.11 4.44 3.63 3.62 3.07 2.55 2.52 2.10 1.89 1.71 1.62 1.60 0.89 0.61
0 0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

GHANA
COLOMBIA
MALAYSIA
BRAZIL
MEXICO
EGYPT
SENEGAL
S-S AFRICA
COTE D'IVOIRE
CHINA
RUSSIA
INDONESIA
NIGERIA
SOUTH AFRICA

NIGERIA (US$, BILLIONS) NIGERIA (% SSA)

Source: United Nations Conference on Trade and Development. Source: World Development Indicators.
Note: FDI = foreign direct investment; SSA = Sub-Saharan Africa. Note: FDI = foreign direct investment; S-S Africa = Sub-Saharan Africa.

6
 1INTRODUCTION AND COUNTRY CONTEXT

1.3 BEYOND OIL—A PATH TO SUSTAINABLE AND

INCLUSIVE GROWTH
First, Nigeria must promote a private sector–led growth strategy to break the
dependency on oil (World Bank 2019b). Under this strategy, Nigeria must capitalize
on its existing opportunities. The abundance of key inputs presents a strong case
for the development of Nigeria’s non-oil sectors. Nigeria is rich in the base resources
(agricultural and mineral) that are required for food and the manufacturing of several
key products,18 making a case for its development of resource-based manufactured
products. For instance, Nigeria’s huge gas resources—the seventh largest gas reserves
in the world and the largest in Africa—give the country the potential to shift its focus
away from oil exports and toward the manufacturing of base chemicals and fertilizers.
Similarly, the lagging northern region’s large deposits of strategic industrial, metallic,
and precious minerals could support the industrial development of the region.

Second, the relatively large domestic population and the regional integration with
ECOWAS and (to a lesser extent) the African continent provide a solid market base for
Nigerian products, while the large Nigerian diaspora can be leveraged for financing.
Nigeria’s rapid population growth and urbanization is providing a ready market for
food, fast-moving consumer goods, building materials for housing, and consumer,
financial, transportation, and digital services. As the urban population continues to
increase—its growth is projected to be 3.9 percent per year, compared with 1 percent
among the rural population (World Bank 2018b)—the large and growing housing
and infrastructural needs of the country will continue to drive the demand for
construction materials such as cement (limestone), granite, marble, sand, and gravels.
In 2017, imports of construction materials such as granite, taps and valves, and metal
structures, some of which could be produced domestically, were valued at US$1.2
billion. The strong West African regional integration with ECOWAS and the recently
approved African Continental Free Trade Agreement have also extended Nigeria’s
market potential and opportunities to improve competitiveness.19 Remittances from
Nigeria’s large diaspora of 1.3 to 3 million Nigerians living abroad, especially in
Canada, Italy, South Africa, Spain, the United Kingdom, and the United States,
account for 6 percent of GDP (US$25 billion in 2019) and can be leveraged for long-
term financing of capital projects.

Third, Nigeria is uniquely placed to use technological advances to transform its

economy. Technology is transforming the nature of jobs, production techniques, and
how people interact with the world to deliver services. Future growth will hinge on
how effectively the country stimulates higher-productivity activities and innovation
by adopting new technologies, including digital technologies. Increasingly, innovation
hubs are at the center of digital infrastructure development in Nigeria, with the
number of active hubs growing from 23 to 55 between 2016 and 2018. The software
development industry grew from ₦960 billion (about US$6.4 billion) in 2012 to
around ₦3.7 trillion (about US$10.5 billion) in 2017. Nigeria’s e-commerce and online
trading market is worth about US$13 billion and is expected to rise to US$50 billion
in the next 10 years (Ernst & Young 2018). In addition, business process outsourcing
could generate about 5 million direct and indirect jobs for Nigeria in the next five
years. The new technology trends emerging during the COVID-19 pandemic may
strengthen these opportunities in the near and mid-term.

7
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

This CPSD positions the private sector as the engine of Nigeria’s growth and
development. The CPSD assesses opportunities for and constraints to private sector–
led growth. It provides policy reform priorities for the government to mobilize private
investment and drive solutions to break Nigeria’s oil dependency, create quality jobs
for the rising population, diversify exports, drive economic activity in undeveloped
regions, and contribute to overall economic growth and poverty reduction—all within
the medium term (a three- to five-year period). The CPSD’s recommendations are key
inputs into the IFC’s Country Strategy for Nigeria and the World Bank’s Country
Partnership Framework and informs investors about Nigeria’s prospects.

Before drilling further into the opportunities and constraints that confront the private
sector, this report briefly looks into the state of Nigeria’s private sector in chapter 2.

8
2. STATE OF THE PRIVATE
SECTOR

2.1 PREDOMINANCE OF THE MICRO, SMALL, AND

INFORMAL SECTOR
Nigeria’s vibrant private sector has several large firms in all sectors,20 and they are
mainly based in Lagos and the southern region. Nigeria hosts several large indigenous
enterprises and multinational companies, many of which are listed on the Nigeria
Stock Exchange. These large firms are making significant investments in technology
and infrastructure, and are employing thousands of workers. For example, Dangote
Industries, located in the Lekki Free Zone near Lagos, is constructing a US$15 billion
refinery and petrochemical plant—one of the largest in the world. Another example is
Flour Mills of Nigeria Plc (located in Lagos), which owns one of the largest single-site
wheat mills in the world.

However, because of the challenging business environment, micro, small, and medium
enterprises—mostly informal—dominate Nigeria’s enterprise landscape. Nigeria
has approximately 41.54 million micro, small, and medium enterprises (MSMEs)
(SMEDAN and NBS 2017)—41.46 million microenterprises, and 73,081 small
and medium enterprises (figure 2.1). These MSMEs account for 86.3 percent of the
national workforce and contribute about 49.8 percent to nominal GDP and about
7.6 percent to exports (SMEDAN and NBS 2017). However, only 2.1 percent of the
dominant microenterprises are formally registered. MSMEs are largely involved in
five sectors: wholesale/retail trade (42.3 percent), agriculture (20.9 percent), other
services (13.1 percent), manufacturing (9.0 percent), and accommodation and food
services (5.7 percent). Female entrepreneurs account for 48.7 percent of the ownership
of microenterprises and 22 percent of the ownership of small and medium enterprises
(figure 2.2). High compliance costs are a major disincentive to formalization, especially
for a small firm. It takes firms twice as much time to formalize in Nigeria (1.5 years)
as in the rest of Sub-Saharan Africa (an average of 7 months) (World Bank 2016a).
Informality also is detrimental to the economy—empirical evidence indicates that an
increase in the size of the informal sector negatively affects growth. 21 On the other
hand, informal jobs can be transformational, especially if markets can be structured
to include them. 22 Reducing the cost and procedures for registering a business could
incentivize firms to formalize.

9
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

FIGURE 2.1 MSMES IN NIGERIA BY SIZE FIGURE 2.2 OWNERSHIP OF MSMES IN NIGERIA BY GENDER

Informal Enterprises:
(a) 96% farm owners; 84% non-farm sector
(b) Most micro enterprises operate informally

SMALL
71,288 (0.17%)

MICRO
41,469,947 MEDIUM
(99.8%) 48.7% 51.3% 22% 78%
1,793 (0.004%)
MICROENTERPRISES SME'S

FEMALE MALE

Source: Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS) Survey 2017.
Note: MSME = micro, small, and medium enterprise; SME = small and medium enterprise.

2.2 LOW PRODUCTIVITY PREVALENT ACROSS SECTORS

Several sectors of the economy show low productivity23 (figure 2.3). Nigeria’s
manufacturing sector has a lower total factor productivity (TFP) relative to other
comparator countries: TFP is between two and three times higher in Côte d’Ivoire,
Ethiopia, and Ghana, and almost five times higher in Kenya than in Nigeria. At least
in part, Nigeria’s low productivity measure appears to be driven by low productivity in
the country’s North (World Bank 2016a). TFP in the northern states (except Kano and
Kaduna) is about one-third of TFP in the southern states. Although firm productivity
in Lagos compares favorably with productivity in Côte d’Ivoire, Ethiopia, and Ghana,
cities in Nigeria’s North lag considerably. The TFP of firms in Kano and Kaduna is
about one-quarter of the TFP in Lagos.

FIGURE 2.3 LOW PRODUCTIVITY ACROSS SECTORS

3 9 8 6 16 19
-7 -10 -16 -13 -4 -6 -5 -3 -5 -13 -17 -9 -17 -16 -25 -16 -4 -3 -35 -40
ALL MFG

FOOD

NON-METALLIC MINERAL

FABRIC. METAL

MFG PANEL

OTHER MFG

ALL SVCS

WHOLESALE

RETAIL PANEL

RETAIL

OTHER SVCS PANEL

OTHER SVCS

TRANSPORT

REAL ANNUAL SALES GROWTH (%) ANNUAL LABOR PRODUCTIVITY GROWTH (%)
Source: World Bank Enterprise Survey 2014. All MFG = All Manufacturing; All SVCS = All services.

10
3. CROSS-CUTTING
CONSTRAINTS IN THE
NIGERIAN ECONOMY
Infrastructure deficiencies, foreign currency regulation, and access to financing
are Nigeria’s top three constraints. This report uses business environment surveys
for Nigeria and interviews of several private enterprises across sectors and states,
as well as comparisons with aspirational peers, to prioritize the constraints in the
Nigerian economy. According to the World Economic Forum’s Executive Opinion
Survey (WEF 2017), infrastructure deficiencies, foreign currency regulation, and
access to financing are the “most problematic factors for doing business in Nigeria”
(figure 3.1). Collectively, macroeconomic management challenges, including foreign
currency regulations, policy instability, inflation, tax regulation, and tax rates, are
cited by about 32 percent of respondents as the biggest constraints to doing business
in Nigeria. In addition to those constraints, the World Bank’s Enterprise Survey (2014)
also identified corruption, and our interviews highlighted insecurity, anticompetitive
practices in some key industries, poor human capital development, and inefficient
land administration as key obstacles to private enterprises. Nigeria underperforms its
aspirational peers in every dimension needed to drive private sector development and
investment: finance, infrastructure (including power, transport, water, ICT), health
education, and land (see appendixes).

FIGURE 3.1 MOST PROBLEMATIC FACTORS FOR DOING BUSINESS IN NIGERIA, 2017

INADEQUATE SUPPLY OF INFRASTRUCTURE 20.2

FOREIGN CURRENCY REGULATIONS 13.9
ACCESS TO FINANCING 13.0
CORRUPTION 12.4
INEFFICIENT GOVERNMENT BUREAUCRACY 9.3
POLICY INSTABILITY 9.2
INFLATION 4.8
GOVERNMENT INSTABILITY/COUPS 4.4
INADEQUATELY EDUCATED WORKFORCE 3.8
TAX REGULATIONS 2.0
CRIME AND THEFT 1.9
POOR WORK ETHIC IN NATIONAL LABOR FORCE 1.8
TAX RATES 1.8
INSUFFICIENT CAPACITY TO INNOVATE 1.2
POOR PUBLIC HEALTH 0.3
RESTRICTIVE LABOR REGULATIONS 0.0

Source: World Economic Forum.

11
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

This report categorizes and focuses on the top constraints: a weak macroeconomic
and financial sector policy framework, and infrastructure deficiencies. It also
briefly examines some of the other challenges to private investment, which include
anticompetitive practices, governance challenges (particularly insecurity and
corruption), poor human capital, and inefficient land administration.

3.1 WEAK MACROECONOMIC AND FINANCIAL SECTOR

POLICY FRAMEWORK

Fiscal, Monetary, and Exchange Rate Policies

Nigeria’s fiscal envelope is too small to meet its large infrastructure and human capital
financing needs. Government revenues are low (8 percent of GDP in 2018) and remain
reliant on volatile oil and gas revenues, with non-oil revenues (4 percent of GDP)
stagnating in absence of tax policy and administration reforms. Energy subsidies
further reduce the limited fiscal space. Low revenue levels and inefficient public
spending are aggravated by the delays in budget approvals, and budget implementation
is characterized by limited transparency and accountability. 24 In addition, mainly
domestically financed fiscal deficits, together with central bank operations, crowd out
private sector borrowing as domestic yields increase, and risk-averse banks prefer to
invest in high-yield risk-free public sector securities.

The multiple objectives of Nigeria’s monetary policy hinder its effectiveness and create
uncertainty, while multiple exchange rates continue to distort private sector activities.
Because the monetary policy of the Central Bank of Nigeria (CBN) simultaneously
targets exchange rate stability and inflation and economic growth—the latter via
various financial support plans for sectors such as power and agriculture—it sends
conflicting signals. Since 2017, the CBN has been operating multiple foreign exchange
windows that segment the foreign exchange market and distort economic decision
making. Nearly 70 to 80 percent of the transactions are channeled through the
Investors and Exporters Foreign Exchange (IEFX) window, in which the CBN has
regularly intervened to stabilize the exchange rate. During the COVID-19 pandemic,
the CBN moved toward a unified exchange rate system when it adjusted the official
exchange rate alongside other exchange rate windows in March 2020. The federal
government communicated to the International Monetary Fund (IMF) its commitment
to maintaining a unified and flexible exchange rate regime, with CBN only intervening
to smooth large foreign exchange fluctuations. Follow-through will be critical because
the existence of multiple exchange rate windows creates economic uncertainty and
dampens private investment 25 by distorting the access to financing (foreign currencies)
for exporters, importers, and foreign investors. 26 On the other hand, remittances—a
large source of foreign currency inflows to Nigeria—can lower the cost of financing
for the private sector by enhancing the country’s credit rating with major international
rating agencies. Although official statistics show that remittances to Nigeria were a
staggering US$25 billion in 2019, their true size is likely to be larger. 27

12
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

Market efficiency can further be improved by removing foreign exchange restrictions

on imports. Improving remittance statistics through estimation of informal remittance
flows and collection of data on remittance costs by corridor would also be beneficial.
On the fiscal side, revenue mobilization can be enhanced, and fiscal management
improved with the implementation of the following fiscal reforms:

a. bolstering fiscal responsibility framework and intergovernmental fiscal coordination

by incentivizing states to fully implement the 22-point Fiscal Sustainability Plan;
b. establishing consolidated/harmonized state revenue codes;
c. expanding electronic tax payments;
d. removing petrol price subsidies combined with measures to shield the poor from
negative impacts; and,
e. improving budget implementation by strengthening (multiyear) budgeting practices
on the basis of realistic macroeconomic assumptions, actual revenue outturns, and
costed impact of new revenue measures.

Trade Policies
Nigeria’s protectionist trade regime limits opportunities and raises costs for the private
sector. Despite the positive effects trade openness can have on an economy, 28 Nigeria’s
trade openness of goods and services has been declining for the past decade—from
40.8 percent of GDP in 2008 down to 26.3 percent of GDP in 2017—and lags all of its
peers except for Brazil (figure 3.2). Nigeria’s current trade policy, which was developed
in 2002, is outdated. The absence of a coherent trade policy for an extended period
led to an uncoordinated protectionist trade regime spearheaded by monetary, fiscal,
and bureaucratic agencies. These uncoordinated measures include NTMs such as the
CBN’s restriction of foreign exchange for importing 43 goods; the import prohibition
list on 23 “prohibited” products and 21 “absolutely prohibited” products imposed
by the Nigeria Customs Service; and bureaucratic rules in favor of local content
requirements, especially in the oil and gas29 and ICT sectors, which are incompatible
with WTO rules. Import bans have induced nontransparent border clearance
procedures, delays, and rent seeking, 30 which has led to an increase in smuggling. The
recent decision (September 2019) by the government to close the country’s land borders
to all trade activities is another example of protectionist policy. All trade is now
conducted through the seaports. Although this may help to reduce rampant smuggling
across the porous land frontiers, it has severe consequences for agribusiness and the
private sector, especially legal traders of foodstuff across the West African region.

Tariffs and poor trade facilitation also are holding back trade. Tariffs are being
applied to imports including goods in which Nigeria does not have comparative
advantage in producing. In 2016, Nigeria’s weighted tariff average was 11.25 percent,
twice as high as the average in Sub-Saharan Africa, five and a half times higher than
in previously commodity-dominated exporters such as Indonesia, and nine times
higher than the average in Mexico. The high trade costs also are partly related to the
poor trade facilitation. According to the World Bank’s Doing Business report, Nigeria
is among the 10 worst-performing countries in the “ease of trading across borders”
category, ranking 182 out of 190.

13
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

FIGURE 3.2 TRADE OPENNESS OF GOODS AND SERVICES (2008 AND 2017): NIGERIA VERSUS
PEERS

Percent
180
160
140
120
100
80
60
40
20
0
MALAYSIA
MEXICO
GHANA
COTE D'IVOIRE
SOUTH AFRICA
SENEGAL
ALGERIA
ANGOLA
PERU
RUSSIA
EGYPT
UGANDA
CAMEROON
INDIA
INDONESIA
KENYA
COLOMBIA
TANZANIA
ETHIOPIA
NIGERIA
BRAZIL
2008 2017
Source: World Development Indicators database.

Although regional bodies such as ECOWAS offer high potential market opportunities
for the private sector, few gains have been made to date. Nigeria has been a member
of ECOWAS since 1975; however, its share of intra-ECOWAS exports has remained
low (around 6 percent of Nigeria’s total exports in 2016) mainly because of limited
progress in export diversification and significant gaps in implementation of the
ECOWAS commitments. For instance, Nigeria began aligning its tariff regime with the
ECOWAS Common External Tariff (CET) in 2015 but never completed it. The lack
of publicly shared information regarding the ECOWAS Trade Liberalization Scheme
(ETLS) prevents many traders from knowing their rights under the ETLS and subjects
them to harassment by customs officers.31 Often, customs officials decline to recognize
ECOWAS Certificates of Origin or to exercise other favorable treatment because of
revenue targets (Woolfrey, Apiko, and Pharatlhatlhe 2019). The recent signing of the
Africa Continental Free Trade Agreement is an important step in the right direction.
However, to fully capitalize on this and other trade initiatives, the government of
Nigeria needs to emphasize in its domestic policies the vital links between regional
integration and its global competitiveness agenda.

Nigeria should further liberalize trade and enhance trade facilitation to encourage
economic growth through regional and global trade. Nigeria will need to reform
its tariff measures including simplifying multiple duties and charges on imports;
substituting import bans with tariffs; and improving the predictability of its tariff
regime by increasing binding coverage and lowering high bound rates. The reform of
NTMs should focus on phasing out distortionary NTMs, such as foreign exchange
restrictions and import prohibitions. To reduce high costs, delays, and inefficiencies
in border and port clearance, redundant formalities should be reduced with the
simplification and harmonization of documents and the streamlining of procedures
and automation. These reforms should be undertaken in the context of an updated
trade policy and legal framework.

14
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

Restricted Access to Banking Services

Few firms can access financing. Domestic credit to Nigeria’s private sector— about
10.5 percent of GDP in 201932 — has declined in recent years (from a peak of 14.6
percent in 2016), and is well below the levels for SSA and LMICs (figure 3.3), as
well as aspirational peers like Malaysia. According to the latest enterprise survey
available, only 11.4 percent of firms in Nigeria have access to finance, which is low
when compared with the SSA average of 21.7 percent and with aspirational peers
Brazil (59.2 percent) and Malaysia (31.9 percent) (figure 3.4). Firms face limited
availability of medium- and long-term credit, high collateral requirements and high
interest rates. The CBN’s prime lending rates declined from 15.4 percent in August
2019 to 11.76 percent in August 2020, but the upper end of the lending rate that
financial intermediaries charge is as high as 30 percent. According to the Global
Findex database (2017), lending to microenterprises and SMEs is underdeveloped, with
only 0.6 percent of households managing a nonfarm enterprise reporting the use of
bank loans for start-up financing. Only 3.4 percent of investments and 3.9 percent of
working capital needs are reported to be financed by bank loans. While the number
of microfinance banks (MFBs) has grown above 1,000, providing access to financial
services to nearly 13 million depositors (of which 10 million are otherwise unbanked)
and 4 million borrowers, their net additional contribution to financial inclusion has
fallen since 2014. Furthermore, their combined asset base stands at barely 1 percent of
the assets of the deposit money banks.

FIGURE 3.3 DOMESTIC CREDIT TO PRIVATE SECTOR FIGURE 3.4 PERCENT OF FIRMS WITH BANK LOAN/LINE OF
CREDIT
Domestic credit to private sector (% GDP)
175
BRAZIL (2009) 59.2
150
KENYA (2018) 33.9
125
MALAYSIA (2015) 31.9
100
SOUTH AFRICA (2007) 30.1
75
INDONESIA (2015) 27.4
50
GHANA (2013) 23.3
25
5.0 6.5 8.2 8.4 13.5 13.1 14.6 12.9 10.2 10.5
SUB-SAHARAN AFRICA 21.7
0
1990 1995 2000 2005 2010 2015 2016 2017 2018 2019 RUSSIAN (2012) 21.6

LMICS SOUTH AFRICA COTE D' IVOIRE (2016) 21.3

MALAYSIA SUB-SAHARAN AFRICA
NIGERIA (2014) 11.4
NIGERIA

Source: World Development Indicators database. Source: World Bank Enterprise Surveys (various years).
Note: LMICs = lower-middle-income countries. Data for South Africa and
Sub-Sahara Africa only available to 2018.

15
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Agriculture and mining sectors are two of the most underfunded sectors in Nigeria.
Since 1972, Nigerian government policies have mandated that banks offer credit to
agriculture , yet most banks are reluctant to lend to smallholder farmers, favoring
large borrowers. Credit to the agricultural sector was 4 percent of total banking sector
credit in 2018 (table 3.1), which is very low for a sector that contributes about 22
percent of GDP (as at December 2019). Without credit, farmers are unable to acquire
key inputs including machinery, seeds, and skills necessary for improving agricultural
productivity. The CBN’s development finance schemes—such as the Anchor Borrower
Program (launched in 2015) and the Nigeria Incentive-Based Risk Sharing System for
Agricultural Lending (NIRSAL)—have in recent years targeted the agriculture sector,
to boost this sector’s productivity and creation of jobs. When compared with other
sectors, the mining sector received the lowest credit allocation—0.1 percent—from
banks. For this sector to play a greater role in the economy, more lending needs to be
channeled into it, as well as other critical sectors.

TABLE 3.1 SECTORAL DISTRIBUTION OF BANKING SECTOR CREDIT, DECEMBER 2018

Agriculture 4.0%

Mining 0.1%

Manufacturing 14.7%

Oil and Gas 23.5%

Power Sector 2.7%

Construction 4.1%

Trade 7.1%

Government 9.0%

Real estate 4.1%

Finance, insurance and capital Market 7.3%

Education 0.4%

Oil and gas - services 7.2%

Power and energy - services 2.0%

Other Services 13.7%

TOTAL 100%

Source: Central Bank of Nigeria database.

16
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

The rate of financial inclusion in Nigeria is lower than for peers. According to the
Global Findex database, in 2017, only 40 percent of Nigeria’s population aged 15 years
and older have a bank account, compared with 85 percent of the same population in
Malaysia and Kenya, 70 percent in Brazil, 57 percent in Ghana, and 69 percent in South
Africa.33 Challenges include: the exclusion of non-salaried workers; long distances to
financial access points, especially in rural areas and in the North. In 2019 the CBN
revised the Guide to Bank Charges, to reduce fees on card maintenance, electronic
transfers, ATM withdrawals, and bill payments. However, bank charges for account
opening and maintenance remain relatively expensive for the poor (World Bank 2019b).
Mobile money licenses were introduced in 2011 under a “bank-led” model and 21
licenses have been issued, but uptake has been low as only 5.6 percent of eligible
Nigerians have a mobile money account, compared with 72.9 percent in Kenya, 38.9
percent in Ghana, 19 percent in South Africa, and an average 20.9 percent in SSA.

Recent policies of the CBN have attempted to drive credit growth and improve
financial inclusion. The CBN is enforcing a minimum loan-to-deposit ratio (LDR), by
increasing the required LDR to 65 percent while assigning a 150 percent risk weight
to SMEs loan portfolios as part of risk weighted assets calculation. Banks that are
noncompliant with the LDR requirements are subject to additional Cash Reserve Ratio
(CRR) requirements that CBN imposes until the LDR is achieved. According to the
CBN, this policy measure has increased credit to priority sectors like agriculture and
manufacturing, while exerting downward pressures on lending rates. 34 However, the
medium-term sustainability implications of these policies need to be carefully assessed.
The CBN, in an effort to accelerate mobile money penetration, recently (August 2020)
approved licenses for three Payment Service Banks (PSB) and has scaled up the Shared
Agent Network Expansion Facilities (SANEF) incorporated in 2019.

