PEST Analysis of Nigeria by Euromonitor PDF

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This is the PEST Analysis of Nigeria for the year 2021. Useful for buisness planning a potential move into the market....

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PEST Analysis: Nigeria C ountry Report | 14 May 2021

Endemic corruption, poor rankings for global peace and terrorism, and political instability characterise Nigeria. Moreover, high unemployment and elevated inflation threaten economic growth. Nonetheless, a major regional trade deal could transform exports. With one of the largest populations globally, the consumer market is very attractive, although low incomes restrain purchasing power. Internet and mobile use are on the rise, benefiting retailers, but capacity for innovation is limited.

PEST ANALYSIS PEST analysis (political, economic, social