In general, the private sector’s access to banking services in Nigeria is largely

curtailed by (a) an unlevel playing field and market distortions, (b) the government’s
crowding out of the private sector, (c) relatively incomplete financial information
and infrastructure, (d) a weak debt resolution and loan recovery framework, (e) a
fragmented microfinance sector, and (f) MSMEs’ lack of technical capacity to make
successful loan applications. These challenges can be further explained as follows:

• Unlevel playing field and market distortions: The CBN’s development finance
schemes (for example, Anchor Borrower’s Program, Non-Oil Export Stimulation
Facility, and MSME Development Fund), which lower lending rates, need careful
assessment so as not to undermine private sector credit growth. Market distortions
would hamper the credit transmission channel of monetary policy and propagate
monetary policy shocks to the real economy. Any possible disconnect between loan
pricing and underlying risk may discourage commercial banks from venturing into
underserved markets without subsidized interest rates. Moreover, credit market
dynamics are also influenced by the current governance of the development finance
schemes. The dual role of the CBN as a regulator of the banking sector as well as
provider of schemes or shareholder in some development finance institutions (DFIs)
is sub-optimal and runs risks of creating conflicting objectives. It is also worth
noting that the quasi-fiscal subsidy borne by the CBN under its DFI schemes reduces
its profits – that should normally be surrendered to fiscal authorities – thereby
reducing government’s available resources. As indicated earlier, the CBN’s LDR
policy needs careful assessment, particularly in cases where the noncompliance
of banks results in higher cash reserve requirements that impair banks’ liquidity
positions and, for some banks, reduce their risk appetite.

17
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

• Government’s crowding out of the private sector: The banking system shifted its
credit risk exposure to the government and CBN securities. Holdings of CBN paper
rose almost 10-fold while that of government paper rose by 20 percent between 2014
and 2018, crowding out private sector credit. More recently however, the appetite
for government and CBN securities has waned on account of the CBN’s LDR policy
that constrained banks from channeling funds to invest in treasury instruments, as
well as declining interest rates on such instruments.
• Incomplete financial information and infrastructure: Weaknesses in the country’s
credit reporting system continue despite the enactment in May 2017 of the Credit
Reporting Act to strengthen the legal and regulatory framework for credit reporting.
Only 13.9 percent of the adult population was covered under the credit reporting
system, well below South Africa’s coverage of 64.4 percent and Kenya’s coverage of
34.0 percent.35
• The difficulty in uniquely identifying a large portion of the population has a
deleterious effect on financial inclusion because lenders are wary of making loans to a
person or an enterprise that is not uniquely identified. It is important to continue the
progress made in identity management and to have national identification numbers
linked with bank verification numbers.
• Poor knowledge of movable asset lending by financial institutions, weak enforcement
procedures, and low awareness levels by the public continue to inhibit rapid
adoption of the new regime of movable asset financing. To address the collateral
constraint to MSME lending, a modern, unified, electronic collateral registry was
established in 2016 and a Secured Transaction in Movable Asset Act was enacted in
2017. However, only a limited number of transactions collateralized with movable
assets has been registered by 162 financial institutions as of December 2019.
• A weak debt resolution and loan recovery framework: The country’s score for
“strength of insolvency framework,” as measured by Ease of Doing Business
indicators, has remained at 5 (out of 16) since 2014—well below the average score of
6.5 for SSA. The dispute resolution mechanism should also be improved to include
adoption of alternative dispute resolution, establishment of specialized and well-
resourced commercial courts, and adoption of fast-track procedures to improve debt
recovery.36 The government has devoted efforts to address some aspects of financial
distress in companies through the newly issued Companies and Allied Matters
Act (CAMA) of 2020;37 however, the need still exists for “stand-alone” legislation
to drive business rescue and ensure an effective framework for resolving financial
distress both of firms and individuals.
• A weak microfinance sector: The regulatory framework for MFBs requires further
strengthening to address the financial sustainability challenges of the smaller unit and
state MFBs. The CBN announced a tiered increase in minimum capital in October
2018 to help consolidate the sector and boost its resilience.38 However, revisions
issued in March 2019 could reduce the effectiveness of the policy measure aimed at
strengthening the microfinance banking system.39 The minimum capital requirements
for the sub-Tier 2 Unit MFBs was reduced to N50 million.40 This reduction needs to
be thoroughly reviewed to mitigate risks of infringement and ensure sustainability of
the operations of MFBs in this segment.
• MSMEs’ lack of technical capacity to make successful loan applications:
Microenterprises make up over 70 percent of businesses and are mostly informal
and led by women and youth. The CBN established Entrepreneurial Development

18
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

Centers to build the capacity of MSMEs and carry out training programs for the
MFB sector, amongst other initiatives. However, poor bookkeeping habits and lack
of financial discipline are some of the frustrations flagged by banks and financial
institutions in engaging with this category of customers.
Tackling these challenges will require concerted efforts by the government and
regulatory authorities. The way forward should include the following actions:

• Careful assessment of the effectiveness of CBN’s subsidized development finance

schemes in the medium term. This assessment should reorient schemes in such a way
to address key risk factors influencing MSME lending and market-based pricing,
and should identify financially sustainable solutions to encourage the banking sector
engage in risk-based pricing of financial products. For market segments that might
require subsidies, transparent mechanics of defining, targeting, financing, sequencing
and phasing out these subsidies should be developed and publicly announced.
• Reverse/reduce the crowding out of private sector borrowing, through a medium-
term debt strategy that appropriately balances domestic and external finance to
address both crowding out and foreign exchange risks.
• Extend the coverage of the credit bureau to include a larger segment of the bankable
population. This can be done by developing and implementing strategies to integrate
nontraditional credit providers into the credit reporting system, including by
leveraging financial technology to use alternative data to create credit profiles that
will make many economic actors “visible” and that will facilitate access to finance
and on better terms.
• Harmonize the bank verification number and national identification number
databases to ensure a single unique identification number and develop and implement
a roadmap for accelerated enrollment.
• Enhance the capacity of lenders to use a collateral registry in developing MSME
lending products, to develop and roll out asset-based lending programs, and to
effectively leverage the emerging credit infrastructure to boost lending to the MSMEs.
• Support the operationalization of the corporate insolvency provisions of CAMA
2020 by (a) developing corporate insolvency regulations, and (b) developing
regulatory capacity and training to build a body of practice and ensure effectiveness
of the insolvency regime introduced by CAMA. In tandem, efforts should be made
to quickly enact a comprehensive, stand-alone Insolvency Law that will, in addition
to addressing the shortcomings in CAMA 2020, cover both corporate insolvency
and individual bankruptcies. Work is also needed to ensure speedy and efficient
adjudication of commercial disputes, particularly the enforcement of creditors’ rights.
• Enforce earlier minimum capital requirements communicated in CBN’s October
22, 2018, circular, currently delayed because of the COVID – 19 outbreak. In the
interim, higher minimum capital requirements should be mandatory for new licenses
for MFBs, especially unit MFBs to strengthen the sector’s resilience and ensure its
sustainability.
• Promote financial literacy and the digitization of records of microenterprises
and support the deployment of incentive-based business information platforms.
Digitizing the records of microenterprises and providing easy-to-understand financial
management education would ensure the transparent selection of serious and
disciplined entrepreneurs who could be supported with financing. This effort would
promote formalization and facilitate enterprise growth.

19
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

3.2 INFRASTRUCTURE DEFICIENCIES

Infrastructure gaps are a major bane on private sector and on overall economic
development in Nigeria. Estimates suggest that infrastructure deficiencies cost Nigeria
about 4 percent of GDP growth annually.41 The total infrastructure stock (road, rail,
power, airports, water, telecommunications, and seaports) in Nigeria represents only
35 percent of GDP and is far below the level of peer emerging-market countries (for
example, Brazil, China, India, Indonesia, and South Africa), in which the average
stock is 70 percent.42 WEF’s 2016–17 Global Competitiveness Index ranks Nigeria’s
infrastructure at the bottom—132 out of 138 countries.

Inadequate infrastructure is the biggest contributor to low productivity in key sectors.

For instance, an estimated 20 to 40 percent of agricultural produce is lost post-harvest
due to delinquencies in

a. Power supply, because most rural areas where agriculture is prevalent are cut off
from the national grid—only 41 percent of rural dwellers have access to electricity
versus 86 percent of the urban population;
b. Storage, given that inadequate storage facilities lead to loss of agricultural produce
and even a reduction in the quality of produce;
c. Transportation, because bad roads and the near absence of rail facilities increase the
cost and duration of transporting agricultural produce from the point of production
to processing/consumption/storage; and
d. Irrigation, because only one percent of arable land is irrigated, and because most
farmers lack basic irrigation knowledge, or they do not possess the means to acquire
proper irrigation tools to boost productivity.
In the mining sector, the largest investment needs are in power, transport, and water
resources. Many companies that largely depend on electricity to power their heavy
equipment have lost significant profit margins because of the high individual cost of
energy generation.

The state of Nigeria’s infrastructure is as follows:

• Power sector: Nigeria has long struggled with poor access to electricity and an
unreliable power supply. About 60 percent of Nigeria’s population has access to
electricity, which is less than most peers and the average for LMICs (86 percent).
Similarly, power consumption per capita—at 144.5 kWh—is below the average for
Sub-Saharan Africa (485 kWh) and for South Africa (4,200 kWh), China (3,927
kWh), and Brazil (2,620 kWh). Nigeria has the second-largest absolute access deficit
in the world after India, and the largest in Sub-Saharan Africa (IEA 2017).
• Transport sector: Nigeria’s transportation networks are inadequate for the
country’s land mass and population size. Of the country’s 200,000 kilometers of
road, only about 60,000 kilometers (or 30 percent) are paved;43 in comparison,
about half of all roads for the world’s lower-middle-income countries, on average,
are paved. In 2017, 40 percent of federal roads, 78 percent of state roads, and 87
percent of local government roads were designated to be in poor condition. Limited
urban transportation infrastructure, mass transportation services, and urban space
that is allocated to movement all serve to reduce the productivity of cities. Nigeria

20
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

scores lower on WEF’s quality of road infrastructure index than its peers. The World
Bank’s 2018 Logistics Performance Index puts Nigeria at 110 out of 160 countries,
below its neighbors Benin (76th) and Cameroon (95th), and below peers like Kenya
(68th) and South Africa (33rd).
• Water and sanitation sector: Across water and sanitation indicators, Nigeria
underperformed compared with its peers. Only 20 percent of Nigeria’s population
has access to improved water sources, compared with 93 percent in Malaysia, and 36
percent in Ghana. Nearly 30 percent of water points and water schemes fail within
their first year of operation. Nigeria’s sanitation sector is in critical condition—only
27 percent of Nigerians have access to improved sanitation compared with nearly
half of the population in aspirational peers. Thus, 130 million Nigerians do not
meet the Millennium Development Goals standards for sanitation. This poor access
to water may also limit economic opportunities in Nigeria—according to the 2016
United Nations World Water Development Report, three out of four jobs worldwide
are water dependent.
• ICT infrastructure: Mobile connectivity in Nigeria is at 76 percent penetration,
compared with 169 percent in South Africa and 130 percent in Ghana. Only 39
percent of the population has access to mobile broadband connection, compared
with 105 percent and 79 percent in South Africa and Ghana, respectively. There
are higher levels of penetration in urban areas than in rural areas and more women
than men have access. There is a 29 percent gender gap in access to mobile internet.
Nigeria has about 222 servers per million people, a significant improvement from the
67 servers per million people it had in 2016; however, it still falls below Sub-Saharan
Africa’s average of 574 servers per million people.44 This deficiency in servers, a low
internet speed rate of 3.9 Mbps (versus the global standard of 7.2 Mbps), coupled
with enabling infrastructure challenges such as poor access to electricity, limit the
performance of Nigeria’s budding digital economy.45
This CPSD report addresses two key aspects of the infrastructure deficiency: (a)
Nigeria’s inadequate power supply because it is the most significant infrastructure
deficiency that affects the private sector and economic growth in the country; and, (b)
Nigeria’ inadequate public-private partnership (PPP) framework, which, if improved,
could help address deficiencies across all infrastructure subsectors, including energy
generation (renewables), energy transmission, transportation (express and highways,
sea ports and air ports, mass transit), solid waste management, agriculture, water and
sanitation, health, and education.

Inadequate Power Supply

Inadequate power supply is the top constraint for large firms (World Bank 2015).46
Approximately, 28 million households and 11 million small and medium enterprises in
Nigeria receive less than five hours of power per day. In August 2020, the Transmission
Company of Nigeria (TCN) estimated peak electricity demand at 28,290 MW;
however, peak grid generation only reached 5,257 MW. Inconsistent electricity supply
has driven businesses to pursue off-grid alternatives. Not surprisingly, 86 percent of
the companies in Nigeria own or share an energy generator to cover about 48 percent
of their total electricity demands (GIZ 2015a). However, generator-derived power is
costly compared with the cost of power from the national grid.47

21
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Therefore, Nigerian firms report very high electricity costs, equal to about 3.9 percent
of sales compared with only about 1 to 2 percent of sales in Russia and China.
Combined with high losses attributable to power outages, unreliable and expensive
power will make it challenging for Nigerian firms to compete in international markets
(World Bank 2016c).48

Grid Power Supply

To address the long-standing problems of the grid, the government privatized power
assets, but challenges remain along the value chain. SSix electricity generation
companies and 11 distribution companies were privatized, leaving the one transmission
company (the Transmission Company of Nigeria or TCN), as a government-owned
entity.49 However, privatization so far has failed to deliver on its promise because of
problems along the entire value chain, beginning with generation. Although total
installed generation capacity is about 13,000 MW, it is reduced to only 6,300 MW
(as of August 2020) because of poor maintenance, input constraints (gas and water),
and the limited capacity of the existing gas pipeline. Transmission system losses due to
limited wheeling capacity further amplifies insufficient power generation by conveying
to distribution companies less than generated power. 50 Distribution challenges place
stress on the entire system. A first set of distribution problems revolves around end-
user tariffs. Historically, delays in the periodic review of these tariffs to ensure cost-
reflective pricing have meant that distribution companies have paid, on average, far
less than what is due to As a result, they play a central role in the accrual of more
than US$3 billion of sector arrears (or 1.5 percent of current GDP) (Edeh 2019), 51
and in generation companies accumulating arrears to gas suppliers. A second set of
distribution problems concerns the low collection rates of distribution companies. It is
estimated that on average less than 50 percent of all electricity distributed is not paid
for by consumers, including not only households and businesses but also government
ministries and agencies. 52

Moving forward, the implementation of the Power Sector Recovery Program is crucial.
In 2018, the federal government of Nigeria launched a comprehensive Power Sector
Recovery Program (PSRP) to address the challenges in power sector reform. The PSRP
identifies numerous interventions to restore financial viability, improve operational
efficiency, and enhance service delivery of the power sector. The comprehensive list
of interventions includes establishing cost-recovery tariffs, funding projected sector
deficits due to tariff shortfall, clearing historical deficits (including government
ministries’ debts toward distribution companies), improving distribution companies’
performance, ensuring gas supply for power generation, improving confidence in
the sector through governance and transparency interventions, and implementing
off-grid and renewable energy solutions to increase electricity access. 53 Although
implementation of the PSRP has been delayed, a recent order to transition to cost-
reflective tariffs in the Nigerian Electricity Supply Industry sets the framework to
transition to cost-reflective tariffs by June 30, 2021. The following measures may
facilitate timely implementation of PSRP:

• Establish an interministerial strategic team to oversee the implementation of PSRP,

and to improve sector governance, coordination, and institutional arrangements.

22
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

• Initiate turnaround of distribution companies on the basis of Performance

Improvement Plans (PIPs) and enforcement of their payment obligations.
• Institute coordinated planning to improve network performance and expand grid
and off-grid access in a cost-effective manner.

Off-Grid Power Supply

Off-grid energy solutions are eco-friendly (renewable) alternatives to diesel-powered
generators that complement the grid and alleviate existing power shortages. Off-grid
solutions in Nigeria largely involve the deployment of solar panels or power energy
storage systems, or some hybrid of both. 54 Nigeria has the potential to bridge power
supply gaps with solar energy. According to experts, if solar modules were placed on
only 1 percent of Nigeria’s land mass (920 km2), they could potentially generate 207
million MWh per year, 10 times the total electricity currently generated in Nigeria
(GIZ 2015b). Off-grid solutions tend to be small, stand-alone solar power generating
systems with storage batteries that provide electricity to a single user or multiple users
through a decentralized distribution network. They differ from grid power that is
supplied by independent power plants that are connected to a national or centralized
grid and they operate independently of the grid distribution companies. Solar energy
systems can be classified as follows: (a) solar home systems (up to 100 kW); (b)
solar mini-grids (up to 1 MW), which are based on electricity regulation in Nigeria,
typically supplying smaller communities (for example, rural areas, industrial clusters,
or residential estates); and (c) captive power (exceeding 1 MW), in which the electricity
is entirely consumed by the generator itself (for example, schools, hotels, offices, and
industrial companies).

Although still relatively nascent, off-grid power presents exciting opportunities

for private investors to rapidly increase electrification in Nigeria, with support
from government and donor schemes. Off-grid projects in Nigeria have gained
traction recently because they provide an effective solution to rural electrification
in a challenging environment. In addition, off-grid systems can serve households,
communities, and clusters of SMEs where it would be uneconomical to extend the
national grid. A GIZ assessment suggests that nearly 8,000 isolated solar systems
providing 4.4 GWh per year can effectively provide electricity to more than 26 million
Nigerians. The Rocky Mountain Institute conservatively estimates that the off-grid
market in Nigeria can offer potential annual revenues of ₦2.8 trillion (about US$8
billion) to private investors, if 75 percent of residents and businesses that are running
on small-scale generators switch to off-grid systems (RMI 2018). Moreover, there are
many industrial and commercial clusters that are currently underserved or unserved
by the grid, making them suitable for off-grid solutions (Cader and Moller 2015).
Two examples of these in Abuja are the Idu Industrial Park and the Garki commercial
cluster. The Idu Industrial Park hosts more than 130 large power consumers across
different business sectors, but only a few of the consumers are currently connected to
the grid; most depend on fuel generators.

23
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Several factors, partly unique to off-grid solutions and partly shared with the grid,
have limited the deployment of off-grid and renewable energy solutions including:

• Regulatory barriers such as the inconsistent application of import duties on

decentralized renewable energy components that raise end-user costs. For example, solar
panels are exempt from import duties but batteries are subject to 20 percent duties.
• Unproven at-scale business models: the selection of economically viable sites and the
sizing of the generation asset have many limiting factors in the Nigerian market: (a)
limited data availability for demand assessment; (b) the high cost structure of the
development and construction phase, which makes it difficult to compete with diesel
generators (the average tariff cost for a kilowatt-hour is about ₦150, which although
quite high is less expensive than the average cost of diesel generators in remote
areas, which are more than ₦200); (c) low confidence in distribution company
transparency, which makes many developers opt for sites far away from the grid
to reduce the chances of grid expansion and interconnection; and (d) poor capacity
usage, especially in rural communities.
• Limited human capital and technical expertise: there is an insufficient supply of solar
and wind technicians that are capable of installing and maintaining systems, and
there are very few enabling policies or incentives to address this talent gap.
• Lack of consumer awareness and trust: there is a need to build consumer awareness
and trust—Nigerians who are aware of off-grid solutions often have a deep distrust
of solar technologies.
To address these challenges and move forward, key stakeholders (government,
regulators, and investors) can take the following steps:

• Review import duties for off-grid components to ensure fair treatment of importers
of components and developers, and in tandem, incentivize the establishment of
manufacturing/assembling plants in-country.55
• Set up a mini-grid/decentralized energy solutions desk within distribution companies
to engage with investors who are interested in providing off-grid solutions to ensure
power reliability in underserved clusters.
• Support distribution companies in the mapping of clusters that are suited to off-grid
solutions on the basis of criteria agreed on by both parties to encourage additional
development of decentralized energy solutions within each distribution company’s
distribution network coverage area.
• Develop a benchmark for the selection of optimal and densely populated sites
with productive loads to increase the financial viability of projects with increased
economic activity and higher consumption. The benchmark can act as a standard
guide to investors/lenders.
• Government support to developers for land acquisition and other related issues such as
right-of-way, permitting process, title and perfection issues, community relations, etc.
• Establish an independent certification body to provide industry-wide certification to
technicians and mini-grid developers, and invest in training last-mile technicians to
support off-grid solar companies and to reduce the overall cost of installation and
maintenance while improving the quality and reliability of service. This step may
include support to the National Power Training Institute of Nigeria (NAPTIN) to
provide affordable training to low-skilled technicians.

24
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

• Increase the number of training centers that are accredited to provide the learning
content developed by the Renewable Energy and Efficiency Policy and the Nigerian
Energy Support Programme in each state, and incorporate off-grid courses into
universities’ engineering-related curriculum to provide certification to students.
• Develop community engagement programs for mini-grid operators within the
host community to preserve customer interest, increase collections rate and reduce
defaults, collect feedback, maintain satisfaction, and quickly identify operational
problems. The programs should also increase awareness to reduce the distrust of
solar solutions and the tariffs set by developers.

Inadequate Public-Private Partnership Framework

Addressing the infrastructure gap requires significant investment, which the
government alone cannot meet. Nigeria needs to invest US$3 trillion in infrastructure
over the next 30 years—about US$100 billion annually until 2045. 56 However,
the government’s capacity to mobilize resources, allocate them effectively, manage
innovative funding models, and provide oversight for infrastructure, is weak
(Federal Republic of Nigeria 2017). According to the Global Infrastructure Outlook
report, between 2007 and 2017, Nigeria’s annual average public investment in
infrastructure across the sectors of transport (rail, roads, airports, and ports), energy,
telecommunications, and water was equivalent to about 3.6 percent of GDP and did
not surpass 4.6 percent of GDP in any given year during that period. This means
that Nigeria effectively spent below the annual average infrastructure investment in
Africa, which accounted for about 4.3 percent of GDP on average during the same
period. Furthermore, Nigeria’s infrastructure investment is insufficient to meet the
infrastructure goals of the Sustainable Development Goals, which require investments
to account for up to 6.8 percent of GDP until 2030. The rapid growth in population—
projected to reach nearly 400 million by 2050—coupled with urbanization presents
a strong urgency for infrastructure development. Without drastic improvements, this
growth will compound the already-overwhelming infrastructure deficit and growth of
urban slums.

Despite their low use, the scope for public-private partnerships (PPPs) is enormous.
Due to fiscal constraints, governments around the world have turned to PPPs to
design, finance, build, and operate infrastructure projects. 57 The injection of private
capital is also expected to increase efficiency in service delivery. Estimates for Sub-
Saharan Africa show that about one-third of the infrastructure investment gap can
be met through operational optimization, thus narrowing the investment gap from
US$100 billion to US$66 billion (National Integrated Infrastructure Master Plan
estimate). PPPs could potentially represent 40 percent of this optimized gap, with
an amount up to US$26 billion. 58 PPP opportunities exist across a range of sectors
including renewables (solar), off-grid and decentralized generation, grid extension,
transport (express and highways), mass transit (rail and BRT), sea and airports, water,
agriculture, health, and education (see appendixes). Despite its scope, Nigeria does
not use PPPs as extensively as other developing countries and has an inconsistent
track record in their implementation. From 1990 to 2019, Nigeria launched 56 PPPs
(US$39 billion), compared with 1,064 in China and 643 in Brazil (World Bank Private
Participation in Infrastructure database).

25
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Nigeria’s regulatory and institutional PPP frameworks are on par with peers in
many aspects, but show some weaknesses (figure 3.5). The frameworks on contract
management, procurement, and unsolicited proposals are in line with or above those
of peers, and progress was made in enhancing transparency and disclosure of PPP
contracts by launching the PPP disclosure web portal. However, Nigeria lacks some
of the key common features of successful PPP programs (see World Bank 2018c),
especially in project preparation and elements such as clear institutional separation
of functions, processes, and criteria for project selection and prioritization, as well
as so-called “jurisdiction issues” (that is, jurisdiction of local courts, recourse to
international arbitration, sovereign immunity, etc.), among others.

FIGURE 3.5 COMPARISON OF NIGERIA’S PPP FRAMEWORKS, 2018

79
SOUTH AFRICA 72
67
79

71
75
KENYA 50
59

27
71
NIGERIA 67
52

41
54
SUB-SAHARAN AFRICA 48
50

43
58
LOWER-MIDDLE INCOME 53
52

PREPARATION PROCUREMENT
UNSOLICITED PROPOSALS CONTRACT MANAGEMENT

Source: World Bank 2018c.

With no central dedicated PPP unit in charge, roles and responsibilities lack clarity,
coordination is poor, and the institutional set up is ineffective. Although the ICRC
Act (2005) and the National Policy on Public Private Partnership (2009) set the
principles for PPPs, they are too high-level and fall short of providing clear guidance.
The processes described in the Act are not fully implemented. This uncertainty leads
to an unclear division of roles and accountability among various federal ministries and
agencies along the PPP project cycle. The National Policy on PPP (NP4) sets out the
government’s commitment toward PPPs, PPP policy objectives, and the institutional
structure (including the formation of the Infrastructure Concession and Regulatory
Commission, established by an Act of Parliament in 2005) and processes for managing
PPPs. However, NP4 does not clearly specify which agency is in charge (for example, in
the “institutional framework” subsection, it mentions three agencies59 and in Section
6 it lists more than eight agencies as “parties/stakeholders” in the PPP process) thus
creating some uncertainty as to which agency, among the many cited, should effectively
lead the country’s PPP agenda.

26
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

The role of the Ministry of Finance needs to be further clarified under the existing
PPP framework. The key role of the Ministry of Finance, being the manager of the
government’s finances, is to ensure that PPPs provide value for money and are in line
with fiscal priorities, while various entities can be the “gatekeeper” (for example,
Ministry of Finance or PPP unit within the ministry, dedicated entity, and so on.). This
gatekeeper role needs to be more clearly established in the Act and/or in implementing
regulations. Although NP4 attempts to address this by assigning to the Ministry of
Finance the role for evaluating fiscal risks, it is not clear how this function is to be
discharged or how fiscal priorities are to be taken into consideration. Furthermore, the
absence of a clear mandate with regard to the evaluation of value for money in specific
PPP projects persists.

PPP preparation suffers from a lack of capacity in terms of skills and funding to
create a PPP pipeline that is sufficiently anchored in the country’s public investment
management system. Overall, Nigeria only scores 27 (out of 100) according to
the World Bank’s PPP Procurement benchmarking (World Bank 2018c), scoring
lower than the Sub-Saharan Africa average and LMICs. The Nigerian regulatory
framework lacks the specific methodologies developed for various assessments,
including the prioritization of projects, economic and risk analysis, value for money
analysis, or environmental impact. Moreover, PPP preparation does not include a
clear methodology for assessing affordability from a fiscal perspective. Despite recent
capacity building efforts including through the World Bank Group PPP certification
program, limited PPP capacity and experience within line ministries to identify and
implement PPP projects, coupled with a lack of funding for the (rather expensive)
project preparation phase for PPPs results in a low PPP pipeline, which extends to local
sponsors. Going forward, it is essential that projects enter the PPP pipeline through
a robust formal public investment management process with requisite approvals. It
is also essential to ensure that projects do not arbitrarily leave the pipeline without
adequate basis, and without an appropriate approval process, once they become part of
the agreed and approved pipeline (World Bank Group 2019c).

The procurement framework for PPP operations is fundamentally sound. However,

there are a few areas that need to be improved to enhance transparency. These areas
include (a) the inclusion of a standstill clause in the PPP Policy and (b) the role of the
Bureau of Public Procurement (BPP). Nigeria does not have a “standstill” safeguard
in its PPP procurement framework that would allow unsuccessful bidders to challenge
a contract award before the PPP contract signing and execution. In addition, public
procurement in Nigeria is regulated by BPP through the Public Procurement Act (PPA)
of 2007, Regulations and Manual. Procurement in PPPs is supposed to be carried out
in accordance with PPA. Section 16(1) of PPA provides that no public procurement
shall be conducted by a procuring entity until it has obtained a certificate of “No
Objection” to a contract award from BPP. The bureau is responsible for monitoring
every stage of the PPP procurement process to ensure consistency with PPA. The
Infrastructure Concession and Regulatory Commission (ICRC) policy requires the
ICRC Resource Center to work with BPP to develop an appropriate joint manual for
PPP procurement processes. A PPP procurement manual was developed in 2017, but it
appears to be in draft form and needs to be finalized.

27
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Nigeria’s low access to long-term domestic finance makes it difficult to advance the
PPP agenda. Local currency markets need to be unlocked and access to international
finance needs to be enhanced. Nigeria’s banking sector holds assets worth US$75
billion—a potential funding source of US$7 billion to US$8 billion for infrastructure
projects and PPPs. But the banking sector has a low-risk appetite and a limited level
of familiarity with the infrastructure sector and PPPs. Nigerian pension funds are
a potential source of solid funding for PPPs, but their statutory framework caps
investment in infrastructure at only 10 percent of their total assets (that is, US$2.2
billion—with total assets of US$22.5 billion). In addition, pensions funds are
constrained by their lack of sophistication to assess individual infrastructure projects
and they are constrained by their inability to take on construction risks. The shortage
of long-tenor debt and high interest rates makes foreign currency debt a feasible
alternative but brings along foreign exchange risks and potential contingent liabilities
for the government.

The following solutions can be implemented to address these challenges:

• Improve the institutional and regulatory framework: given the shortcomings

identified above, a new, comprehensive PPP bill in line with international best
practice is needed to, among other things (a) state, as clearly as possible, the roles
and responsibilities of each institution involved in the PPP process, including the
key role to be played by the Ministry of Finance (as discussed above), taking into
consideration the capacity and convening power of each institution; (b) appoint a
dedicated lead institution to steer the PPP program effectively; (c) clearly address key
PPP procurement issues; and (d) provide for, among others, “jurisdiction issues”
(discussed above), which are dear to international investors. In addition, NP4 needs
to better define what types of PPPs it covers and address the gaps that still remain,60
among other things. Alternatively, or in addition to the policy, enabling regulations
under a new PPP bill would need to be issued following international good practices,
spelling out the key aspects of the bill and how implementation of those issues is to
take place, and fully addressing the institutional setup issue, among others.
• Support fiscal assessments: (a) clarify roles and methodologies for the assessment
of fiscal implication of PPPs and report those roles in a transparent manner by
embedding them in a PPP framework; (b) assess the current stock of PPP liabilities;
and (c) assess PPP fiscal implications against Nigeria’s debt management strategy.
• Develop a PPP pipeline: carry out sector assessments to create a roadmap for
mobilizing private finance and carry out project screening to create a robust pipeline
of projects across target sectors (transport and power).
• Increase PPP capacity: (a) provide support to states and line ministries and set up a
project preparation facility with adequate funding and technical assistance for project
preparation in areas such as engineering, legal aspects, and financial structuring;
and (b) create methodologies for project preparation (project level assessment and
prioritization, risk analysis, etc.), and for standardized material specifically for
project selection, PPP transaction advisory, and targeted capacity enhancement.
• Better manage PPP contracts: review regulations and guidelines to support systematic
and robust project preparation, tender processes, and contract management.

28
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

• Alleviate financial constraints: leverage the capital markets (see box 3.1) and
InfraCredit (which helps raise long-tenor local capital for infrastructure projects,
including from pension funds, insurance firms, or other long-term investors), and
explore the role of the National Infrastructure Facility of the Nigeria Sovereign
Investment Authority.

BOX 3.1 RAISING LONG-TERM FINANCING: THE LIMITED ROLE OF NIGERIA’S CAPITAL
MARKETS

The Nigerian Stock Exchange (NSE) is the second about 9 percent of GDP—well below Malaysia’s
largest market in Africa after South Africa. The 112.3 percent and South Africa’s 236.6 percent. New
bond market is also one of the most developed in listings of initial public offerings and corporate
Sub-Saharan Africa after the Johannesburg Stock bonds are scarce on the NSE. Large private sector
Exchange (JSE) with a fully developed benchmark enterprises are reluctant to list equity on the stock
yield curve and a fairly liquid secondary market for exchange—many of them cite an unwillingness
trading debt securities. In addition to issuance and to dilute ownership, stringent disclosure and
trading of the traditional equities and bonds, the compliance requirements, and costs of issuance
NSE recently introduced new products including real as the deterrents. Over the past five years, new
estate investment trusts (REITS), exchange traded capital raised on the mar¬ket has been dominated
products (ETPs), green bonds, infrastructure bonds, by federal government of Nigeria bonds. In addition,
sukuk bonds, diaspora bonds, and retail bonds. institutional investors (for example, pension fund
administrators) have heavily invested (with more
The World Bank Group supported capital market
than 70 percent of their funds) in federal government
development in Nigeria through the Efficient
of Nigeria securities at the expense of corporate
Securities Markets Institutional Development
bonds and equities even though their investment in
(ESMID) Program from 2009 to 2013. Although
infrastructure has grown since 2013, but still remains
significant progress was made under the program,
very limited (₦18 billion in 2018).
the market remains limited. Given the size of
Nigeria’s economy and the large number of eligible In 2015, the Securities and Exchange Commission
firms that can raise financing through the NSE, the launched a 10-year Capital Market Master Plan that
market is underserving the private sector with less sets out strategies to prioritize investor education,
than 170 firms listed, compared with more than 900 including developing a commodities exchange,
firms listed in Malaysia, and more than 350 firms product diversification, and tax incentives to make
listed in South Africa. Total market capitalization in capital markets more attractive to investors.
June 2019 was about US$70 billion (or 19.5 percent Although some of those activities are being
of GDP) with the equity market accounting for only implemented, several have yet to be.

29
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

3.3 OTHER CONSTRAINTS

Inefficient Anti-Monopoly and Competition Policies

Nigeria’s fundamental conditions to support a market-based economy in which
markets reward competitive businesses fall far short, compared with peer countries.61
Nigeria’s market-based competition policy and anti-monopoly policy are weak,
according to the Bertelsmann Stiftung’s Transformation Index (BTI) (figure 3.6)—
only Angola performs below Nigeria in terms of anti-monopoly policy. In addition,
businesses perceive competition-related business risks in Nigeria to be relatively high
compared with peers; vested interests and cronyism are the most prominent risk
components according to the Economist Intelligence Unit 2018 survey (figure 3.7).

FIGURE 3.6 NIGERIA’S SCORE VERSUS PEERS’ SCORES ON FIGURE 3.7 NIGERIA’S SCORE VERSUS PEERS’ ON
MARKET-BASED COMPETITION AND ANTI-MONOPOLY PERCEIVED BUSINESS RISKS RELATED TO WEAK
POLICY COMPETITION POLICIES

10 15

8
10

5
4

2 0

EGYPT, ARAB REP.

RUSSIA
ALGERIA
ANGOLA
NIGERIA
CAMEROON
CÔTE D'IVOIRE
INDIA
INDONESIA
TANZANIA
UGANDA
KENYA
PERU
SENEGAL
COLOMBIA

GHANA
BRAZIL
MALAYSIA
MEX ICO
0
BRAZIL
PERU
COLOMBIA
INDIA
RUSSIA
MALAYSIA
MEX ICO
UGANDA
KENYA
SENEGAL
EGYPT
INDONESIA
GHANA
TANZANIA
CÔTE D'IVOIRE
ALGERIA
CAMEROON
NIGERIA
ANGOLA

PRICE CONTROLS DISCRIMINATION AGAINST

FOREIGN COMPANIES
UNFAIR COMPETITIVE
MARKET-BASED COMPETITION ANTI-MONOPOLY POLICY PRACTICES VESTED INTERESTS/CRONYISM

Source: The 2018 Bertelsmann Stiftung’s Transformation Index (BTI). Source: Economist Intelligence Unit 2018 survey.
Note: The BTI is a perception indicator based on in-depth assessments of Note: Highest risk per area = 4; maximum total level of risk = 16; a higher score
countries; a lower score is worse. is worse.

A high degree of concentration across many key markets in Nigeria reflects the
existence of government interventions that hinder competition. Provisions in the law
governing the corporate sector (Companies and Allied Matters Act 1990) contain
restrictions on foreign companies that enter the market without first incorporating a
Nigerian company. Regulatory obstacles to competition exist in various sectors like
agribusiness (seed and fertilizers), manufacturing (PET, cement), and ICT (digital and
financial services). See the appendixes for a summary of key competition restrictions in
various sectors that are detrimental to the private sector’s ability to enter, expand, and
compete in these markets. The restrictions outlined here are largely de jure or “on the

30
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

books.” However, de facto advantages (through advantageous access to licenses, public

procurement contracts, or tax breaks) that are provided to some politically connected
firms also shape the competitive landscape in Nigeria. For example, in cement, some
players have reportedly received de facto exclusive or advantageous import rights and
were given favorable access to government assets during the privatizations around
2000 (Cocks 2012).

Larger players seem to exercise significant influence over industrial, trade, and
investment policies, which places them at an advantage over those that do not have the
same level of access to government. The Nigeria Industrial Policy and Competitiveness
Advisory Council (NIPCAC),62 for example, plays a key role in advocating for
protections and incentives for industry. Both the NIPCAC and the standard setting
process are mostly driven by larger players that have influenced policies to favor
incumbents. The Standards Organization of Nigeria is aware of this issue and is
attempting to increase inputs from a broader range of smaller firms and stakeholders.

State aid to firms—such as subsidized financing and investment incentives—is

designed in a way that targets politically connected or large players, or the sectors in
which these firms play. Potential distortions to the level playing field are not explicitly
considered in incentive design. “Special incentives” are available for strategic or major
investors and are negotiated case-by-case (Nigerian Investment Promotion Commission
and Federal Inland Revenue System 2017) and are not publicly available. The Pioneer
Status Incentive (PSI)63 has seen reports of abuse and double-dipping by firms, which
recently has led to the restructuring of the plan to improve transparency. However,
complaints that the plan excludes certain firms remain. For example, the minimum
tangible assets required for eligibility have been raised significantly (to ₦100 million
or around US$280,000), putting SMEs and technology companies that typically have
more intangible assets at a disadvantage.64 The various and overlapping investment
incentive programs in place (U.S. Bureau of Economics and Business Affairs 2018)
contribute to distortions in competition.

Nigeria’s concentrated markets and the lack of pro-competition government

interventions increase the risk of anticompetitive firm behavior (such as abuse
of dominance and cartels); but the passage of Competition Act 2019 provides an
opportunity to develop a functional framework to tackle such behavior. Successful
implementation of the Competition Act will depend on the new Federal Commission
for Consumer Protection and Competition (FCCPC) being able to operate
independently of political influence and it having enough resources. In particular, the
FCCPC requires adequate staff and the necessary secondary legislation and guidelines
to carry out its mandate. For example, the FCCPC has been given the role of approving
mergers and acquisitions transactions (previously carried out by the Securities and
Exchange Commission) but currently it lacks the regulations, resources, and capacity
to fulfill this role. Further, secondary legislation and capacity is needed to combat
anticompetitive behavior effectively (for example, the ability to conduct raids, to
summon parties, to enter into settlements, and to implement a leniency policy). Finally,
it is important that FCCPC remains independent of the Federal Ministry of Industry,
Trade, and Investment, for example, through safeguards against political appointees
being placed in decision-making positions.

31
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

In addition, clarifying areas of the legal framework will be important to ensure a

competitive regime. For example, exemptions from the law for the professional services
should be removed. Provisions for price regulations in the law could be removed or
their use limited to specific situations with a clear rationale. Also, the FCCPC will
need to define how public interest provisions (for example, employment considerations)
will be used to prevent them reducing the law’s effectiveness. In addition, it will
be necessary to harmonize PPA and the Competition Act (for example, unlike the
Competition Act, PPA expressly excludes public officers from application of collusion
and bid rigging offenses) and to ensure cooperation between the agencies to prevent
anticompetitive practices in public procurement. The FCCPC also will need to manage
its concurrent jurisdiction with regulators of sectors such as telecommunications and
aviation.

Removing restrictions to competition in Nigeria’s key markets could create new

markets, and boost growth and welfare. Available retail price data for 41 food items
provide preliminary evidence that retail prices are generally higher in Lagos than in
other major cities in the rest of the world even when controlling for GDP per capita,
import costs, the status of logistics, and local tax rates. This data potentially reflects
weak competition in those product markets. Prices of staple goods are, on average,
15 percent higher than in other economies around the world even after controlling
for these factors.65 Boosting competition in those goods markets could provide more
affordable access by low-income households and could boost welfare. At the same
time, tackling restrictive product market regulations in key input sectors in Nigeria is
likely to have positive impacts on productivity of downstream firms and overall growth
in the economy. For example, tackling restrictive regulations in Nigeria’s professional
services sectors alone could result in an increase in GDP growth by at least 0.2
percentage points (World Bank Group 2016a). The impact would be even larger if
reforms were implemented in other service sectors with higher spillover across the
economy, such as electricity, telecommunications, and transport.

Ongoing Violence and Insecurity

Ongoing conflicts and violence across the country are making it difficult to encourage
private sector investment and achieve inclusive and sustainable growth. Because of
ongoing conflicts such as the Boko Haram insurgency in the North-East, the herder-
farmer clashes in the Middle-Belt and parts of the South-West, and militancy in the
Niger Delta, Nigeria ranks 14th out of 178 countries on the Most Fragile States Index
201966 —ahead of countries like Libya (28th) and Liberia (30th)—and it is now on
the World Bank Group’s list of countries in fragile and conflict-affected situations for
2020.67 Conflicts limit opportunities for private investment, gainful employment, and
infrastructure development. Several private sector players in agribusiness and mining
sectors, especially those in the North, point to rising insecurity as the main threat to
their enterprises. According to the United Nations High Commissioner for Refugees,
the Boko Haram insurgency has displaced more than 2 million people within Nigeria,
while thousands of MSMEs have either relocated or closed. The herder-farmer crisis
claimed 528 lives in the first quarter of 2018 alone.68 Citizens in these conflict-affected
areas have been unable to access basic services. Between January 2016 and October
2018, Nigeria lost US$7 billion to the activities of militancy groups and oil pipeline

32
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

vandals in the Niger Delta region, according to the Nigeria National Petroleum
Corporation. The cost of military interventions is immense and constitutes a huge
drain on the limited resources of the nation and crowds out productive investment
in infrastructure and human capital necessary for private sector growth. An average
10.5 percent of the national budget was allocated to defense between 2008 and 2018.
Meanwhile, the health care budget for 2018 was 3.9 percent of the total. The World
Bank Group Systematic Country Diagnostic (2019b) offers insights into how Nigeria
can rebuild its social compact to address the conflict and violence including increasing
government accountability and citizen engagement and addressing the needs of those
affected by the conflict.

Corruption
Corruption, poor transparency, and weak government accountability constrain private
sector development. Nigeria faces significant corruption challenges and it is ranked
144th out of 180 countries on Transparency International’s Corruption Perception
Index 2018. About 30 percent of firms report experiencing at least one request for
bribe payment—higher than the 25 percent average for Sub-Saharan Africa (figure
3.8). Corruption hinders achieving value for money in public service delivery and
investment and it distorts the Nigerian private market, which introduces inefficiencies
and prevents fair competition. Corruption creates a tax on investment69 that leads
to lower investment levels. Additionally, the costs associated with corruption can
be passed on to consumers, which results in inflation (figure 3.9). The International
Monetary Fund estimates that tackling corruption could lead to an increase of cross-
country real GDP growth of 0.5 to 1.5 percentage points, a tax revenue-to-GDP
ratio of 1.5 percentage points, and a 12 percent return for each dollar spent on public
investment.

FIGURE 3.8 SHARE OF FIRMS EXPERIENCING FIGURE 3.9 INFLATION AND CORRUPTION PERCEPTION
BRIBES INDEX

Firms experiencing bribes (%) CPI inflation (%)

50
45
40
35
30
25
NIGERIA
20
15
10
5
0
30 31 18 25 15 30 -5
0 20 40 60 80 100
NIGERIA EAST ASIA EUROPE & SUB- EGYPT, MALAYSIA
(2014) & PACIFIC CENTRAL SAHARAN ARAB REP. (2015) REST OF THE WORLD SUB-SAHARAN AFRICA
ASIA AFRICA (2014) Corruption Perception Index
(Higher value - lower perception of corruption)
Sources: World Bank Enterprise Survey 2014 (2015) and International Monetary Fund 2018.

33
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Several factors undermine the government’s efforts at tackling corruption. Many

institutions—including the Economic and Financial Crimes Commission (EFCC),
the Independent Corrupt Practices and Other Related Offences Commission (ICPC),
the Code of Conduct Bureau (CCB), the judiciary, the police and other para-
military organizations such as Customs and Excise—are involved in the fight against
corruption, in addition to the government joining the Open Government Initiative
(OGI) in 2016. These agencies, however, face major challenges: (a) lack of a Special
Court (except for the CCB); (b) lack of an Assets Forfeiture Law, which would allow
EFCC to seize the assets of suspects of corruption and financial crimes so that they
cannot influence the results of lawsuits before the courts convict them; (c) inadequate
training of personnel; (d) outdated laws (the Evidence Act in use in Nigeria dates
back to 1945, and the Penal and Criminal Codes are more than 50 years old); (e)
uncooperative foreign countries; (f) undue publicity of high-profile cases by the media,
which distracts EFCC, ICPC, and CCB prosecution; (g) hasty investigations; and (h)
lack of strong exhibits despite the fact that the burden of proof lies with the prosecutor.
In addition, automated and digitized processes and services—which decrease human
intervention and promote transparency—are lacking. The World Bank Systematic
Country Diagnostic (World Bank 2019b) suggests that addressing corruption will
involve a more effective rolling out of the Open Government Initiative to states and
local government areas, and the deployment of digital technology to government
processes and procedures.

Poor Human Capital

Nigeria’s poor human capital outcomes adversely affect labor quality, productivity,
and economic growth. About 73 percent of the workforce has completed primary
education (with lower completion rates for women), well below Kenya, Ghana, and the
average for LMICs (91 percent) (figure 3.10). Approximately 10 million children do not
attend school; more than 90 percent of these children live in the North and according
to UNICEF (2019), about 60 percent of out-of-school children are girls. Health
conditions are also poor: two out of every five children under five years of age (44
percent) suffer from chronic malnutrition, among the highest in the world. Mortality
rates in Nigeria are high; the under-five mortality rate was 107 per 1,000 live births
in 2017. Nigeria is projected to overtake India in 2021 as the country with the most
under-five deaths in the world. The following sections discuss several educational and
health issues that negatively affect Nigeria’s human capital.

34
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

FIGURE 3.10 NIGERIA’S POOR HUMAN CAPITAL OUTCOMES, 2015

100 1,000 70

60
SHARE OF RELEVANT AGE GROUP

80 800

PER 100,000 LIVE BIRTHS

(PER 1,000 LIVE BIRTHS)

MATERNAL MORTALITY
50

INFANT MORTALITY
60 600 40

400 30
40
20
20 200
10

0 0 0
KENYA

BANGLADESH

LOWER-MIDDLE INCOME

GHANA

NIGERIA

SUB-SAHARAN AFRICA

COTE D'LVOIRE

SENEGAL

RWANDA

NIGERIA

COTE D'IVOIRE

SUB-SAHARAN AFRICA

KENYA

GHANA

SENEGAL

RWANDA

LOWER-MIDDLE INCOME

BANGLADESH
PRIMARY COMPLETION RATE SECONDARY COMPLETION RATE INFANT MORTALITY RATE MATERNAL MORTALITY RATEE

Source: World Development Indicators database.

Inadequate Skills and Education for Private Sector Jobs

Despite Nigeria’s large population, there are not enough qualified workers for private
sector jobs because many Nigerians lack the requisite skill sets and education. Adult
literacy rates in Nigeria are low—only 62 percent of Nigerian adults can read or
write, compared with 96 percent of Indonesian adults, 93 percent of Malaysian
adults, and 79 percent of Ghanaians. Government expenditure on education—about
7.3 percent of total government expenditure in 2017—is the lowest compared with
peers like Malaysia (21 percent), Ghana (20.1 percent), South Africa (18.7 percent),
and Côte d’Ivoire (18.6 percent). The private sector is severely constrained by this
uneducated and unqualified workforce. The agricultural sector has been plagued by
a shortage of skilled workers because of high levels of migration from rural areas,
while a shortage of qualified geologists, engineers, and technicians has affected the
mining sector. Currently, there is only one tertiary institution that offers degrees in
mining engineering and only one private institution (Laser Petroleum Geoscience)
that provides training in automation and equipment operation. Nigeria lacks requisite
skills for ICT (see figure 3.11), which not only hampers the growth of digital firms but
also limits the extent to which the economy can deploy digital technologies to drive
productivity and growth.

35
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

FIGURE 3.11 DIGITAL SKILLS AMONG POPULATION (1 –7 BEST):

Nigeria versus Peers

BRAZIL 3.1

SOUTH AFRICA 3.3

NIGERIA 3.4

COTE D'IVOIRE 3.8

GHANA 4.2

INDONESIA 4.5

KENYA 4.5

RUSSIA 4.9

MALAYSIA 5.4

Source: World Economic Forum Global Competitiveness Index 2019.

To fill these gaps, Nigeria should invest more in technical and vocational learning and
encourage stronger partnerships between the private sector and technical colleges to
ensure the relevant skills are developed. More funding and equipment are needed for
current government technical colleges. In addition, partnerships between educational
institutions and the private sector could ensure that the curriculum is relevant to
present and future needs and provide an avenue for graduates to acquire hands-
on training through internships and apprenticeships. In this regard, the Industrial
Training Fund would be more effective with greater participation by the private
sector. Equally important is broadening the scope of the National Skills Qualification
Framework (NSQF). NSQF was developed in 2013 to ensure that training programs
are responsive to the qualifications and competences needed in the labor market. The
plan calls for the creation of Sector Skills Councils (SSCs), which are made up of both
public and private representatives that are tasked with ensuring that skills development
programs align with the competences required by industry. A few SSCs are now
functional, however, more are needed to broaden the plan to include all sectors.

Weak Health Outcomes

The government’s low expenditure on health over the past two decades has limited
the expansion of highly cost-effective interventions, stunting health outcomes and
exposing a large share of the population to catastrophic health expenditures. Nigeria
spends less on health than most of its peers. In 2016, government health expenditure
was 0.6 percent of GDP versus 4 percent in South Africa and 2 percent in Côte
d’Ivoire and Ghana. In the same year, per capita health expenditure was US$213.70
in Nigeria, compared with US$362.70 in Indonesia, US$1,052.50 in Malaysia, and
US$1,071.35 in South Africa. Not surprisingly, Nigeria significantly underperforms on

36
 CROSS-CUTTING CONSTRAINTS IN THE NIGERIAN ECONOMY

key health outcomes, lagging peers on key maternal, nutrition, and child health service
indicators. The COVID-19 pandemic will further test the system and its ability to
minimize the spread of and fatality from the highly contagious virus. As Nigeria moves
its health system toward Universal Health Coverage, policy makers must identify
and ensure appropriate roles for private providers and health markets. Doing so will
require the implementation of a deliberate policy and a strategic framework, a mutual
un¬derstanding of the benefits of private sector engagement, and the capability to
tailor solutions to local environments.

Key constraints to private sector participation in the health sector need to be

addressed. These constraints include weak risk pooling mechanisms, the lack of
enforceable quality standards, inadequate supply of health workers, the lack of
affordable private financing, and a poorly regulated system. A fully funded Basic
Health Care Provision Fund with prioritized implementation in rural local government
areas and with the National Health Interview Survey gateway that includes accredited
public and private providers to deliver the basic minimum package of health services
will incentivize private investors to invest in the sector. PPPs can play an important
role in the sector; however, additional resources will be needed for PPP transaction
advisory services because many of the tasks required for the implementation of PPPs
are cost and transaction intensive as well as highly specialized.

Poor Access to Land Because of Inefficient Land Administration

Land administration in Nigeria is ambiguous and not uniform, complicating
the land tenure system and undermining land-based investments. Two pieces of
legislation govern the use and development of land: (a) the Land Use Act (LUA) of
1978, which is incorporated into the 1999 constitution, governs land ownership
rights and transactions; and, (b) the Urban and Regional Planning Act, Decree
No. 88 of 1992, which provides a framework for land management. Despite the
adoption of LUA about 40 years ago, the necessary regulations to further guide states
and guarantee consistency in implementation of the law have not been enacted.70
Additionally, customary and religious land practices coexist with these statutory
land laws, which results in confusing land administration frameworks. A vibrant
informal land market exists: “probably more than 70 percent of land transactions
are informal mainly because land transfers require consent of the governor for a fee”
(Butler 2012). The informality of land markets hinders states’ collection of revenue,
precludes development of a modern cadaster and registration system, hinders land
use planning efforts, limits access to finance, and undermines security of tenure. In
this environment, the private sector faces significant hurdles in identifying land for
investment, with uncertainty around ownership, and conflicts ensue before investments
begin. Furthermore, without geographic systems and the data contained therein,
investors and the state are unable to determine the best-suited locations for investment.
Since the enactment of the LUA, many states have taken land for public and private
development purposes, but few states have mapped the location of those parcels.
This creates significant challenges for responsible investment in agriculture, housing,
and industry (USAID 2016).71 The government of Nigeria needs to accelerate the
implementation of systematic land titling and registration, focusing on areas in which
investments are pending or likely.

37
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

However, even in the absence of legal reforms, new approaches can be (and have
been) piloted to facilitate land acquisition for investments. For example, state
governments, private investors, and local communities have created “tripartite”
agreements to facilitate inclusive partnerships in key states. Some states have adopted
innovative approaches that conform with international standards and good practices
for responsible and inclusive land-based investments. Innovative instruments such as
the Land Acquisition and Resettlement Framework (LARF), and the Framework for
Responsible and Inclusive Land-Intensive Agriculture (FRILIA) have been considered
or adopted by states such as Kaduna, Jigawa, and Ogun (see box 3.2). Although
not fully implemented, these frameworks could provide more effective strategies for
promoting private investment that better meet economic and social objectives, reduce
conflict, and are more sustainable and inclusive for all Nigerians. Both LARF and
FRILIA need strong political and financial support if they are to move beyond being
expressions of intent to being rolled out more widely and with proper monitoring and
supervision to ensure the best outcomes for all.

BOX 3.2 INNOVATIONS FOR BETTER LARGE-SCALE LAND INVESTMENT: FRILIA AND LARF

Among the more interesting innovations to address and acquisition, and payment of compensation
land-based investment challenges is Kaduna State’s to and restoration of livelihoods for affected
adoption of the Framework for Responsible and populations; grievance redress mechanisms;
Inclusive Land-Intensive Agriculture (FRILIA). The resettlement; livelihoods restoration; identification
first of their kind in Nigeria, these principles are and support to vulnerable households; and,
meant to guide the state’s efforts at attracting monitoring and evaluation.
investments in agriculture that are inclusive and LARF is based on Nigeria’s Land Use Act, Jigawa
that ensure shared benefits among investors and State’s Fast Track Procedure for Allocation of Land
the communities living in and around the site of to Investors, and the international Principles for
an investment. More specifically, the principles Responsible Agricultural Investment. LARF takes
are intended to help the government improve its substantial steps toward ensuring responsible
regulatory and institutional systems in a manner that investments by emphasizing the state acquisition
ensures balanced efforts at aggressively attracting of land with full compensation and resettlement
private investors in the agricultural sector and requirements. However, there is room for
minimizing environmental and social impacts. improvement, particularly in terms of the absence of
FRILIA consists of 33 principles, including nine inclusive investment provisions.
“overarching” principles, 15 principles related to land With the adoption of LARF and its systematic land
acquisition and resettlement, and nine principles title registration (SLTR) pilot, Jigawa State appears
related to environmental and social sustainability. to be moving toward a more sustainable revenue
The principles are derived from two internationally model, partly based on taxation and returns on
negotiated agreements on responsible land-based large-scale investments. Such a model will allow the
investments: (1) the Voluntary Guidelines on the state to support its land governance system over
Responsible Governance of Tenure of Land, Fisheries, the long term while simultaneously enhancing food
and Forests in the Context of National Food Security; security, reducing conflict, and promoting economic
and (2) the United Nations Committee on World development.
Food Security’s Principles for Responsible Investment
in Agriculture and Food Systems. Both LARF and FRILIA are important steps forward
toward alternative, inclusive investment approaches
Jigawa State adopted the Land Acquisition and that more closely comport with international
Resettlement Framework (LARF) in April 2018. standards and guidance. However, more work is
The framework provides principles and processes needed to fully develop and test these innovations,
to govern investment approval and the state’s improve and strengthen principles of inclusion, and
acquisition of land, including organizational and apply them in a real-world example.
institutional delivery mechanisms; land identification

38
4. IDENTIFYING SECTOR
OPPORTUNITIES
The agriculture/agribusiness, manufacturing, mining and quarrying, and ICT sectors
present the greatest potential for driving economic diversity, growth, and job creation
in Nigeria. Investments in the agriculture/agribusiness, mining and quarrying, ICT,
and tourism sectors generate the largest impacts on GDP (table 4.1). Even with
potential productivity gains, the job creation potential is greatest in agriculture/
agribusiness, especially for women, who currently account for more than 60 percent
of the sector’s labor force.72 The manufacturing sector contributes both to GDP and
job creation with a comparatively high labor intensity. Although the mining and
quarrying sector has very low labor intensity, an estimated 2 to 4 million of informal
mining workers should be weighed against the sector’s significant economic potential.
The tourism sector’s labor intensity of 1.62 signals significant job creation potential;
however, the lack of critical infrastructure and security issues have limited the growth
of the sector (less than 1 percent of GDP).

TABLE 4.1 GDP AND LABOR INTENSITY OF SECTORS

SHARE SHARE OF
OF GDP EMPLOYMENT GDP LABOR
SECTOR (%) (%) MULTIPLIERS INTENSITY

Agribusiness 24.44 48.19 0.97 1.97

Mining and
11.17 0.17 0.98 0.02
quarrying

Manufacturing 8.55 6.98 0.87 0.82

Tourism (hospitality,
0.84 1.36 0.98 1.62
food)

ICT 8.69 0.55 0.92 0.06

Source: National Bureau of Statistics (2017b); IFC calculations.

39
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Agriculture/agribusiness, manufacturing, and mining and quarrying are also the

sectors in which Nigeria has revealed comparative advantage (RCA) and production
capabilities. Specifically, the top 20 products by revealed comparative advantage
include petroleum products; agricultural products, such as cocoa, oil seeds, and spices;
leather and raw hides; metals, such as lead and ores of base metals; and chemical
products, including fertilizer and cement (see appendixes). Production capabilities or
comparative ease of market entry is highest for fuels, agriculture, chemicals, metals,
and hides and skin products (see appendixes). These products are also identified as
having untapped potential by the International Trade Center.73 In its export potential
map, of the top 20 products identified, nine are agribusiness products, eight are hides
and skin or other leather products, two are chemicals, and one is a mining product.
The top five products include cocoa beans and sesame seeds, and the skins of sheep
and lambs.

Finally, agribusiness, manufacturing, in particular leather, and mining were also

found to have the largest national reach. The agribusiness and mining sectors cover a
vast majority of Nigerian states, with significant presence in the northern part of the
country. Likewise, the leather sector spans both the southern and northern regions of
the country.

4.1 AGRIBUSINESS
Agribusiness can be transformative for Nigeria if the country can leverage its
agricultural endowments efficiently. Nigeria’s agricultural sector reached a value of
US$78.3 billion in 2017. Nigeria has 82 million hectares of arable land, out of which
34.4 million hectares (42 percent) are currently under cultivation. In addition, it has
an abundance of water resources consisting of large bodies of surface water (268
billion cubic meters); underground water (58 billion cubic meters); and an extensive
coastline, coupled with rainfall, which is in the range of 300–4,000 millimeters per
year. Abundant rainfall—from 1,580 millimeters to 2,900 millimeters—means the
country has 279 billion cubic meters of surface water and untapped irrigation potential
with three of the eight major river systems in Africa, providing excellent agroclimatic
conditions that allow the cultivation of a wide range of agricultural products across
the various regions of the country (figure 4.1). However, Nigeria has not used these
resources efficiently. For instance, the proportion of arable land in Nigeria—about
37.3 percent of total land area—exceeds those of peers like Ghana (20.7 percent), Côte
d’Ivoire (9.1 percent), Kenya (10.2 percent), Indonesia (31.5 percent), and Malaysia
(26.3 percent), according to the most recent United Nations Food and Agriculture
Organization (FAO) data.74 Meanwhile, Nigeria’s crop yields are lower than those of
all these peers75 —evidence of the Dutch disease that has plagued the economy since the
discovery of crude oil.

40
 IDENTIFYING SECTOR OPPORTUNITIES

FIGURE 4.1 OPPORTUNITIES FOR AGRIBUSINESS ACROSS NIGERIA

NORTH-WEST Sokoto
Production:
Katsina
Sesame, Maize, Jigawa
Millet, Tomato, Zamfara Yobe Borno
Kebbi Kano
Sorghum, Rice,
Cowpea, Sugarcane
Processing:
Livestock feeding, Kaduna Bauchi
Crop production, Gombe
Farm production Niger
Adamawa
Plateau
Kwara Abuja
Nasarawa
Oyo NORTH-EAST
Ekiti Kogi Taraba Production:
Osun
Benue Millet, Maize, Cowpea,
Ogun Sugarcane, Sorghum,
Ondo
Tomato
Edo Enugu
Lagos Ebonyi
An

Processing:
am
bra

Livestock feeding,
Cross
Delta Imo Abia River Animal traction, Goat/
SOUTH-WEST
Sheep upgrading
Production: Rivers Akwa
Bayelsa Ibom
Cocoa, Maize,
Cassava, Yam, Citrus
Processing:
Poultry production,
Maize processing,
Livestock SOUTH-SOUTH SOUTH-EAST NORTH-CENTRAL
Production: Production: Production:
Cocoa, Cassava, Rice, Cassava, Yam, Rice Sesame, Maize, Rice,
Maize Yam, Cassava, Citrus
Processing:
Processing: Agro processing, Processing:
Cassava processing, Cassava Animal feeding,
Fish capture, Crop processing, Maize Cassava processing,
production processing Poultry products

NORTH CENTRAL NORTH-WESTERN SOUTH-EASTERN

NORTH-EASTERN SOUTH-SOUTHERN SOUTH-WESTERN

Source: Euromonitor International 2018a.

41
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Several crops offer significant opportunities for private investment based on value
addition and intensity of processing, growth and job creation potential, and local and
international market potential. These crops include cassava, citrus, cocoa, sesame,
sugarcane, and tomato76 and they provide the following opportunities:

• Vast opportunities for adding value through additional processing and

transformation within Nigeria can produce higher returns. For example, FAO
estimates that Nigeria’s current levels of processed cocoa products (including cocoa
butter, cocoa paste, and cocoa powder) account for only 18 percent of total cocoa
exports (in volume terms), compared to competitors like Malaysia (86 percent) and
Brazil (99 percent). At these low levels of processing, there is significant potential
for businesses in the cocoa industry to add value. Nigeria’s sesame seeds are also
largely exported with very little processing despite the high value of sesame oil in
international markets. Cassava is a versatile product, with derivatives being used for
alcohol, animal feed, flour, fuel (ethanol), starch, sweeteners, and more. However,
about 76 percent of domestic output currently processed in Nigeria77 is for local food
products like gari and fufu. The rest is processed into starch and products for animal
feed, like cassava chips and pellets. Likewise, citrus and tomato production is focused
predominantly on household consumption (85 percent and 65 percent, respectively).
The rest is wasted. Similarly, data from FAO show that processing accounted for 38
percent of the country’s sugarcane output in 2017, while 3 percent was consumed by
households, 2 percent was used by farmers as seeds for the next planting season, and
57 percent was wasted. Because Nigeria imports more than US$600 million of sugar
and related products every year, there is tremendous potential for companies that can
turn wasted sugarcane into sugar and other useful products.
• Potential for significant multiplier effects on employment and wealth generation.
An assessment of the employment and wealth creation potential of cocoa and citrus
fruits indicates higher labor-intensity compared with other crops like maize and
sorghum. For instance, every ton of cocoa butter requires at least 10 workers to
process. Labor usage for citrus crops (defined as the number of workers employed
per planted hectare) is much higher than for maize crops.78 Cash crops like citrus,
cocoa, and sesame also provide cash incomes, thus increasing the levels of disposable
income for Nigeria’s poorest households and helping to improve food security.
• Opportunities for exports. Cocoa beans and sesame seeds are already two of
Nigeria’s top non-oil exports (representing 17 percent and 16 percent of non-
oil exports, respectively, in 2017), and with further support could help Nigeria
achieve its objective of export diversification. The cocoa market is also heavily
focused on export activity, with total exports representing about 96 percent of the
country’s total cocoa output in 2017. Growing global demand for sesame seeds—
underpinned by its positioning as a healthy product in Asian and European Union
markets—presents export growth opportunities. Nigeria is the world’s largest cassava
producer—Nigeria is responsible for 36 percent of Africa’s production of the plant
and nearly 20 percent of the world’s total cassava production (FAO 2018). Ethanol
(from cassava) and other by-products also present strong export potential that is
yet to be fully exploited. Nigeria already exports cassava chips to China for use
in animal feeds and pharmaceuticals, although these exports have not progressed
significantly.

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 IDENTIFYING SECTOR OPPORTUNITIES

TABLE 4.2 PRODUCTION LEVELS

CROP 2012 2017

Production Share of Production Share of

levels global levels global
(metric ton) output (%) (metric ton) output (%)

Cassava 51 million 18.4 59.5 million 20.4

Cocoa beans 383,000 8.3 328,263 6.3

Citrus (nes) 3.9 million n/a 4.1 million n/a

Sesame seed 994,800 18.4 550,000 10

Tomatoes 2 million 1.3 4.1million 2.3

Sugarcane 1.1 million 0.06 1.5 million 0.08

Source: FAO 2018.

Note: For citrus, data on global output is not aggregated, nes = not elsewhere specified.

• Opportunities for the North. The northern region has a comparative advantage
in the production of four of the six crops—namely, citrus, sesame, sugarcane,
and tomato—given suitable climatic and soil conditions. The north central region
produced 53.7 percent of total sesame output in 2017, followed by the north west
(33.9 percent) and north east regions (10.7 percent). The northern regions are also
the most important production and trade hubs for tomatoes, accounting for 85.7
percent, and for sugarcane and citrus, accounting for 95 percent and two-thirds of
their production, respectively. The development of these four value chains would
help support the development of the northern parts of Nigeria.
• Opportunities for high rates of return on investment. Cost structure analyses reveal
that investors across the value chain would make positive returns (and in most cases
above the risk-free rate of 15 to 16 percent) under current production and market
conditions (table 4.3). These profits could be greatly enhanced with improvements
in production and processing technology, reduction in transport costs, and access to
export markets.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

TABLE 4.3 PROFITABILITY OF AGRIBUSINESS VALUE CHAINS

MIDDLEMEN/
PROCESSORS PROCESSORS/
CROP FARMERS (%) (%) EXPORTERS (%)

49–55a 13–14c
Cocoa 15–35
up to 61b 15–20d

Cassava 30–39 5.1–11.3 48–50e

Tomatoes 25–52f 18–29 N/A

18–20g
Sugarcane 16–17 N/A
up to 31

6–28h 15–17j
Sesame 7–16
39–45i up to 45k

2–3m Up to 1.5 times

Citrus 20–40l
18–19n domestic

Source: Euromonitor International 2018a.

a. Selling directly to middlemen. b. Selling directly to processors. c. Selling to domestic market. d. Selling to exporters.
e. This depends on large volumes of production. f. Depending on whether sales are to domestic retailers, middlemen, or
processors. g. Sales to domestic retailers and middlemen. h. Depending on whether sold raw, cleaned, or dehulled. i. If sold
directly to processors. j. Sold as raw seeds. k. Oil production and exporting. l. Depending on whether sales are directly to
market or to processors. m. Sales to the domestic market. n. Sales to processors.

However, the agribusiness sector is plagued by a range of deficiencies and challenges,

which limit productivity across value chains. Many of these challenges (including
limited skills, inefficient land administration systems with weak property rights and title
issues, lack of access to affordable finance for agriculture, infrastructure gaps, and an
unpredictable policy environment) have already been discussed in preceding sections of
this report. The specific sector constraints include the insufficient availability to farmers
of improved inputs (seeds, fertilizers, and modern cultivation technologies) and a dearth
of market information. The World Bank’s 2019 Doing Business of Agriculture report
ranked Nigeria’s agribusiness ecosystem 71st out of 101 countries (behind peers South
Africa, Côte D’Ivoire, and Malaysia) on the basis of inadequate policies and legislative
frameworks for seed, fertilizer, farm machinery, financing, markets, transport, water,
and ICT. Conflict and variability in climate (including frequent droughts and floods) are
leading to rising uncertainties in rain-fed agriculture.

Business models based on smallholder farmers are providing a way to address

these challenges, and are presenting opportunities for creating jobs and reducing
poverty, especially in the North. Community-based farming is becoming prominent,
especially in security-challenged states in the northern part of Nigeria. Enterprises
such as Inter-products (based in Kano State but operating in Borno, Jigawa, Niger,
and so on) and Alluvial (see box 4.1) are practicing community block farming—a

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 IDENTIFYING SECTOR OPPORTUNITIES

scalable and innovative business model that de-risks investment opportunities by

offering comprehensive support to smallholder farmers within contiguous farms in
community blocks, and also within specific value chains. These enterprises usually
sign memoranda of understanding with community leaders (and in some cases state
governments) to develop farming projects in areas with large arable land (a minimum
of 1,000 hectares). Typically, each member of the farming community is assigned a
hectare of land on which to cultivate the target crop. The enterprise then provides
support in the form of training (on cultivation techniques), technology and information
sharing, land preparation, irrigation, input supplies (improved seeds and fertilizers),
and market access. Funding to provide such large-scale support is usually sourced from
various financial institutions (including the CBN’s Anchor Borrower Program) and
in some cases with government guarantee. Each farmer repays the loan post-harvest,
by committing to sell the output to the enterprise at an agreed price. Constraints to
this successful model include the high cost of services provided, particularly the cost
of equipment; scarcity of funding; and lack of irrigation, given the rising incidence of
droughts, especially in the North. Developing the insurance sector, especially agri-
insurance products, can help address these issues (see box 4.2).

BOX 4.1 COMMUNITY BLOCK FARMING

Alluvial’s business model: The business is a hybrid to markets. The company works with insurance
of both smallholder and commercial farm models companies that offer index yield insurance to
that benefits from the management expertise and protect farmers’ income in case of adverse weather
economies of scale of a large-scale commercial conditions. With Alluvial’s approach, smallholders do
model but has the optimized land usage and not have to use their property to secure the capital
productivity incentives of smallholdings. Project they need—a major obstacle to smallholders without
funding is implemented through a blended finance formal land tenure rights or central registry for titles
model that brings together resources from food and of deed. Community block farming with this
beverage companies, equipment manufacturers, comprehensive approach is boosting incomes,
aid agencies, development finance institutions, at least fourfold for smallholders, and helping
impact funds, governments, community groups, them to transition from below the poverty
and private equity. Their goal is to garner financial line. It is increasing job creation (both farming and
support and synergistic partnerships to scale up and nonfarming jobs through increased purchases and
support 100,000+ farmers cultivating 100,000+ economic activities). Alluvial estimates to have
hectares over the next four to five years. The Alluvial created thousands of jobs and worked with more
community block farming initiative has been active in than 9,000 farmers in 2018 and more than 15,000
primary production (especially of rice), commodities farmers in 2019. The enterprise is targeting a reach
trading, and tractor hire over the past six years and of 100,000 hectares under cultivation and projected
currently has a presence, including in equipment and revenues of US$312 million a year, which would
storage facilities, in Adamawa, Akwa Ibom, Benue, produce US$83.5 million of direct annual income for
Cross River, Delta, Edo, Kaduna, Kwara, Niger, and smallholders.
Taraba states. The benefits of community block farming can be
Value proposition: Alluvial helps smallholder far reaching. Community block farming seeks to (a)
farmers address obstacles to increasing production, promote inclusive community development, such as
while assuring payback. The approach lowers the bridging gender gaps; (b) increase land use efficiency
cost of production for smallholders by bringing and conserve forestlands using irrigation and modern
scale to increase capacity use of tractors and group farming practices; (c) create economic opportunities
procurement to reduce the cost of input. With the for youth that are viable alternatives to engaging in
Alluvial approach, agtech helps to increase yield by illegal activities; and (d) build the capacity of local
optimizing agronomical practices to site-specific farmers and provide additional income for them to
conditions and a customized farm management invest in health care, education, and other aspects of
and supply chain software links smallholder farmers socioeconomic advancement.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

BOX 4.2 REPOSITIONING NIGERIA’S INSURANCE INDUSTRY TO DE-RISK KEY SECTORS LIKE
AGRIBUSINESS

Nigeria's insurance sector remains largely and redress and claims management), which has
underdeveloped. Insurance penetration (measured resulted in the Nigerian insurance industry's very
by insurance gross premium as a proportion of poor public perception and extreme disillusionment
GDP) is among the lowest in Africa at 0.4 percent, by policyholders whose claims have either remained
compared to 2.8 percent, and 14.7 percent in Kenya unpaid, delayed, or unfairly handled; (c) inadequate
and South Africa, respectively. Similarly, the sector’s awareness and limited insurance literacy within the
density (measured by gross premium per capita)— populace; (d) dearth of actuarial skills; and, (e) poor
at US$6.20 in Nigeria—is also one of the lowest product innovation.
in the region with South Africa (US$762.50), and Steps are being taken by the government and
Kenya (US$40.50). The insurance market remains regulators to address some of these issues.
largely fragmented—with 57 insurance companies A new framework law, the draft consolidated
including 14 life insurance, 27 general insurance, and Insurance Bill, has been in the offing since 2015
two reinsurance companies—but a few players have but no significant progress has been made with its
dominant positions in the most profitable product
enactment. In May 2019, the insurance regulator
segments. More than 90 percent of premiums are issued a directive increasing the minimum share
generated from public and private institutional capital that insurance and reinsurance companies
accounts rather than from individual accounts. are required to hold to ensure that they are well
The development of insurance products is critical capitalized and capable of taking on bigger risks. The
for key sectors like agribusiness and mining, in deadline for compliance is June 2020, and companies
which output can be affected by climate change are working toward raising their capital in the
and other exogenous events. Agriculture yield is intervening period. Through the technical assistance
dependent on weather variations and is affected program, the World Bank Group is working with
by natural catastrophes (floods, droughts, etc.) and partners (for example, Africa-Re, a pan-African
climate change, which can severely affect farmers reinsurance company) to support agricultural index
and other players in the agribusiness value chain. insurance underwriting.
Climate change alone is estimated to reduce yield Several policy measures are needed to support
of crops by 50 percent. In the same vein, above the development of Nigeria’s nascent insurance
ground and underground mining operations are sector. These policy measures include (a) upgrading
subject to risks of severe weather events, and risks the solvency framework and related processes,
to the health of artisan miners. About 24 percent of through enactment of a new framework law;
Nigeria’s population is said to be living in high climate (b) enforcing existing mandatory regulations
exposure areas (USAID 2018). However, the insurance on insurance for public and private sectors; (c)
sector is not well positioned to mitigate these risks. automation of NAICOM’s regulatory functions (use
The belief by insurers that agricultural risk is too modern software) including the development of a
volatile, and that the market for agri-insurance is too NAICOM-managed portal for regulatory data; (d)
small and therefore difficult to insure, has curtailed the establishment of an appropriate framework
the development of suitable products. for actuarial capacity development, which may
The insurance industry faces a number of include sponsorship of willing young graduates
challenges in Nigeria. Major constraints to to obtain professional actuarial certification; (e)
developing the insurance industry include (a) a weak deepening insurance products (for example, support
regulatory framework and market fragmentation the development of agriculture insurance as well
because the current Insurance Act (2003) is no as distribution channels/bundling opportunities; in
longer effective, and does not allow the regulator this regard, Nigeria can learn from the successes of
adequate flexibility to supervise and manage other Africa countries, like Kenya); and (f) NAICOM
distressed entities; (b) the weak enforcement of taking over claims management and policy holders’
existing regulations (including mandatory insurance complaints redress.

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 IDENTIFYING SECTOR OPPORTUNITIES

Digital technologies can offer solutions to many of the key challenges to the
transformation of the agriculture/agribusiness sector. Increasingly, transformative
technologies are creating attractive opportunities for investments in agriculture
because (a) lean agritech startups have lower capital requirements than traditional
agriculture projects; (b) they can optimize entire value chains of otherwise fragmented
input providers, producers, and processors and offer access to huge national (or even
global) agriculture markets; and (c) they have high growth potential, given that the
agritech market is still nascent, and early investors can reap rewards (Deloitte 2016).
Some critical opportunities for technology in agribusiness that specialized service
providers and end-to-end business models are leveraging include the following:

• Advisory and information services to address knowledge and skill gaps: These
services help farmers with agricultural and natural resource management planning by
providing digital information on best agronomical practices, market prices, climate
change, and pests and diseases. For example, Wefarm is an enterprise in Kenya,
Tanzania, Uganda, and the United Kingdom that provides peer-to-peer services
that enable farmers to share information via text message, without the internet and
without having to leave their farm. Farmers ask questions and receive crowd-sourced
answers from other farmers around the world in minutes, allowing them to increase
yields, tackle the effects of climate change, source the best seeds, and gain insight into
pricing. About 660,000 farmers in Kenya and Uganda use the service and there are
plans to expand to other African countries. Farmerline, based in Ghana, is another
enterprise that provides a mobile platform for farmers to access farm inputs, water,
solar energy, and financial services. It enables farmers to increase productivity,
build credit history, and connect with markets and it provides a data-driven
communication platform for businesses to communicate with customers. Farmerline
provides market-driven solutions that have benefitted more than 200,000 farmers in
different countries. Nigeria has a huge database of about 12.5 million farmers across
the country developed under the Agricultural Transformation Agenda (ATA) that
could be leveraged for digital agriculture.
• Farmer financial inclusion with digital financial services (DFS) such as micro-loans,
payments, credits, insurance, and savings: Digitizing payments along value chains
could increase farmers’ income by eliminating high commissions of intermediaries,
who transport cash, and by reducing theft. DFS ecosystems can be developed around
value chains to link farmers with input suppliers and agricultural buyers to facilitate
transactions with faster payments for harvest, access to savings and lending products
to pay for inputs and machines, and the provision of crop insurance to farmers, to
help them not only to manage risk and protect their investments but also to decrease
credit risk to lenders and expand access to credit.
Digital financial platforms that serve farmers include Crowdfunding platforms,
payment solutions, agriwallets and saving systems, credit systems, and insurance
platforms. For example, Farmcrowdy raises finance for African farmers (including
in Nigeria) to buy land and expand production. It provides a platform for investors
to select the kind of farms they want to sponsor. Using the raised funding, land
is secured, the farmer is engaged, both the farm and farmers are insured, and the
full farming cycle is completed including logistics to sell the harvest. Since starting
operations in 2016, Farmcrowdy has supported 11,124 farmers linking them with
2,132 farm sponsors. Another platform is FarmDrive, a Kenyan enterprise, which
connects unbanked and underserved smallholder farmers to credit, while helping
financial institutions cost-effectively increase their agricultural loan portfolios.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

• Supply chain management: There is a need to ensure traceability, planning, quality,

and logistics to help reduce post-harvest losses, improve the income of farmers, and
increase efficiency within the sector. Relevant inputs include cold storage facilities,
warehousing, cold storage transportation systems for perishables, solar energy
systems, and blockchain technology. For example, iProcure is an agricultural supply
chain platform that covers rural regions. It provides procurement and distribution
services, and business intelligence and data-driven stock management across the
supply chains, delivering value to both suppliers and farmers. Post COVID-19, the
industry may increase value chain integration with supply chain digitalization to ensure
uninterrupted access to raw materials, such as rice, palm oil, sugar, and fresh milk.
• Data analytics and agricultural intelligence: Gathering and disseminating data on
farmers, farm coordinates, and markets can provide insightful information for
potential investors, government, policy makers, extension agents, agronomists, and
farmers. UjuziKilimo, a Kenyan start-up, uses big data and analytics to provide
precision insights to farmers. Zenvus, a Nigerian start-up, is another platform that uses
proprietary electronic sensors and cloud server to collect and analyze soil data to guide
farmers on irrigation and fertilizer usage. It also uses special spectral cameras to build
crop health indices to help detect drought stress, pests, and diseases (Ekekwe 2017).
• Market links: There is need for linking smallholder farmers to high-quality
inputs such as seeds, fertilizers, pesticides, and herbicides; for digitally connecting
farmers to production and post-harvest machinery (such as tractors, ploughs,
harvesters, irrigation); and, for linking farmers to input suppliers, aggregators, or
end consumers. For example, M-Farm in Kenya and AgroSpaces in Cameroon are
start-ups that provide pricing data to remove price asymmetry between farmers and
buyers, making it possible for farmers to earn more (Ekekwe 2017).
• E-commerce: The COVID-19 pandemic may shift consumer behavior to e-commerce,
as shopping in large, crowded markets declines because of the risk of infection, and
create opportunities for direct-to-consumer models with online platforms and third-
party delivery.

4.2 MINING
Nigeria has an abundance of mineral resources with potential to contribute to
economic activity and employment. More than 40 minerals exist across 500 locations
in Nigeria. Key mineral deposits, including clay and kaolin, coal, gold, gypsum,
iron ore, lead and zinc, phosphate, and tin, among others, can potentially generate
billions of dollars in revenues.79 Bitumen, gold, iron ore, and limestone are some of
the most highly valued minerals in the country. Presently, quarrying dominates the
mining sector’s output, accounting for more than 90 percent of its output. Products
such as granite, gravel, marble, sand, and other construction materials are in high
demand locally due to a combination of a growing housing deficit and infrastructure
development projects. The metal ores subsector, which accounts for less than 10
percent of output, is growing very fast, recording a growth rate of 22.8 percent
between 2016 and 2018.

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 IDENTIFYING SECTOR OPPORTUNITIES

There are also numerous opportunities for mining in Nigeria, and states can directly
benefit from these opportunities (see appendixes). These opportunities include
gold in Birnin Gwari (Kaduna) and Bin Yauri (Kebbi), and niobium—used in the
manufacturing of high-grade steel—in Jos Plateau (figure 4.2). Nigeria is currently
among the world’s largest exporters of niobium, with three attractive deposits
(Columbite, Coltan, and Pyrochlore) across Kano and Plateau states. Despite high
capital expenses and processing costs, niobium remains a great prospect because of
its extremely high commercial value (around seven times higher than the price of
copper). Another high potential prospect is cheap-to-explore phosphate in Chancha,
Kogogo, Kware, and Salame (all in Sokoto); phosphate can be applied directly as
fertilizer in Nigeria’s acidic soil. Although mining is on the exclusive list like oil and
gas, state governments have more power in the mining sector because a Community
Development Agreement (CDA)80 must be executed before a mining lease is granted.
The Land Use Act also confers responsibility and powers on state governors with
regard to land ownership. Furthermore, like oil and gas, government revenues from
solid minerals are subject to the derivation sharing formula. However, states can also
set up special purpose vehicles that can directly own mining licenses in conjunction
with private sector investors.

FIGURE 4.2 MINING OPPORTUNITIES IN THE NORTH OF NIGERIA

Sokoto A. Birnin Gwari (Kebbi) and Birnin Yauri

C (Kaduna), Gold Project

A Potential: Assuming 6 million oz reserve

(4,2g/t), supporting six medium-size mines each
Kebbi generating 100,000 oz p.a. for 10 years
Kaduna
Financial benefits: Each mine producing average
A annual revenues of US$106 million to US$200
million over 10 years, at 3 to 5 percent royalties
B
yield avg. US$4 million p.a. profit
Plateau
Economic impact: 9,000–28,000 direct and
indirect jobs

B. Jos Plateau, Niobium Project

Potential: Nigeria reportedly has 14,000 metric
tons of reserves, assuming life of mine of 10 years
at 1,400 metric tons p/a
Financial benefits: Average annual revenues of
US$47 million+ to US$88 million+ over 10 years
NIOBIUM GOLD GOLD PROJECTS PHOSPHATE Economic impact: 580–1,800 direct and indirect
jobs

C. Sokoto, Phosphate Project

Potential: Assumes reserves of 4 million metric
tons, this could support a mine with a production
of 400,000 metric tons p.a.
Financial benefits: Each mine generates average
annual revenues of US$31 million to US$58 million
Economic impact: 580–1,800 direct and indirect
jobs

Source: Solid Minerals Development Fund (SMDF) Nigeria.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Despite its high potential, the formal mining sector makes minimal contributions to
GDP and exports. Officially, solid minerals contributed 0.2 percent of nominal GDP
in 2018 and exports were valued at about US$180 million—equivalent to 0.3 percent
of total exports and 5.4 percent of non-oil exports. According to data from the Solid
Minerals Development Fund (SMDF), there are 652 legal or formal companies that
are engaged in the mining sector employing about 130,000 workers (or 0.3 percent of
the labor force). Three large companies generate about 52 percent of all royalties, 19
intermediate-size companies generate 25 percent of royalties, and 630 small companies
generate the rest.81

Informal mining of several minerals deprives the country of revenues. Informal mining
is largely artisanal with an estimated 95 percent of the sector’s players—some 2 to 4
million people—limiting royalties and value optimization. For instance, Malaysia’s
official records show that the country imported 9,286 tons of tin from Nigeria in
2018 (worth about US$128 million), whereas official production data in 2018 reports
Nigeria’s total production at about 6,000 tons in 2018. On the basis of import values
to Malaysia alone, Nigeria should be the seventh largest producer of tin in the world.
Also, about 21 tons of gold (valued at US$1.3 billion) was exported from Nigeria to
the United Arab Emirates alone in 2016 (see box 4.3), yet official records put Nigeria’s
total gold production in 2016 at 7.9 metric tons.82 Royalty losses from informal
exports were estimated at US$65 million in 2016 and 2017, according to SMDF.

BOX 4.3 INFORMAL MINING IN THE GOLD SUBSECTOR

The gold mining subsector has been hard-hit by illegal mining. The Solid Minerals Development Fund
(SMDF) estimates that illegal exports of gold to the United Arab Emirates alone was about US$1.3 billion in
2016 and 2017, resulting in at least US$40 million in lost royalties. The government of Nigeria hopes to drive
formalization through a national gold purchase program. This program would incentivize formalization by
mandating that miners are registered to take part in the program.

UAE GOLD IMPORTS FROM NIGERIA, US$, MILLION

8 6 10 15 21 19 13

386 261 425 529 707 585

2012 2013 2014 2015 2016 2017 2019

19.3 13.0 21.3 26.5 35.4 29.3 20.7

VALUE OF UAE GOLD IMPORTS, US$, MILLION ROYALTIES LOST, US$, MILLION ESTIMATED TONS AVERAGE

Sources: SMDF; United Nations comtrade data.

Note: UAE = United Arab Emirates.

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 IDENTIFYING SECTOR OPPORTUNITIES

he program will have three points of participation It is estimated that this will lead to an increase in the
between government and artisanal miners: daily income of miners from about US$16 to US$92
per day. Additionally, company income tax will be
1. Buying centers, which will be equipped with
boosted by US$51 million and royalties by US$16
primary processing capabilities, and in which
million, according to SMDF. There is an estimated
unprocessed gold ore will be purchased from
200 million metric tons of gold resources in Nigeria
miners at between 65 and 75 percent of the
and approximately 60 million metric tons of reserves
London Metals Exchange (LME) price.
with a total value of about US$56 billion to US$80
2. Processing centers with centralized processing billion. Gold has also been identified as a priority
stations to produce gold ore bars from flakes metal by the government of Nigeria with target
purchased for 80 to 85 percent of the LME price, locations including the Kaduna and Kebbi states in
inclusive of royalties and processing fees. the north. There are currently exploration projects in
3. A refinery stage in which the SMDF and Kaduna and Kebbi. Assuming a US$6 million reserve,
partners buy the bars and ship them out of these sites could support six medium-size mines,
Nigeria for further processing into 99.9 percent each generating 100,000 ounces per year for 10
international certified gold bullion bars. years, which should result in US$130 million in annual
revenues and create about 10,000–20,000 direct
and indirect jobs.

Several factors limit the growth of the mining sector. Aside from the cross-cutting
constraints such as poor infrastructure (especially power and transport), the lack
of geological and geophysical data is a major challenge for potential investors.
The absence of reliable geosciences data not only increases the risks of commercial
exploration for potential investors but also hinders access to finance from formal
money markets. Generation of geoscience data for public good is a continuous
process that requires adequate financing; however, government funding for related
activities has been low. Efforts are being made, including (a) upgrades to the National
Geosciences Laboratories in Kaduna to enable it to meet international standards, (b)
memorandums of understanding with China, South Africa, the United Kingdom,
and others to develop staff capacity and transfer technology, and (c) the Nigerian
Geological Survey Agency’s ongoing National Integrated Mineral Exploration Project
(NIMEP), which is exploring for various minerals across the country to improve
geoscience data. Another factor limiting the growth of the mining sector is that mining
technology in Nigeria is outdated—artisanal miners use rudimentary technology and
techniques to produce a large proportion of the sector’s output. Most miners cannot
access affordable financing required for purchasing modern equipment and technology
to optimize production. Compounding the challenges to the sector is weak government
oversight, smuggling, and intermittent civil unrest.

De-risking of the mining sector is critical for private sector participation and for
development of the sector. SMDF was established to help de-risk activities in the
sector and to boost investments in exploration, production, and the rest of the value
chain. De-risking the sector requires government’s investments in geosciences to make
it easier for intending investors to identify areas of favorable mineral potential and
prevent duplication of efforts by private companies. Specifically, this also requires

51
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

reviving brownfield assets and generating new discoveries/targets in Greenfield

exploration areas to strengthen geological knowledge to support investment decisions.
The way forward should include the following measures:

• Develop geodata through partnerships with the private sector and define policy and
data protocols to support the transparent use and dissemination of the geodata.
• Need for a financing ecosystem with a broad range of instruments for each stage of
the mining value chain. Although de-risking is expected to address the investment
risks at early stage exploration and reduce challenges to foreign investment and
domestic financing, corresponding developments in the financial sector are needed to
provide the needed capital. To this end, Nigeria must leverage its opportunities in the
leasing sector (see box 4.4).
• Address the challenges of illegal and artisanal mining and introduce market
reforms. Given the risk of mounting conflicts between investors and illegal miners,
government efforts in incentivizing the formalization of illegal mining has become
imperative. Incentives such as access to credit and government purchase programs
should help to incentivize formalization. In addition, formal trading markets should
be established to minimize smuggling and create access to markets for miners.
• Operationalize the Community Development Agreement (CDA) of the Mining Act to
minimize hostilities and the disruption of mineral exploration. Although the Mining
Act has a clear framework for host community involvement in the licensing process
and also provides for benefit sharing by the communities for the host communities,
there is currently no clarity to support its operationalization. As a result, hostility
between companies and communities is rising.

BOX 4.4 DEVELOPING THE LEASING SECTOR: OPPORTUNITY FOR EQUIPMENT FINANCING
FOR SMALL PRODUCERS

Micro, small, and medium enterprises (MSMEs) (for example, reduced payments during pre-harvest
that identify access to finance as a major issue period); (b) skipped payments, which are similar to
need medium-term (greater than 12 months) seasonal payments, but also allow more flexibility
financing on flexible terms reflecting their in repayment; and (c) stepped payments, which are
revenue flows, mainly to finance equipment. payments that start out low in the early part of the
However, given the dominance of production in key term, and increase thereafter, as the business grows.
sectors (for example, agriculture and mining) by Leasing is a viable option for financing small-
small-scale farmers and miners, who cannot predict scale producers and can help break the vicious
production size and timing, their requirements cycle and provide a suitable repayment
for equipment are difficult to finance through structure. It remains critical to develop a vibrant
conventional sources like banks because of the leasing industry because leasing fosters economic
stringent formality and collateral requirements. development and job creation by providing access
This leaves these small producers in a perpetual to financing to MSMEs that often cannot access
vicious cycle of low productivity and profitability. other forms of financing. In Nigeria, leasing
Therefore, it will be necessary for Nigerian financial volumes currently estimated at ₦1.68 trillion
institutions to use repayment structures that match (approximately US$4.6 billion) have grown between
the cashflows of lessees to reflect the seasonal 11 to 27 percent annually over the past five years
and uncertain nature of both the agricultural and (2014–18), according to the Equipment Leasing
mining industries, including (a) seasonal payments Association of Nigeria (ELAN). Two opportunities to

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 IDENTIFYING SECTOR OPPORTUNITIES

expand leasing in Nigeria are offered by (a) a very To successfully extend leasing credit to small-
attractive tax environment for leasing, including scale producers, it is necessary, among other
depreciation allowances for tax purposes; initial factors, for Nigerian financial institutions to
one-off allowance; annual allowance; and significant have (a) targeted lease products that are both
exemptions from VAT, including those listed in the attractive to the lessee and protect the interests
First Schedule of the Value Added Tax Act of 1993; of the lessor; (b) credit policies and procedures
and (b) the physical presence of major suppliers of that document the lessee’s ability to repay the
industrial equipment, which enables them to carry lease obligation; (c) underwriting policies, defined
an inventory and avoid having to take a foreign as including terms and conditions that reflect the
exchange risk that would result from importing credit risks in a specific transaction, as well as risk
equipment directly from abroad. Suppliers are also management policies designed to evaluate the
able to provide warranty work, which reduces the risks of the portfolio; (d) loan/credit officers able to
risk of default resulting from equipment failure support prospective lessees; (e) branch presence
and, in turn, supports the relatively extensive use of and resulting branch credit authority, to more
operating leases. efficiently extend credit to prospective lessees who
are either small farmers or artisanal miners; and (f)
Examples of leasing models that may be
favorable for small-scale operations include (a) a lessees, such as associations or cooperatives, that are
usage lease, which is a transaction in which the lease organized in a manner in which officers and directors
payments are based, in all or in part, on the usage of have the legal authority to act on behalf of the
members/beneficiaries.
the leased asset, as opposed to fixed payments; (b)
leasing to a cooperative, which is primarily used for Moving the leasing sector forward in Nigeria
financing assets, used directly by the cooperative, as requires (a) 'Reconciliation of (any) inconsistencies
opposed to one, or more, cooperative members; (c) in the roles and functions of the Leasing Registration
leasing to an agriculture or mining service provider Authority provided for by the Equipment and Leasing
or farming/mining cooperative—primarily farming, Act of 2015 (“The Act”), the Central Bank under
or mining equipment used by the members, in the Central Bank Act and BOFIA, and the National
which there is a measurable economic benefit from Collateral Registry (for movable assets) established
the equipment. In this case, farmers can access under the Secured Transactions in Movable Asset Act
equipment on a “fee for service” basis, in which the (STMA)' and (b) technical assistance to regulators,
agro-service provider acts as the lessee or borrower, lessors, and lessees, to improve capacity to regulate,
and the leasing company or even the bank acts as extend, or obtain leasing credit to enterprises.
the lessor.

• Operationalize the Mineral Resources and Environmental Management Committee

(MIREMCO) to improve coordination. MIREMCO was established to support
federal, state, and local government coordination in mining within each state of
the federation. It is meant to facilitate matters relating to granting of mining titles,
compensation, pollution and land degradation, mineral resources development,
and supervision of mineral exploitation. Other matters include implementation
of environmental and social protection measures plans, and conflict resolution.
Operationalization will help abate tensions arising from multiple regulatory
overlaps and conflicts at the federal, state, and local government level related to land
acquisition, community relations, and double taxation.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

4.3 MANUFACTURING
Nigeria’s industrial competitiveness ranks below those of competitor countries
and regional peers and there is low in-country capacity utilization. Nigeria ranked
83rd in competitive industrial performance—below peers such as South Africa (44),
Morocco (67), and Egypt (70). Also, the sector is heavily import dependent, with the
level of localization falling over time, from 71 percent in 2010 to 58 percent in 2012
(NBS 2014). The food and beverages subsector had the lowest levels of localization
(highest share of imported raw materials, with about 60 percent of raw materials
in this sector being sourced internationally), followed by the plastics and rubber
subsectors. Therefore, government import bans and foreign exchange restrictions have
a detrimental effect on these sectors.

Nigeria must begin to increase the complexity of its production basket and strengthen
already existing value chains while leveraging free zones/special economic zones (FZs/
SEZs) (see box 4.5) to build more regionally competitive firms. The majority of the
manufacturing activity in Nigeria currently occurs in low-skilled, labor-intensive,
tradeable, and commodity-based regional and domestic processing. There is a strong
positive correlation between GDP per capita in a country and the level of economic
complexity of the country’s export basket (figure 4.3). Currently, Nigeria has a
relatively low level of economic complexity at –1.68. Nigeria should aim to increase
its production of capital-intensive, regionally processed goods, such as chemicals and
chemical products, and medium-skill, globally innovative goods, such as machinery,
transportation, and electrical products (figure 4.4). Developing existing FZs/SEZs will
offer Nigeria tremendous opportunities to produce more sophisticated goods and to
build more regionally and globally competitive firms.

BOX 4.5 DEVELOPING FREE ZONES/SPECIAL ECONOMIC ZONES: OPPORTUNITY FOR NIGERIA

A plethora of empirical studies show that industrialization and market openness (Aggarwal
free zones/special economic zones (FZs/ 2019; Farole 2011; Warr and Menon 2015). The FZ/
SEZs)—when correctly located, designed, SEZ success story of China (with more than 1,500
financed, constructed, developed, managed, FZs/SEZs) has triggered a multitude of well-
and regulated—can trigger dynamic performing FZs/SEZs around the world. Several other
transformational and structural change on a economies (for example, Bangladesh, Costa Rica,
targeted basis. FZs/SEZs are seen as incubators Ethiopia, Gabon, United Arab Emirates, and Vietnam)
of (a) improved legal, regulatory, institutional have experienced relative success by virtue of the
and social safeguards that can overcome market, economic zone model as a strategic industrial policy
government-regulatory, and coordination failures; tool to jump start transformational and structural
(b) trial-and-error testing of catalytic reforms reforms in their countries. Today, approximately
that spawn economywide advances; (c) skills 5,400 FZs/SEZs operate in nearly 147 countries and
development of the local workforce; (d) knowledge- have created about 66 million jobs.
accumulation programs to advance local know- The FZ/SEZ success story has not been
how and technology transfers; (e) production and uniformly replicated in Nigeria (and in Africa
export diversification/upgrading; (f) enhanced generally) even though the country has long
production, supply, and logistics efficiencies achieved recognized that FZs/SEZs provide a pathway
by domestic firms; (g) integration with the domestic to industrialization and diversification of
economy; (h) industry cluster formation; and (i) the economy. Almost 30 years ago, a Nigerian
integration into regional and global value chains government decree (Decree No. 63, 1992) created
and dynamic structural change including increased the regulatory agency Nigerian Export Processing

54
 IDENTIFYING SECTOR OPPORTUNITIES

Zones Authority (NEPZA) for FZs/SEZs. Today there modern land-use, environment, immigration, and
are almost 40 FZs/SEZs that have been recognized labor standards.
and licensed by NEPZA, but most of these are yet Despite the perceived shortcomings, FZs/SEZs,
to realize their full impact. The question remains when properly established, present to Nigeria a
why so few have been successful. Nigeria’s FZ/SEZ viable and credible pathway toward its strong
framework is outdated, falls short of international desire of addressing its economic diversification
good practice, and contravenes Chapter 14 of and job creation objectives. More important, FZs/
the legally binding ECOWAS Investment Policy SEZs as a tool for industrialization can be used to
that establishes the ECOWAS community- address the country’s growing spatial inequities
wide FZ/SEZ policy. Other constraints to FZ/SEZ from the coastal southern part of Nigeria to the
progress in Nigeria include (a) poor or inadequate central and northern regions by creating specific
infrastructure (b) the absence of local economy styled FZs/SEZs (that is, economic and technological
links; (c) the lack of criteria to select the optimal development zones, high-tech industrial
FZ/SEZ site or the suitable developer or a lack of development zones, specialized industrial zones,
adherence to existing criteria; (d) the absence of staple crop processing zones, and export processing
a memorandum of understanding mechanism to zones) based on the availability of factor endowment
facilitate administrative coordination; (e) the absence to support them.
of a strategic plan and smart incentives to attract
investors; (f) the lack of customs provisions that fully
adhere to global standards; and (g) the absence of

FIGURE 4.4 MANUFACTURING SUBSECTORS BY

FIGURE 4.3 ECONOMIC COMPLEXITY DEVELOPMENT CHARACTERISTICS

Economic Complexity drives GDP Growth Manufacturing Subsectors, Grouped by Development Characteristics
100,000 Norway Germany 100 Commodity-based Low-skill labor-
Qatar regional processing intensive tradables
GDP PER CAPITA 2016 (CONSTANT 2010USD)

90 Wood & Wood

Products
Manufacture of
Manufacture textiles, wearing
Chile Japan Manufacture apparel and
AVERAE BLUE COLLAR SHARE (%)

of other
of fabricated leather products
Peru 80 nonmetallic
mineral metals Manufacture of furniture;
USA products
Manufacture manufacturing, n.e.c
10,000 Manufacture of rubber Manufacture of
70 of food, beverage and plastic transportation
equipments
Medium-skill global
China and tobacco products innovators
NIGERIA products Manufacture Manufacture of
Thailand Manufacture of paper of electrical machinery and
Ghana
60 and paper products; equipment equipment n.e.c High-skill global
publishing and printing innovators
India Manufacture
Senegal 50 Manufacture of of chemicals
1,000 coke and refined and chemical Computing,
electronics and
petroleum products products
optical equipment
Mali 40
Capital-intensive Manufacture of
Uganda regional processing pharmaceutical
Guinea Ethiopia 30 products

Malawi
100 Madagascar 20
-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 0 10 20 30 40 50 60 70 80 90
ECI VALUE 2016 EXPORT VALUE-TO-OUTPUT RATIO (%)
HIGH INCOME LOWER MIDDLE INCOME
LOW INCOME UPPER MIDDLE INCOME
Source: IFC 2018.

55
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Potential High-Growth Subsectors

Chemicals
The chemicals sector presents opportunities for private investment, given significant
demand and the availability of raw materials. Chemicals—including medicaments,
polymers of ethylene and propylene, pneumatic tires of rubber, insecticides and
fungicides, mixtures of odiferous substances and mixed fertilizers—accounted for
9.5 percent (or about US$3 billion) of Nigeria’s imports in 2017. These chemicals can
be produced in Nigeria because several of them are products of petroleum or natural
gas, which Nigeria has in abundance. For example, natural gas is crucial to produce
ammonia, a key nitrogenous fertilizer, whereas plastics are a product of olefins, which
are products of either petroleum or natural gas. With its large proven gas reserves,
Nigeria has the potential to meet both high domestic demand as well as growing
regional demand. In 2017, chemical imports into Sub-Saharan Africa grew by 12
percent to about US$24 billion.

Expanding the chemicals sector can also yield substantial value addition, and create
employment and opportunities in other sectors. There are opportunities for value
addition on produced polyethylene and polypropylene. Polyethylene can be converted
into key plastic products such as tubes, pipes and fittings for construction (a market
growing at 3 percent), or floor coverings of plastics in the form of rolls or tiles (a
market growing at 13 percent), which will increase the availability of key construction
materials. Additionally, according to the most recent data from NBS, the chemicals
subsector in Nigeria employs the largest share (47 percent) of formal manufacturing
workers, so expanding the sector will create job opportunities, especially in the North.
Although chemical production predominantly occurs in the southern regions of the
country, the opportunities to engage in the production of mixed fertilizers, which
Nigeria still imports, are largely in the northern regions of the country (figure 4.5).

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 IDENTIFYING SECTOR OPPORTUNITIES

FIGURE 4.5 BLENDING PLANTS FOR BATCHES 1 AND 2 OF THE PRESIDENTIAL FERTILIZER INITIATIVE

CAPACITY
BLENDING PLANTS LOCATION (MT)
Katsina
Superphosphate Fertilizers
Kano Kaduna 200,000
& Chemicals

Bauchi Fertilizers & Chemicals

Kaduna Kaduna 300,000
Limited
Niger
Jos Morris Nigeria Limited Niger 300,000

Funtua Fertilizers &

Katsina 108,000
Chemicals Limited

Ebonyi Golden Fertilizers

Lagos 200,000
Company Limited
Lagos
Kano Agricultural Supply
Kano 300,000
Company

Bauchi Fertilizers Company Bauchi 120,000

Ebonyi State Fertilizers &

Ebonyi 115,000
Chemical Co

MFB Fertilizer & Chemical

Kaduna 100,000
Co

Aliyuma Fertilizer &

Kano 200,000
Chemical Coy Ltd

BE JAFTA Group Nigeria Jos 200,000

TOTAL CAPACITY 2,143,000

Source: Nigeria Sovereign Investment Authority.

Note: MT = metric ton.
Policy inconsistency is a major challenge to the industry and is a deterrent to potential
international and domestic investments. For instance, the petrochemicals sector has a
gas pricing policy problem. Nigeria’s natural gas pricing policies have consistently set
prices too low to provide a sufficient return on investment, strongly discouraging firms
from entering the market. In addition, despite its publication, the National Gas Policy
is not being followed. The regulated prices for petrochemicals are supposed to be
much higher than those for power, whereas today power prices are 150 percent higher
than petrochemicals prices. Tariff schedules and regulations for various categories
of producers are rarely published, and in some cases they are not communicated
to gas suppliers in writing. Contrary to the spirit of the National Domestic Gas
and Pricing Regulations, pseudo-regulated sectors such as methanol and fertilizer
production have received prices far below those received by producers supplying the
power sector. A number of reforms can support and facilitate further investments in
the sector including the phased elimination of import bans on mixed fertilizers and
foreign exchange controls on polymers importation; the establishment of a separate
regulatory agency for the midstream and downstream gas sector; the implementation
of policies that support the consistent supply of gas and feedstock, such as the gas
flare prohibition and punishment bill; and the development of clearly defined rules and
regulations to facilitate nondiscriminatory third-party access to gas pipelines.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Construction Materials
High population growth and increasing urbanization are fueling the demand for
construction materials. With a population growth rate of 2.6 percent a year, demand
for affordable housing in Nigeria is increasing, resulting in a housing gap of an
estimated 17 million units. An annual production of 850,000 housing units will be
needed to close this gap over the next 20 years. At a cost of US$25,750 per unit,
an annual spend of US$22 billion would be required (Federal Republic of Nigeria
2019). Low affordability in this industry is heavily influenced by the high cost of
construction materials, including cement, cement products, steel, ceramic, and land.
With construction material accounting for between 35 percent and 80 percent of total
construction costs and 97 percent of intermediate goods consumed in the construction
sector, affordable housing will require cost-effective construction material inputs.

Since 2015, the federal government and the Central Bank have focused on import
substitution policies as a means of boosting the domestic production of construction
materials. For example, importers of certain construction materials, including
cement and steel, are excluded from accessing foreign currency to discourage imports
and encourage local production of these items (Central Bank of Nigeria 2015).
Additionally, the Backward Integration Policy, instituted in 2002, requires that cement
import licenses be granted only to importers who show proof of building factories
for local cement manufacturing in Nigeria. Consenting importers were also given
incentives to invest in the country, which included the complete waiver of value-added
tax and customs duties for importation of cement production equipment (Ohimain
2014).

These policies resulted in the increase in local production of some of these

construction materials. Local production of cement began to increase in 2003 and has
continued on this upward trend. As a result, Nigeria became self-sufficient in cement
production in 2016 and became an exporter in 2017. Additionally, this has also been
met by an increase in the number of functioning steel mills in the country with the
number increasing to 21 in 2015 from less than 5 in previous years. However, these
policies have also encouraged uncompetitive pricing. The retail price of cement in
Nigeria ranges from ₦2550 to ₦2,800 (about US$ 6.70–$7.50) per 50-kilogram bag,
higher than prices in comparator producer countries such as India (US$3.30–$5.50 per
50-kilogram bag), South Africa (US$5.00–$6.20), and Malaysia (US$2.20–3.80).83

Additionally, the quality of locally produced construction materials is low.

Construction professionals highlight challenges, such as limited durability, limited
reusability and renewability, inferior aesthetic properties, poor sound insulation,
embodied energy capacity, and poor air quality and water reduction properties of
locally produced construction materials. Among dealers and marketers of building
materials, the most important factors driving importation are production standards
and specifications, advanced production technology abroad, perception of superior
quality, unavailability of raw materials in Nigeria, the high cost of local production,
and market visibility.

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 IDENTIFYING SECTOR OPPORTUNITIES

To effectively meet the local and export demand in the construction market, several
challenges must be addressed. They include anticompetitive practices, raw material
unavailability, poor standards, skill shortages, and technological capacity gaps.
Policies to support local production in existing segments could include (a) pro-
competition policies, such as mining lease transparency for cement production; (b)
improving technical capabilities through education at vocational training centers,
technical colleges, and polytechnics; and (c) the enforcement of standards in
production systems. In parallel, Nigeria should develop its value chain for alternative,
locally available building materials that are more environmentally friendly and can
be used for the construction of superstructures. Some of these technologies, such
as expanded polystyrene panels or cement reinforced mud blocks, can speed up the
construction process, reduce costs, and mobilize a larger number of workers.

Leather Industry
The leather industry in Nigeria is a top foreign currency earner and a critical job
creator. The industry generated US$240 million in exports in 2015 and is projected
to generate up to US$1 billion by 2025. Excluding logistics, the industry’s value chain
provides an estimated 750,000 jobs (Nigerian Economic Summit Group 2017). Nigeria
has the largest source of raw materials for the leather industry in Africa. The country
produces skins in excess of 45 million pieces and trades an estimated 40 million goat
and sheep skins annually across borders (Federal Government of Nigeria 2018). Export
destinations include China, India, Italy, and other European countries.

The primary (raw skins) segment is dispersed across the country and remains
uncoordinated and unregulated. The raw skin segment commences from the point of
flaying the animals and includes the initial grading, salting, transportation, storage,
and regrading of hides and skins. Actors in this segment include a network of skin
collectors, traders and their intermediaries, and dealers. The segment is highly
informal and dispersed across the country, leaving little room for economies of scale in
skin collection. The best opportunities for substantial aggregation benefits exist in the
dense network across the northern part of the country.

The tanning segment is also increasingly characterized by MSMEs as the number of

large, but powerful, industrial tanneries continues to shrink. From approximately 40
prior to 2000, the number of functional industrial tanneries dropped to 18 in 2017.
Several industrial tanneries exited because of shortages in raw materials due to illicit
cross-border trade and the high demand for consumable hides and skin “ponmo,”
poor access to foreign exchange, and high import costs of both tanning chemicals and
raw materials. The tanning segment is now increasingly home to operators that are
predominantly informal and use traditional technologies. However, the available large-
scale tanners continue to exert significant power through advance payments to skin
dealers to set prices (and quantities), capturing surplus from the primary skin dealers.
At the same time, they benefit from growing exports thanks to access to foreign
currency and export expansion grants provided by the government.

59
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

The finished leather products (FLP) segment is limited and exhibits low levels of
competitiveness. Most FLP manufacturers are artisans and small-scale manufacturers.
Although the FLP segment has made some gains in exporting, it is limited in scale
and directed toward neighboring West African countries; and it remains relatively
uncompetitive in the global market. Some of the challenges to those manufacturers
include the inability to access locally produced hides, which tanneries are incentivized
to export, and the limited technological innovation, which affects the quality and
quantity of production. Local FLP manufacturers are left to import or purchase leather
from smaller tanneries at higher cost and struggle to compete with cheaper Chinese
products.

Producing at scale and the use of improved technologies would enable the country to
make cost gains and compete effectively globally. Chinacurrently dominates the global
leather market from primary raw materials production up to FLPs. To gain global
competitiveness, Nigeria should focus on encouraging consolidation and formalization
to increase scale and efficiency. Additionally, the increased focus on quality and
environmental safety adherence is influencing demand in the leather industry and
creating alternative market segments with premium pricing. It is important to note
that value in this industry starts with the raw material because the raw hides and
skins represent 50 percent to 60 percent of the cost of producing a piece of leather
(Mahi Leather n.d.) Given this, international tanners are now buying from specialized
leather producers that focus on specific types of quality leather. As a result, some
primary producers opt to focus on specialized leather segments that require increased
sophistication and offer higher profit margins. Nigeria should explore supporting
specialized leather producers as the sector continues to develop scale. Priority actions
to increase private investment in the sector should also include business environment
regulations that ease the formalization of tanning and primary hide producing
companies, and support for building technical capacity and standards in the sector.

4.4 ICT AND THE DIGITAL ECONOMY

The benefits to Nigeria of harnessing the digital economy are significant with the
potential to accelerate the pace and inclusiveness of economic activity in the country.
According to the Nigeria Digital Economy Diagnostic Report (Lixi, Zottel, and
Neto 2019), Nigeria is currently capturing only a fraction of digital-enabled growth
and needs to strategically invest in the foundational elements of its digital economy
to keep pace. There are opportunities to virtually connect people and things and to
facilitate digital transactions and interactions, including the exchange of information,
goods, and services through digital platforms. Nigeria is well advanced in the use
digital platforms with one of the biggest e-commerce markets in Africa—estimated at
US$12 billion—provided, among others, by 87 Nigerian platforms, and employing 2.9
million people in the country. The COVID-19 pandemic has highlighted the ability of
telecommunications and digital technologies to be game changers in times of crisis.
The opportunities to leverage technology for each sector is described throughout this
document, including digitizing agricultural value chains and providing technology-
enabled solutions to MSMEs. Although the opportunities for digital are infinite,

60
 IDENTIFYING SECTOR OPPORTUNITIES

COVID-19 will likely have the largest impact on financial services (DFS), retail
(e-commerce), and adult education (e-learning), with the potential to transform them.
DFS, especially through Payment Service Banks (once fully licensed) and fintechs,
could offer significant benefits through enhanced financial inclusion, especially in rural
areas, and digital entrepreneurship. (Refer to Addendum to the CPSD for description
of emerging digital opportunities from COVID-19.)

With a large, young entrepreneurial population, Nigeria is also well-positioned

to accelerate its economic transformation with digital entrepreneurship. Digital
entrepreneurship ecosystems are already developing and growing in the urban centers
of Nigeria, although limited in rural areas and among small and medium enterprises.
Nigeria scores high on the level of new firm innovation, compared with regional
and global peers (figure 4.6). About 40 percent of new or early-stage Nigerian firms
introduced a new product or service into the market, followed by Senegal (38.5
percent) and Ghana (28.5 percent).

FIGURE 4.6 ENTRY RATE OF NEW FIRMS AND INNOVATION AMONG NEW FIRMS (2012–17)

12 50

% OF 18–64 POPULATION WHO ARE EITHER

NEW REGISTRATIONS PER 1,000 PEOPLE

A NASCENT ENTREPRENEUR OR OWNER-

MANAGER OF A NEW BUSINESS THAT
10

INTRODUCED NEW PRODUCTS

40

8
30
AGES 15–64

6
20
4

2 10

0 0
NIGERIA

BRAZIL

GHANA

KENYA

INDIA

INDONESIA

MEXICO

PAKISTAN

SENEGAL

SOUTH AFRICA

INNOVATIVE ENTREPRENEURSHIP ENTRY RATE OF NEW FIRMS

Source: World Bank 2015.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

However, fully harnessing the potential of the digital economy in Nigeria will require
improvements in digital infrastructure and connectivity as well as digital skills and
literacy. Digital infrastructure is central to improving efficiency and bridging the
digital divide, but Nigeria lags its peers, such as Kenya and South Africa, despite some
progress. For instance, Nigeria’s score (45.9) in the 2017 GSMA Mobile Connectivity
Index is low relative to regional peers, Kenya (51) and South Africa (59.9). One of the
core challenges to the growth in this industry is the inadequate quality of both direct
and enabling infrastructure, which leads to poor industry outcomes. Nigeria does
not have a national network to extend internet connectivity across the entire country.
Fixed broadband penetration in Nigeria is very low, with a household penetration rate
of 0.04 percent at the end of 2018, below the African regional average (0.6 percent)
and well below the world average (13.6 percent). There is a heavy reliance on mobile
broadband to access the internet but the lack of affordability of broadband-enabled
devices for the bottom of the pyramid is a major barrier to access in Nigeria. Mobile
penetration rates In Nigeria—at 75.9 percent in 2017—are also lower than peers
such as Kenya and South Africa, where penetration rates are 78.2 percent and 156.7
percent, respectively. According to World Bank data, there is a declining trend in the
availability of secure internet servers in Nigeria.84 There were only 74 secure internet
servers per million people in 2019, falling from 184 and 222 per millon people in 2018
and 2017, respectively. This is well below the average of 841 per million people for
Sub-Saharan Africa.

The development and expansion of digital infrastructure is constrained by the

complex institutional setup (given overlapping responsibilities of regulatory agencies)
and the legacy of operators investing in proprietary network deployments. It is
compounded by the high costs of infrastructure deployment and low revenues.
Regulatory instability (mobile telecommunication company fines, fiberco licensing,
and so on) and macroeconomic uncertainty discourage long-term investments, making
expansion difficult. The size of the country and the size of the rural population (50.6
percent) call for wholesale, carrier neutral, shared infrastructure to help bridge the
emerging divide. Access to electricity also remains a core challenge for the sector. This
results in the low performance as evidenced by the internet data speed—estimated at
3.9 Mbps, which is relatively low when compared to the global acceptable standard
of 7.2 Mbps. Although the prepaid mobile cellular tariffs are relatively affordable at
US$0.13 per minute, broadband internet tariffs are relatively high at an average of
US$71 per month, higher than the minimum monthly salary, which is currently at
US$67 per month. Also, 3G internet coverage and mobile broadband connectivity are
inadequate, at 67.2 percent and 32.2 percent, respectively. Lack of skills and access to
financing also restrict investment in the sector.

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 IDENTIFYING SECTOR OPPORTUNITIES

In addition, investors have faced issues with being granted right of way (RoW) to lay
fiber in state-owned land because of lack of legislation on RoW or policy consistency.
State governors have control over the approval of RoW and can demand whatever fees
they desire from telecommunication operators deploying infrastructure in their states.
There is no harmonized RoW charge, which raises uncertainty. This issue has to be
resolved to encourage investment in the sector.85 In addition, spectrum management
appears suboptimal in a number of areas. The regulator needs to review spectrum
policy to ensure more optimal coexistence of licensed and unlicensed spectrum.
Licensed spectrum is required for the evolution of existing services and needs to
be assigned at a competitively determined price to ensure the efficient build-out of
capital-intensive networks. Nationally allocated spectrum not in use in remote areas
should be available for free or low-cost use by community-based or not-for-profit
micro-networks. Other key recommendations for advancing digital development
include (a) implementing the Strategic Roadmap for a Digital ID System in Nigeria; (b)
continuing to prioritize the digitization of government payments, social transfers, and
tax collections; (c) revising regulations on agent networks to incentivize investments
for access points in financially excluded communities; (d) removing overlap of
responsibilities between different government entities regulating the ICT sector; and (e)
advancing digital literacy for youth and adults.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

APPENDIXES

APPENDIX A: CHOICE OF PEERS: SELECTING COMPARATOR

COUNTRIES
On the basis of the 2019 Systematic Country Diagnostic, this CPSD used comparator
countries from three groups to benchmark Nigeria’s economic and development
outcomes: (a) regional comparators are geographically close countries that exhibit
similar economic characteristics (Angola, Cameroon, Côte d’Ivoire, Ethiopia, Ghana,
Kenya, Senegal); (b) structural peers include countries that resemble Nigeria in the
key economic structure and performance indicators: these are lower-middle-income
countries with nominal income per capita of at least 50 percent of that of Nigeria’s,
and/or upper-middle-income countries with nominal income per capita less than
double that of Nigeria’s, with natural resource share in total exports of 20 percent
or more and large populations (Algeria, Egypt, India, Indonesia, and Iran); and (c)
aspirational peers are countries that Nigeria can potentially improve to match their
economic performance: upper-middle-income countries with nominal income per
capita at least double that of Nigeria’s, with natural resource share in total exports
of 20 percent or more, and a population of more than 30 million (Brazil, Colombia,
Malaysia, Mexico, Russian Federation, and South Africa).

Malaysia and Indonesia are two very useful case studies for Nigeria (figure A.1).
Both countries, like Nigeria, are advantaged with a diversified resource endowment
(including crude oil), good agroclimatic conditions, an abundant, low-cost labor
supply, good geographic location, and deep-water ports. The figures below show that
these two countries were comparable (based on living standards) to Nigeria in the
early 1970s, but over the years, there has been a divergence in economic performance,
especially in the case of Malaysia. While fuels (from primary commodities like oil)
dominated merchandise exports in the three countries up until the mid-1980s, their
contribution to exports fell by nearly half in Malaysia and Indonesia in the years
after, whereas in Nigeria their contribution remained very high. Likewise, oil rents—
the difference between the value of crude oil production at world prices and total
costs of production—have declined considerably in Malaysia and Indonesia, from 12
percent and 24 percent (of GDP), respectively, in 1980, to 2.4 percent and 0.8 percent,
respectively, in 2017, whereas in Nigeria they remain high, at more than 6 percent.

64
 APPENDIXES

FIGURE A.1 COMPARISONS WITH INDONESIA AND MALAYSIA

A. Standards of Living in Indonesia, Malaysia, and Nigeria (1970–2018) B. Fuels Exports in Indonesia, Malaysia, and Nigeria

12,000 100
90
GDP PER CAPITAL (CURRENT US$)

GDP PER CAPITAL (CURRENT US$)

10,000
80
70
8,000
60
6,000 50
40
4,000 30
20
2,000
10
0 0
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2017
NIGERIA INDONESIA MALAYSIA NIGERIA INDONESIA MALAYSIA

Source: World Development Indicators database.

Malaysia and Indonesia pursued economic diversification proactively through well-

designed industrial policies. In Malaysia, the Industry Masterplan 1 (1986–95),
laid the foundation of manufacturing industries and promoted the processing of
natural resources with a careful focus on sectors with import reduction, high export
potential, and higher value-added activities (including petrochemicals, refined
petroleum, palm oil, rubber gloves, tires, and prophylactics products) while reducing
the overconcentration in upstream commodities. Two subsequent Masterplans
also helped strengthen industrialization, supported by the provision of adequate
infrastructure while the openness to foreign labor kept current and expected labor
costs in check. As a result, the manufacturing sector’s contribution surged from only
22 percent of total exports in 1980 to around 80 percent by 2015, while the primary
sector declined from 77 percent to 19 percent and its share in GDP almost halved
to 18 percent. Since the late 1970s, the Indonesian government has pursued active
policies to encourage agriculture (for example, disease-resistant and high-yield rice
varieties), while supporting low-wage manufacturing by accelerating the process of
industrialization through extensive public investment (using oil income) mainly in
capital-intensive import substituting industries like natural gas resources for domestic
fertilizer production and for export. As a result, the role of primary commodities in
exports and revenues has declined. Oil exports, which accounted for 75 percent of
total exports in 1975, now (as of 2017) account for only 22 percent. Likewise, oil
revenues (as a percentage of GDP) have dropped from 30 percent in 1979 to less than
1 percent in 2017.

65
 NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

APPENDIX B: A DISCUSSION OF THE 2014–16 OIL PRICE

SHOCK IN NIGERIA
The recent oil price crash (between 2014 and 2016) that devastated Nigeria’s public
finances and precipitated the recession in 2016 is strong evidence of Nigeria’s high
sensitivity to the boom and bust cycle of oil prices and policy responses that have
created economic uncertainty that stymies investment. A lack of adequate buffers86 and
low non-oil revenues made counter-cyclical fiscal adjustments difficult. As oil revenues
(and total government revenues) tumbled and became considerably low relative to
peers (figure B.1), government borrowing increased to fill its financing gap. General
government gross debt rose from about 13 percent of GDP in 2014 to nearly 19 percent
by the end of 2018 (figure B.2). As a result, interest payments on federal government
debt are consuming about 60 percent of the federal government’s retained revenues (or
1.7 percent of GDP in 2018) and exceeded federal government capital spending (at 1.3
percent of GDP). During the recession, the Central Bank of Nigeria (CBN) introduced
foreign exchange and capital controls that limited access to foreign currency for
investors and businesses seeking to repatriate funds, which widened the gap between
the official (interbank rate) and the more widely available bureau de change (BDC) rate
(figure B.3). A raise in the CBN’s monetary policy rate by one percentage point (to 14
percent) to curb inflationary pressures also pushed maximum lending rates from 27
percent in October 2015 to 31.4 percent by October 2017, crowding out private sector
borrowing.

FIGURE B.1 EVOLUTION OF GOVERNMENT REVENUES AND COMPARISONS WITH INTERNATIONAL PEERS

35 General Government Revenue (% of GDP), 2016

50
30 45
REVENUES ASA SHARE OF GDP (%)

40
25 Russian
PERCENTAGE OF GDP

35 Brazil Federation
Algeria
30 Senegal South Africa
20 Colombia
25 Kenya India Egypt, Arab Mexico
15 20 Ethiopia Tanzania Cote D'lvoire Angola Peru Malaysia
Ghana
15 Cameroon Indonesia
10 Uganda
10
5 NIGERIA
5
0
0
2.50

2.75

3.00

3.25

3.50

3.75

4.00

4.25

4.50
2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

LOG GPD PER CAPITA (IN 2010 US$)

NIGERIA SUB-SAHARAN AFRICA NIGERIA REGIONAL PEERS

STRUCTURAL PEERS ASPIRATIONAL PEERS
Sources: World Development Indicators database; World Bank staff calculations.

66
 APPENDIXES

FIGURE B.2 OIL PRICE SHOCK AND FISCAL INDICATORS FIGURE B.3 OIL PRICE SHOCK AND MONETARY INDICATORS

120 25 120 600

GENERAL GOVERNMENT GROSS DEBT (% GDP)

FOREIGN RESERVE (US$ BILLIONS), OIL

100 100 500
20
OIL PRICES PER BARREL (US$)

DOLLAR EXCHANGE RATES

80 80 400

PRICES (US$)
15
60 60 300
10
40 40 200

5
2,0 2,0 100

0 0 0 0
2011

2012

2013

2014

2015

2016

2017

2018

2011

2012

2013

2014

2015

2016

2017

2018
BONNY LIGHT CRUDE OIL PRICE FOREIGN RESERVES (EP) DOLLAR RATES (BDC)
GENERAL GOVT GROSS DEBT (% GDP) BONNY LIGHT CRUDE OIL PRICE DOLLAR RATES (INTER-BANK )
Sources: Central Bank of Nigeria; International Monetary Fund; World Development Indicators.

67
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

APPENDIX C: OPPORTUNITIES FOR NIGERIA: GIFF

METHODOLOGY

FIGURE C.1 POTENTIAL OPPORTUNITIES BASED ON GROWTH IDENTIFICATION AND

FACILITATION FRAMEWORK FOR NIGERIA

UPSIDE POTENTIAL SECTOR FEASIBILITY

• Growth • Existing endowments
• Employment • Ability to bridge competitiveness gaps
• Spillovers • Likelihood of policy reform

HIGH

Wholesale /
Retail
Chemicals
Wholesale /
Food & Food &
Retail
Commodities Beverage Man-
Meat & ufacturing
Processing
Poultry Plastics
Latent Manifest
Competitiveness Competitiveness
Agra FMCG
Light Trading (Consumer
Manufacturing Oil Palm goods)
Cocoa
Meat &
Motocycle Assembly Poultry

Rice TV Tires
Assembly Cement

Steel
Computer Leather
textiles Assembly

Glass
Auto Dairy
Assembly Agriculture

Electronics

LOW HIGH

LAGOS KADUNA MULTIPLE REGIONS

KANO SOUTHERN NIGERIA Size of circle indicates current importance to economy

Source: Based on IFC staff calculations.

Note: Growth Identification and Facilitation Framework

68
 APPENDIXES

APPENDIX D: IDENTIFYING CONSTRAINTS IN ENABLING

SECTORS: NIGERIA VERSUS PEERS

FIGURE D.1 THE STATE OF BUSINESS ENVIRONMENT “ENABLERS”: NIGERIA VERSUS PEERS

Domestic credit to private sector (% of GDP)

Nigeria
Access to Indonesia
finance MICs
Malaysia
0 20 40 60 80 100 120 140

Cost to export (US$)

Nigeria
Indonesia
MICs
Malaysia
0 100 200 300 400 500 600 700 800 900

Time to export (hours)

Nigeria
Transport Indonesia
and logistics MICs
Malaysia
0 20 40 60 80 100 120 140 160

Quality of roads (1 = extremely poor, 7 = extremely good)

Nigeria
Indonesia
Malaysia
0 1 2 3 4 5 6

Mobile connections (% penetration)

Nigeria
Indonesia
Malaysia
0 20 40 60 80 100 120 140

Mobile broadband connection (% penetration)

Nigeria
ICT Indonesia
Malaysia
0 20 40 60 80 100 120

Cost of mobile services (% of GNI per capita)

Nigeria
Indonesia
Malaysia
0 1 2 3 4 5 6

69
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Electric power consumption 2014 (kWh per capita)

Nigeria
Indonesia
MICs
Malaysia
0 1,000 2,000 3,000 4,000 5,000

Access to electricity 2017 (% population)

Nigeria
Indonesia
MICs
Malaysia
40 50 60 70 80 90 100 110
Electricity
Power outages in firms (per month)
Nigeria (2015) 32.8
Indonesia (2015) 0.5
Malaysia (2014) 0.1
0 5 10 15 20 25 30 35

Electricity costs (US cents per KwH) DB 2019

Nigeria
Indonesia
Malaysia
6 7 8 9 10 11 12 13 14

Access to improved water 2017 (% population)

Nigeria
Water Indonesia
Malaysia
0 20 40 60 80 100

Life expectancy (years)

Nigeria
Indonesia
Health MICs
Malaysia
40 50 60 70 80

Literacy rate, adult total (% of people ages 15 and above)

Nigeria
Indonesia
MICs
Malaysia
40 50 60 70 80 90 100
Education
Learning-adjusted years of school
Nigeria
Indonesia
Malaysia
2 3 4 5 6 7 8 9 10

Cost of registering property (% of property value)

Nigeria
Indonesia
Malaysia
0 2 4 6 8 10 12
Land
Quality of land administration (0 = poor, 30 = excellent)
Nigeria
Indonesia
Malaysia
0 5 10 15 20 25 30

Note: DB 2019 = World Bank Doing Business index 2019; ICT = information and communication technology; MICs = middle-
income countries.

70
 APPENDIXES

APPENDIX E: PUBLIC-PRIVATE PARTNERSHIP OPPORTUNITIES IN

INFRASTRUCTURE

TABLE E.1 PUBLIC-PRIVATE PARTNERSHIP OPPORTUNITIES IN INFRASTRUCTURE

INVESTMENT
NEEDS [% OF PPP TARGET
Sector GDP] RATIONALE AREAS

• Generation capacity is no longer a constraint, but ✓ Transmission

the grid requires expansions to increase electricity grid
access from currently 58 to 95 percent in the ✓ Renewables/
next 20 years. The system is riddled by limited solar
gas availability, historically poor maintenance of
infrastructure, and limited ability to manage flow. ✓ Off grid/
decentralized
• The deficient grid system leads to commercial and generation
technical losses suggesting private participation
Power in this area. Meters need to be deployed to ensure
1.5
(electricity) revenue collection efficiency.
• The Economic Recovery and Growth Plan (ERGP)
aims at reaching financial close on the 15 solar
plants that have recently signed power purchase
agreements (PPAs) (ERGP 2014–20). Given that
most renewable PPPs in Sub-Saharan Africa were
in South Africa and Kenya, Nigeria may likely be
a potential future market for renewables going
forward.

• Although there are overall high investment ✓ Highways and

needs, many of those investments would involve expressways in
increasing paved roads’ length from 30,000 km to urban and peri-
260,000 km over the next 20 years, most of which urban areas
would be for rural roads construction or increasing ✓ Rail mass
road quality (paving). Many of these roads will, transit
Roads/mass however, have insufficient/unstable traffic
1.2
transit
frequency to create a business case for PPPs. ✓ BRT
• PPP opportunities may therefore be found in the
expansion and refurbishing of highways or peri-
urban expressways as well as mass transit (rail
and BRT), given Nigeria’s soaring urbanization and
population density.

• Marine traffic rose 42 percent between 2007 ✓ Sea port

and 2012, but congestion is an issue. The system construction
requires further improvement and expansion to ✓ Inland
accommodate Nigeria’s growth. Ports investment waterway
is estimated to have been substantially higher
Ports 0.4 construction
in Nigeria than in other African countries since
2007, boosted by the government’s Port Reform
Programme, which proved successful in attracting
private investment to address limitations in the
country’s ports sector.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

• Following a successful deregulation effort, the

telecommunications sector has been growing
rapidly. Further investment is needed to address
huge demand, which often can overwhelm existing
Telecom 0.6 infrastructure. Nigeria ranks 112th out of 144
nations in the overall readiness of its information
and communications technology network,
according to the World Economic Forum. There is
also much potential to expand access.

• The air transportation infrastructure consists ✓ Upgrade

of five international and 19 domestic airports. and expand
Substantial investment is needed to bring them in existing airport
Airports 0.1 line with international standards. They particularly (renovate 11
need improved passenger facilities, increased airports and
capacity, and business hubs around the major upgrade 8)
airports.

• Rehabilitation of existing railway lines and building ✓ Rail linkages to

of additional railway lines to even economic economically
Rail 0.1 development. important sites
(Tincan, Onne,
Apapa port)

• Smallholder Nigerian farmers lose more than 40 ✓ Silos/storage/

percent of harvests of certain crops to spoilage and warehouses
Agriculture n.a. waste because of lack of access to markets and ✓ Irrigation
affordable storage. systems

• The government policy on PPPs in health recognize ✓ Secondary and

that a central aspect of sector reform is “to tertiary health
Health n.a. mobilize and harness all resources across both care providers
public and private sectors”—endorsing the PPP
concept.

• Nigeria has an estimated 200 million m2 of real

estate, of which 160 million are residential, 30
Housing n.a. million are commercial space, and 10 million are
industrial. On a per capita basis, these levels are
one-third to one-sixth the levels in Indonesia.

Sources: Oxford Economics and Global Infrastructure Hub 2017; McKinsey 2014; IFC analysis.
Note: PPP = public-private partnership; n.a. = not applicable.

72
 APPENDIXES

APPENDIX F: KEY COMPETITION RESTRICTIONS IDENTIFIED IN VARIOUS

SECTORS

TABLE F.1 GOVERNMENT INVERVENTIONS THAT AFFECT COMPETITION

SECTOR SUBSECTOR GOVERNMENT INTERVENTIONS THAT AFFECT COMPETITION

• In 2019, the Central Bank of Nigeria (CBN) imposed a ban

on nitrogen, phosphorus, and potassium imports (through
foreign exchange restrictions) to protect the blending industry,
which is likely to raise prices for consumers.
• At the same time, distortionary import tariffs put domestic
blending firms at a disadvantage against international
suppliers of straight fertilizers.a
• Other fertilizer imports are routinely delayed because of the
requirement that all imports undergo laboratory testing.
• Despite positive reform of the fertilizer distribution system,
challenges remain. The introduction of demand-side subsidies
Agriculture Fertilizers (in part digitally delivered) about five to seven years ago allowed
for more consumer choice and the development of private sector
agrodealer networks. However, some challenges remain with
this plan including:
— Competition between suppliers under the plan is subdued
because the federal government had granted regional
monopolies to certain suppliers.
— The plan has also suffered from delayed payments from
government to agrodealers, which has led to late deliveries; a
lack of coordination between federal and state governments,
which has led to some states withdrawing; and poor ICT
network coverage.b

73
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

• Insufficient seed multipliers and large scope of subsidies:

Government involvement in the seed market contributes to the
lack of improved varieties/strains. Private firms compete on an
unlevel playing field with public sector institutions, including
Agricultural Development Projects (ADPs).
— The release of free seed (including through ADPs)
has dampened incentives for commercial multipliers
to enter the market. Meanwhile, ADPs have been
considered ineffective, partly because of a lack of effective
Seeds complementary extension activities.
— New Rice for Africa (NERICA) and International Institute
of Tropical Agriculture (IITA) cannot produce enough
new material because they do not operate commercially and
cannot cover costs.
• Silos for seed and plantlets of improved varieties are not
located in all growing areas, meaning some farmers cannot
access them. Some report that the positioning of silos is
politically motivated.

• Intervention funds from the CBN are reportedly not

awarded on a level playing field and provide advantages to
certain connected firms.c
Agri-finance
• The cap on the amount of concessional funding from Bank of
Industry/Bank of Agriculture is considered insufficient to plant
one hectare of land, which makes it impractical to use effectively.

• Several promising tech platforms are emerging as connectors

of value chains, and alternatives to traditional intermediaries,
bringing together farmers, off-takers, and service providers.
• Given the propensity of such platforms to tip toward market
Agri-digital dominance, to exclude rivals from the market, to allow for
platforms leveraging of market power between markets (for example,
because of access to data), and to favor farmers with some
scale, the government may want to consider monitoring
the effects of such platforms on the market closely and
to consider whether any form of regulation or safeguards
would be useful in the medium term.

74
 APPENDIXES

• Incumbents claim transport costs are the main reason that

Nigerian cement prices are higher than prices in other countries
in the region, although it is likely that a lack of competitive
pressure between incumbents, lack of threat from entry, a
ban on imports, and consequent high margins for domestic
firms (reportedly around 40 percent margin), play a large role,
especially given Nigeria’s relatively low cost of production.
• Despite claims of a glut in the market by incumbents, potential
entrants do not believe the market is saturated, especially given
demand that could come from housing needs (with cement
making up around 30 to 40 percent of the cost of affordable
housing).
• However, the following factors hinder new entry and
competition in the sector:
Cement — Incumbents developed large positions with great scale
Manufacturing because of informal and formal advantages provided (access
and construction to state assets, tax holidays, and so on).
inputs
— Access to licenses for exploration is difficult given
that existing companies have rights over very large
geographic areas and “lose it or use it” provisions in
licenses are not the norm. Also, there are long-term
exclusivity rights over mines and limestone resources in favor
of the incumbent firms that prevent the entry of other firms.
— There is an intention by the Nigeria Geological Agency to map
areas available for exploration/quarrying, but financing is
needed to do this.
— Restrictions on the issuance of import licenses and on
foreign exchange for cement limit competitive pressure on
domestic producers.e

• The sector incentive defined by the Automotive Development

Automotive Council includes local content to stimulate demand for plastic
parts and windscreens.

75
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

• The Mobile Telecommunication Company (MTN) has been given

a license to operate as a payment service banking provider,
allowing it to compete directly with banks. This is positive given
CBN previously required mobile network operators (MNOs) to
provide mobile money only in partnership with banks.
• However, to open up the market for DFS further, challenges
for third parties accessing MNOs’ USSD/SMS (texting)
channels for DFS would need to be addressed. These
challenges include the following:
Electronic Digital financial — Third parties claim that current MNO pricing of its USSD/SMS
communication services (DFS) channels leads to margin squeeze.
— MNOs will not commit to quality of service, which is
problematic because MNOs bill for failed transactions.
— MNOs can access the data of third-party providers like
Interswitch because USSD is transferred in clear text.
• MTN is now subject to regulation from CBN to provide access
to its USSD/SMS channels to third parties on nondiscriminatory
terms, although enforcement of the provision has not yet been
seen.

76
 APPENDIXES

Broadband rollout:
• Fiber backbone coverage in Nigeria is significant,f however the
last mile network is sparser.g The government’s main focus now
is on fiber rollout outside major cities.
• NCC has tendered one license to roll out fiber for each of seven
designated zones—essentially creating local monopolies and
bottlenecks. It is not clear why such an approach would be
necessary in areas where rollout is commercially viable, such as
Lagos. To mitigate competition issues arising here, these
networks should be regulated on an open access basis.
• Subsidies available for rollout post-delivery under the
National Broadband Plan (government set to contribute
40 percent of the total rollout cost) do not consider
competitive neutrality principles, which would safeguard
against distortions from the advantages provided to subsidy
recipients.
• Investors have faced issues with being granted right of way
(RoW) to lay fiber in state-owned land because of the lack
Telecommunications of legislation on RoW. State governors refused the approval
and broadband of RoW to—or demanded high fees from—telecommunications
rollout operators deploying infrastructure in their states until the
Nigerian Communication Commission intervened on behalf
of operators.h And in the North-Central Zone, IHS returned its
license to rollout because it could not secure RoW.
— In this regard, one positive step forward in rollout was an
agreement between state governors on a harmonized RoW
charge; however, this remains as an informal agreement
and may benefit from being formally regulated to increase
certainty.
Regulation of the market:
• NCC has put in place some promising procompetition rules
(especially in the voice market) including issuing guidelines for
interconnectivity, making a determination of dominance on MTN
and issuing directives to MTN regarding on-net/off-net calls; and
implementing a mobile number portability scheme.
• However, it has imposed minimum retail prices for
data services in the recent past—which raises prices for
consumers—and it is now considering reimposing a retail tariff
regulation.

• Introduction of a new category of “VAS Aggregator”

license by the NCC has meant that aggregators that were
Value-added services previously licensed under a “VAS Content” license could
(VAS) be “prohibited” from operating because aggregators such as
VAS Content license holders are not eligible to apply for a VAS
Aggregator license.

77
NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

• The Nigerian Shippers’ Council (NSC), historically the

representation body for shippers, was appointed the
economic regulator for Nigeria’s seaports in 2015, leading to
Transport Shipping/ports
the potential for conflicts of interest in certain aspects of its
role (for example, the NSC is now putting in place fixed shipping
charges).i

• Nigerian independent operators will be given first

consideration in the award of oil projects in Nigeria. In
addition, multinational companies working through Nigerian
subsidiaries must demonstrate that a minimum of 50 percent of
the equipment used is owned by Nigerian subsidiaries.j
— The government participates both as regulator and
Oil and gas
player on various markets along the value chain, which
dampens competition between public and private firms.
— The Petroleum Act explicitly permits the Minister of
Petroleum Resources to fix the price at which petroleum
and petroleum-related products may be sold, supressing
market signals.

• The recent introduction of “eligible customer regulation” is

Energy
an opportunity for commercial business and can improve the
competitiveness of the power distribution market, however:
— Despite regulatory changes, buyers are not allowed to
buy directly from generation/transmission companies,
but instead they are required to negotiate with and buy from
a distributor. This obligation has been seen as compensation
Electricity to the distribution companies.
— There have been delays in approving eligible customer
agreements potentially to protect distributors. For
example, five members of the Manufacturers Association
of Nigeria entered into agreements with distribution
companies (those that already had connection infrastructure)
but another 40 members are currently waiting to receive
approval/licenses from the authority.

78
 APPENDIXES

• Several competition concerns have been raised with the

central switch (the Nigeria Inter-Bank Settlement System
or NIBSS), which is owned by a group of banks and the CBN.
— NIBSS now acts as the sole Payment Terminal Service
Aggregator. This allows the banks to exclude other players
from the payment systems market. Initially, regulation
prohibited NIBSS from retail activity, but this regulation
has recently changed, which could pose a conflict
of interest and lead to a greater risk of exclusionary
behavior.
— Moreover, all banks have been requested by CBN to
use the transfer services of NIBSS, and CBN has in the
past asked all actors to send all data to NIBSS, which would
have provided banks with a stake in NIBSS with an obvious
advantage.
— Finally, roll out of a unique bank verification number (BVN)
has been championed by NIBSS. However, NIBSS refused
Financial services Payments systems to give access to the BVN to smaller players, which has
delayed the rollout of certain innovations because of the lack
of access to the BVN (for example, credit scoring, direct cards,
onboarding/know-your-customer [KYC] innovations).
• CBN sets the merchant service commission at 7.5 percent.
This prevents providers from competing on price.
• A recent CBN circular on licenses for payment systems
providers caused uncertainty by dividing licenses into tiers
with different requirements. It was unclear whether existing
licenses would be revoked and whether an operator who
conducts multiple different services would have to reapply for a
license for each one.
• KYC requirements set by the CBN are based on traditional
bank-model approach to KYC but this does not take
into account the needs/models of digital technologies.
Moreover, larger players say that smaller players are at an
informal advantage because they are not under scrutiny on KYC
requirements from CBN.

a. Zero percent duty and VAT charged on final fertilizer imports, but 5 percent VAT charged for fertilizers that have been blended within the country.
b. See for example: https://acta.mendelu.cz/media/pdf/actaun_2018066030781.pdf.
c. Note that Nigerian firms believe they are at a natural disadvantage versus international firms because of the higher cost of access to capital and differential
access to foreign exchange.
d. Dangote holds the Mining Lease Agreement (MLA) for the limestone quarry feeding Sub-Saharan Africa’s largest plant, the Obajana plant, and at least six
Exclusive Prospecting Licenses (EPL) for limestone resources.
e. See https://www.export.gov/article?id=Nigeria-Prohibited-and-Restricted-Imports.
f. With five or six submarine fiber international connections.
g. Ninety-nine percent of last-mile coverage is through mobile networks.
h. See https://www.thisdaylive.com/index.php/2018/06/28/half-year-telecoms-sector-trudges-on/; https://www.thisdaylive.com/index.php/2018/08/24/telcos-
incursion-stifles-internet-service-providers/.
i. See https://www.shipperscouncil.gov.ng/port-legal-framework.
j. Nigerian Oil and Gas Industry Content Development Act of 2010: https://www.export.gov/article?id=Nigeria-Market-Overview.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

APPENDIX G: IDENTIFYING OPPORTUNITIES: SECTORS

TABLEG.1 TOP 20 PRODUCTS BY REVEALED COMPARATIVE ADVANTAGE

% % CHANGE
CHANGE % CHANGE IN
RCA IN RCA IN WORLD NIGERIAN
CATEGORY PRODUCT 2017 (2013–17) DEMAND EXPORTS

Petroleum oils, oils from bitumen, materials, crude 16.4 4.4 −4 −15
Fuels
Petroleum gases, other gaseous hydrocarbons,
15.6 0.6 −4 −10
n.e.s

Cocoa 9.8 −0.2 1 0

Agriculture
Wood in the rough or roughly squared 8.7 15.8 -2 85

Natural gas, whether or not liquefied 8.4 0.9 -2

Fuels
Fuel wood (excluding wood waste) and wood
8.4 0.6 5 −62
charcoal

Oil seeds and oleaginous fruits (includes flour,

Agriculture 5.2 11.4 NA NA
n.e.s)

Fuels Liquefied propane and butane 4.9 1 NA NA

Hides and skins (except fur skins), raw 3.8 50 −9 −36

Hides and
skin
Leather 2.9 0.0 3 0

Ores and concentrate of base metals, n.e.s 2.5 3.0 NA NA

Metals Lead 1.9 0.3 7 −14

Nonferrous base metal waste and scrap, n.e.s 1.6 1.1 NA NA

Chemicals Natural rubber and similar gums, in primary forms 1.6 −0.7 −2 −15

Spices 1.3 0 4 −28

Agriculture Oil seeds and oleaginous fruits (excluding flour) 1.1 0.3 NA NA

Tobacco, manufactured 1.1 1.3 2 −6

Fertilizers (other than those of group 272) 1.1 15.9 −3 150

Chemicals
Lime, cement, fabricated construction material
0.9 11.4 −3 96
(excluding glass)

Fuels Residual petroleum products, n.e.s, related matter 0.8 80.3 NA NA

Source: U.N. Conference on Trade and Development.

Note: RCA = revealed comparative advantage; n.e.s. = not elsewhere specified; NA = not available.

80
 APPENDIXES

TABLE G.2 DISTANCE INDEX BY PRODUCT

CATEGORY PRODUCT DISTANCE INDEX PRODUCT COMPLEXITY

Mining Gold 0.904 −2.45

Agribusiness Cotton 0.913 −2.47

Chemicals Cyanate 0.915 −1.67

Mining Manganese 0.920 −2.49

Peanuts 0.921 −2.64

Agribusiness Tobacco 0.921 −1.81

Avocado, pineapples, and mango 0.922 −1.97

Mining Aluminum ore 0.924 −0.09

Bananas and plantain 0.924 −1.78

Sugarcane and sucrose 0.923 −1.63

Agribusiness Molasses 0.925 −1.65

Palm oil 0.926 −2.09

Tubers 0.926 −1.91

Hides and skin Raw hides 0.927 −2.01

Vegetable production 0.927 −1.89

Coffee 0.927 −1.80

Agribusiness
Frozen fish 0.928 −1.66

Legumes 0.929 −1.77

Mining Chromite ore 0.930 −3.00

Agribusiness Pepper 0.931 −1.89

Source: Harvard University.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

Potential Opportunities on the Basis of Sector Fitness Analysis

FIGURE G.1 SECTOR FITNESS ANALYSIS

OIL & GAS

ELECTRONICAL
FORESTRY
APPAREL CHEMICALS

MACHINERY
FISHING
MISCELLANEOUS
BEVERAGE & TOBACCO

ELECTRICAL
CROPS EQUIPMENT

METAL
PRODUCTS
WOOD

PAPER
LEATHER

TRANSPORTATION
FOOD

MINERALS
TEXTILE PRODUCTS
METAL
ANIMAL PRODUCTION
MINING PETROLEUM & COAL
FURNITURE TEXTILE
PLASTICS

NOMALIZED SECTOR FITNESS RANK

2000 2015

Source: IFC staff analysis.

82
 APPENDIXES

TABLE G. 3 POTENTIAL OPPORTUNITIES ON THE BASIS OF SECTOR FITNESS

OTHER FAST
SECTOR LARGE BASE GROWING GREEN SHOOTS

(goods and services that

(other competitive
(opportunities with are not yet exported
exports that are growing
large export volumes) competitively, but that are
above the global average)
growing quickly)

Agribusiness Plants for Soups/broths, cocoa Bovine leather

(including animal pharmaceutical and paste
products and insecticides use
forestry)
Animal products
(tanned lamb skins)
Tropical wood in the
rough

Mining/ Aluminum, lead, Tungsten ores, zirconium Aluminum waste, iron/steel

extractives petroleum gas ores, and metal ash masts, lead ores

Manufacturing Synthetic wigs/beards Machinery and

transportation equipment
(motorcycles, motor vehicles,
parts for gas turbines, hand
working tools, and electric
generating sets)
Chemicals (polypropylene
and polyethylene in primary
forms); toothpaste

Services Transport, finance

Source: World Bank Group staff analysis.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

APPENDIX H: OPPORTUNITIES FOR KEY MINERALS IN

NIGERIA

TABLE H. 1 OPPORTUNITIES FOR KEY MINERALS IN NIGERIA

MINERALS OF
INTEREST OPPORTUNITIES IN NIGERIA

Gold • About 200 million metric tons of estimated resources; it is a

high-value mineral with a historical track record of increasing
prices.
• Easy to mine and process post exploration.
• Ongoing exploration by Tropical Mines Nigeria Ltd., with plans
to commence full exploitation by 2020.
• KiansmithTrade Co. Ltd., which has about 25 exploration
licenses, recently secured the first gold refinery license in
Nigeria for production in the Mowe District of Ogun State.
• A national gold development policy is currently being fleshed
out alongside the establishment of a federal gold reserve plan.
Under the proposed plan, the Central Bank will purchase gold
from local refineries to grow the country’s gold reserves based
on international conventions.
• Although gold is currently exported as a raw material, the
upcoming developments in gold refining are expected to
change the structure of production and exports.

Iron ore • Estimated resources of 10 billion metric tons and reserves of

three billion metric tons
• Nigeria has high-grade iron ore (60 percent Fe) that could be
used for domestic steel production.

Lead and zinc • An estimated 10 million tons of lead and zinc spread over eight
states of Nigeria.
• Proven reserves and prospects in the East-Central area of 5
million tons.
• Strong demand for lead and zinc ores in international markets.
• Already existing Chinese and domestic players with ready
markets in China and Hong Kong SAR, China.

Limestone • Nigeria has the richest limestone deposit in West Africa, with
commercial reserves found in 11 states, namely Abia, Akwa-
Ibom, Anambra, Benue, Borno, Cross River, Ebonyi, Edo, Ogun,
Ondo, and Sokoto.
• It is commonly used in the production of concrete, agricultural
products, and cement.
• The main large operators include Ashaka Cement Plc.
operating in Gombe State; Lafarge operating in Ogun State;
and Dangote operating in Kogi State.

84
 APPENDIXES

Tungsten • Exists in commercial quantities in the North-East and North-

Central geopolitical zones of Nigeria especially in the states of
Bauchi, Cross River, Kaduna, Kano, Niger, and Plateau, as well
as Nasarawa and Zamfara.
• Major mining companies include Divamen Ventures Ltd.,
operating in Nasarawa, and Babakiyawa Investment Company
Ltd. in Zamfara State. Temcore International Ltd. is partnering
with an international company to explore tungsten in Cross
River State.

Zirconium • The largest and the purest zirconium ore is found in the North.
Quantities of zirconium exist in the states of Adamawa, Kano,
and Plateau.
• Ayel Miners Multipurpose Cooperative is the major operator
in the field, but a community of artisanal miners currently
numbering about 2,000 exists.
• Most of the ore produced is sold to Senteng International
Company Ltd., a Chinese company.

Granite • Granite is a major resource in road construction and building.

• Granite is found in all of the states of the federation, but
occurs in larger quantities in Abuja (Federal Capital Territory),
Cross River, and Ekiti states.

Marble • The economic viability of marble mining has resulted in the

establishment of numerous quarry sites and processing plants.
• Freedom Group of Company Ltd. and Geo-works International
Ltd. have established processing plants for marble in Edo State
and employ about 500 people.

Copper • About 30 million tons of copper deposits in six states including

Bauchi, Gombe, Kano, Nasarawa, Plateau, and Zamfara
• About 70 percent of local production is used in the domestic
production of cables and wires, while the remaining 30
percent is exported to China.
• Nigerian cable is rated as one of the best cables in the world.

Sand • Sand and gravel are found almost everywhere in Nigeria.

• Large construction companies in the dredging and exploitation
of sand and gravel include Gloss Nig. Ltd., operating in Epe,
Lagos State; Sokab Nig. Ltd., operating in Sagamu, Ogun State;
and Julius Berger Sand Quarry, operating inUyo, Akwa Ibom
State.

Source: Solid Minerals Development Fund Nigeria.

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NIGERIA A COUNTRY PRIVATE SECTOR DIAGNOSTIC

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NOTES

1 According to The Changing Wealth of Nations (Lange, Wodon, and Carey 2018), about 56 percent of Nigeria’s
total wealth per capita of US$37,408 comes from its human capital, whereas produced capital and natural
capital contribute 10.3 percent and 34.5 percent, respectively.
2 See the appendixes for further discussion on choice of peers.
3 This is based on a projection by the world poverty clock (compiled by the Brookings Institution) using
internationally comparable poverty measures (that is, international purchasing power parity adjusted
US$1.90 per capita per day).
4 See the world poverty clock.
5 These reforms include: (a) debt relief from Paris Club creditors, which created room for expansionary fiscal
policy; (b) the introduction of an oil-based fiscal rule, which allowed the creation of the Excess Crude Account,
and enhanced counter-cyclical fiscal capacity; (c) civil service and governance reforms, which included the
creation of two institutions to fight corruption—the Independent Corrupt Practices Commission (ICPC) and
the Economic and Financial Crimes Commission (EFCC); (d) privatization of several inefficient state-owned
enterprises, which had consumed about US$3 billion annually in direct and indirect subsidies; (e) banking
sector reforms, which consolidated the number of banks from 89 to 25, and helped to double credit to the
private sector between 2005 and 2010; and (f) liberalization of the telecommunications industry, which laid
the foundation for a strong digital economy, among other improvements (see Okonjo-Iweala 2012).
6 An estimated 80 percent of the economic growth over this period was driven by increases in total factor
productivity as opposed to the accumulation of physical and human capital (see World Bank 2019a).
7 Recently, Nigeria’s ranking on the World Bank’s Economic Fitness Index, which measures the level of
economic diversification in countries, has further deteriorated—from 126th in 2013 to 137th out of 149
countries in 2015.
8 According to the petroleum ministry, the delay in the passage of the Petroleum Industry Bill is estimated to
have stalled investment by up to US$15 billion per year, and about US$100 billion during the past few years
(Financial Times 2015).
9 See Woodroof (2019).
10 See Flowers (2018).
11 The International Energy Agency suggests that by 2050, the world will have to rely on biofuels for about 25
percent of all transport fuels if it does not want global temperatures to rise more than two degrees.
12 The World Bank’s 2019 Doing Business of Agriculture report ranked Nigeria’s agribusiness ecosystem 71st out
of 101 countries, on the basis of inadequate policies and legislative frameworks.
13 A 2017 survey conducted by NOI Polls—a country-specific polling service in the West African region in
technical partnership with Gallup (USA)—showed that 44 percent of manufacturing firms identified policy
inconsistency as a major challenge to the industry and that it is a deterrent to potential international and
domestic investments.
14 The social contract refers to the understanding between citizens and the state about their respective roles
and responsibilities.
15 Nigeria lags behinds its peers and Sub-Saharan African countries in many governance indicators (World Bank
2019b).
16 An interministerial Presidential Enabling Business Environment Council (PEBEC) was set up by the
government in 2016 to remove bureaucratic constraints from doing business in Nigeria. The PEBEC’s efforts
helped Nigeria move up 38 places on the World Bank Group’s Doing Business rankings between 2017 and 2020.
In fact, for the 2020 rankings, Nigeria is one of the top 10 reformers in the world.
17 The shadow economy is comprised of “all market-based legal production of goods and services that are
deliberately concealed from public authorities to avoid payment of income, value-added, or other taxes; to
avoid payment of social security contributions; having to meet certain legal labor market standards, such as
minimum wages, maximum working hours, safety standards, etc.; and complying with certain administrative
procedures, such as completing statistical questionnaires or administrative forms” (Schneider 2019).
18 A few manufacturing subsectors are promising, based on the Growth Identification and Facilitation
Framework (GIFF)—a methodology for identifying sectors where the country may have a latent comparative
advantage and removing binding constraints to facilitate private firms’ entry into those industries. These
industries include chemicals, plastics, food processing and beverages, fast-moving consumer goods,
transportation assembly, and light manufacturing. See appendixes for more on GIFF.
19 The World Development Report 2009 advises countries that are in a similar situation as Nigeria to promote
regional integration to scale up their supply capacities and to promote global integration to scale up the
demand they face. Non-oil exports to regional and global markets will help anchor Nigeria’s growth in a job-
creating private sector.

92
 NOTES

20 Per existing official classification: micro enterprises (less than 10 employees, less than N10 million in assets);
small enterprises (10 to 49 employees, N10 million–N100 million in assets); medium-size enterprises (50 to
199 employees, N100 million–N1,000 million in assets). Large enterprises exceed these thresholds. Assets
exclude land and buildings. If there are conflicts between employment and assets criteria, employment
criterion takes precedence (SMEDAN and NBS,2017).
21 See Loayza (1997).
22 World Development Report 2013 (World Bank 2012).
23 See World Bank Enterprise Survey 2014.
24 See IMF Public Investment Management Assessment (forthcoming).
25 IMF Article IV, April 2019.
26 Interviews with agribusiness exporters (for example, sesame seed producers) suggest that exchange rate
uncertainty has limited exports.
27 A significant number of Nigerians, especially in the Gulf Cooperation Council countries and in South Africa,
are in irregular status, and likely to use irregular channels for sending remittances. Such remittances sent
through informal channels are not reflected in the official statistics.
28 Studies such as Dollar and Kraay (2004) posited the positive correlation between trade openness and growth.
Both works of Bernard and Jensen (1997) and Bernard and others (2004) concluded that exporting firms are
more productive than nonexporters due to learning by exporting. Goldberg and Pavcnik (2007) also find
that firms in developing countries that import machinery from developed economies are more productive.
Restricted access to foreign currency and raw material imports raised costs for domestic manufacturers and
forced some to close business or to move.
29 Nigerian Oil and Gas Industry Content Development Act of 2010.
30 For example, Ghanaian manufacturers believe that the key barriers to trade with Nigeria include substantial
informal payments and delays, transit charges, and excessive requirements for product registration (Hoppe
and Aidoo 2012).
31 See the write-up of the Deloitte and the Nigerian Association of Chambers of Commerce, Industry, Mines
and Agriculture (NACCIMA) workshop: https://guardian.ng/features/tax-discourse/the-ecowas-trade-
liberalization-scheme-myth-or-reality/.
32 See World Development Indicators Database.
33 Recent data published by Enhancing Financial Innovation and Access Program (EFINA) indicate that financial
inclusion rate in Nigeria seems to have improved from of 63.2 percent in 2018 compared with 53.7 percent in
2010; (accessible at: https://www.efina.org.ng/our-work/research/access/)
34 The CBN reported that the LDR policy resulted in a significant growth in credit to various sectors from N15.57
trillion to N19.33 trillion between end-May 2019 and end-August 2020, an increase of N3.77 trillion
35 Doing Business Report, 2020
36 As part of the Ease of Doing Business reforms driven by the Presidential Enabling Business Environment
Council (PEBEC), small claims courts have launched in four states (Lagos, Kano, Edo, and Ogun) to allow
expeditious adjudication of commercial disputes.
37 The new CAMA 2020 became law with the assent of the president on August 11, 2020.
38 The tiered new requirements were due to come into effect on April 1, 2020, and were set at ₦200 million for
unit MFBs, ₦1 billion for state MFBs, and ₦5 billion for national MFBs.
39 The revisions included splitting Unit MFBs into two sub-Tiers: i) sub-Tier 1 MFBs operating in urban, high
density banked areas of society saw no change in minimum capital; and ii) sub-Tier 2 MFBs operating only in
rural, unbanked or underbanked areas saw a reduction in minimum capital to just 25% of the level of sub-Tier 1.
40 Tier 1 Unit MFBs, State and National MFB have much larger minimum capital requirements- N200 million, N1
billion and N5 billion.
41 See World Bank (2011).
42 See McKinsey Global Institute (2014).
43 See World Bank and UKAID (2016).
44 Information retrieved from the World Bank World Development Indicators database.
45 According to the GSMA Mobile Connectivity Index 2018 at https://www.gsma.com/mobilefordevelopment/
wp-content/uploads/2018/09/GSMA_Mobile-Connectivity-Index-SSA-Focus.pdf.
46 The gravity of this problem for firms was fully corroborated by stakeholder consultations undertaken across
Nigeria between March and April 2019.
47 A study suggests that generator-derived power (at US$0.32–$0.49/kWh or more in 2016) is significantly
more expensive, compared with the cost of power from the national grid (at US$0.13–$0.19/kWh). See
Euromonitor International (2018b).
48 The cost of production in Nigeria has been estimated to be about nine times higher than the cost of
production in China. See Aliyu, Ramli, and Saleh (2013).
49 Three of the five thermal generation companies powered by gas were sold to new owners, while private
operators received concessions for managing three hydropower plants.
50 One notable issue affecting transmission derives from the historical coexistence of 330kV and 132kV lines, for
which the transmission system requires investment at transformation from 330/132kV and 132/330kV.

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51 See the article “Power Sector Risks Bankruptcy as Financial Crisis Hits ₦4 Trillion,” Guardian, March 3, 2019.
According to distribution companies, the nonreview of the Multiyear Tariff Order since February 2016 has
resulted in the accumulation of more than ₦1.4 trillion shortfall in the nation’s electricity market (Edeh 2019).
52 See Association of Nigerian Electricity Distributors, n.d.
53 For a detailed list of the interventions, see Federal Republic of Nigeria 2018, 8–10.
54 Although a majority of off-grid solutions in the country are solar, the market is suitable for other solutions
including hydro, battery powerpack, and biomass electricity solutions. These solutions can provide reliable
power to underserved power consumers and unserved communities.
55 It is noteworthy to mention that the government – through the Rural Electrification Agency (REA) –
provides a grant of 100 percent of duty waiver for equipment to private investors in off-grid power in rural
areas.
56 See the National Integrated Infrastructure Master Plan (NIIMP 2014–2043) for accelerating infrastructure
development in the country. The Master Plan is aimed at raising our stock of infrastructure from the current
35 to 40 percent of GDP to 70 percent by 2043.
57 See World Bank (2018c).
58 This is based on an assessment by the World Bank PPP team.
59 This arrangement will ensure that federal projects will go through a rigorous appraisal as to their economic
and financial viability before the project begins a competitive and transparent procurement process, and
that the project business case is approved by the government’s Economic Management Team or other
relevant authority. The Federal Executive Council will formally approve all PPP projects prior to the award of
a contract. The Infrastructure Concession and Regulatory Commission will issue regulations that specify a
value threshold below which these requirements will not apply.
60 Currently, NP4 focuses on concession contracts to the neglect of other PPP options. Even then, “concession”
is not defined in any useful way. It is broadly defined that any contract related to infrastructure can be
designated a concession. Infrastructure also is not defined. NP4 does not make provision for unsolicited bids
or inherited legacy PPP projects, and it shows a lack of clarity regarding the commission’s role as facilitator,
as well as regulator of PPPs in Nigeria.
61 Based on peer countries used in the Nigeria Systemic Country Diagnostic (World Bank 2019b).
62 NIPCAC focuses on the following priority areas: (a) infrastructure (broadband, power, and roads; (b) finance;
(c) trade and market access; (d) policy and regulation; (e) technology; and (f) skills.
63 The PSI is a tax holiday that grants companies full income tax relief for profits made from engaging in eligible
activities for an initial period of three years, extendable for one or two additional years.
64 Another example of the policy influence of domestic firms can be found in the Introduction of the Product
Accreditation Mark (PAM). PAM was introduced at the request of foreign investors who say counterfeiting
is a major disincentive to investing in Nigeria; however, the program was ultimately halted as a result of
complaints by domestic manufacturers to the Federal Ministry of Industry, Trade, and Investment about the
additional cost of the scheme.
65 This is based on World Bank staff calculations.
66 The Fragile States Index (formerly the Failed States Index) is an annual report published by Fund for Peace, a
U.S. think tank, and the American magazine Foreign Policy since 2005.
67 The primary purpose of this classification is to ensure that the World Bank Group’s strategic and programmatic
focus in countries affected by fragile and conflict-affected situations is adopted and tailored to the diverse
challenges faced by the countries. Such classification will help the World Bank Group strengthen its impact
and operational effectiveness in these countries.
68 This is based on statistics generated from the West Africa Network for Peacebuilding Nigeria’s National Early
Warning System (2018).
69 See Mauro (1995); Wei (2000).
70 LUA, section 46.
71 For best practices, see USAID (2016).
72 Food and Agriculture Organization (FAO) country gender assessment for Nigeria, FAO and ECOWAS
Commission (2018).
73 The export potential identifies the potential export value for any exporter in a given product and target
market based on an economic model that combines the exporter’s supply with the target market’s demand
and market access conditions. For existing export products, supply is measured through historical information
on export performance. Potential export values can be compared with actual export values to find exporters,
products, and markets with room for growth.
74 Agricultural land refers to the share of land area that is arable, under permanent crops, and under permanent
pastures. Arable land (that is, land capable of being ploughed and used to grow crops) includes land defined
by the FAO as land under temporary crops (double-cropped areas are counted once), temporary meadows
for mowing or for pasture, land under market or kitchen gardens, and land temporarily fallow.
75 See FAOSTAT, a database of food and agriculture statistics, at http://www.fao.org/faostat/en/#home.
76 See Euromonitor International (2018a).
77 Estimates based on data from FAO.
78 See Euromonitor International (2018a).

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79 This is according to recent analysis (2019) by the Solid Minerals Development Fund (SMDF).
80 A CDA entails the commitment of all parties to developing a positive relationship, which recognizes the need
for all stakeholders to commonly benefit and co-exist through a process of mutual respect, ongoing dialogue,
and regular interaction. The parties agreed to work together to realize the objectives of understanding each
other’s needs and values, committing to fair and balanced negotiations, and dealing with each other in an
open, honest, transparent, and fair manner.
81 Based on the Nigerian Extractive Industry Transparency Initiative (NEITI) classification of companies, by
royalties payment as follows: > ₦50 million = large enterprises; ₦10–50 million = intermediate enterprises;
< ₦10 million = small enterprises.
82 This is per the U.S. Geological Survey database.
83 This is based on an online survey of retail prices of 50-kg cement bags in the various countries.
84 Secure internet servers refers to distinct, publicly trusted TLS/SSL certificates found in the Netcraft Secure
Server Survey—that is, servers using encryption technology in internet transactions. Data are available in the
World Bank’s World Development Indicators database.
85 It is noteworthy to mention that a few states—Ekiti, Kaduna, Kwara, and Imo—have either significantly
reduced the RoW charges (since 2018) or have eliminated them.
86 In 2007, the availability of savings of about US$17 billion in the Excess Crude Account allowed the government
to introduce a fiscal stimulus to the economy equivalent to 0.5 percent of GDP during the global financial
crisis of 2007–08, when oil prices fell to below US$40 a barrel from highs of US$146. The account was not
replenished and had been depleted to around US$2 billion at the time of the most recent crisis in 2014–15.

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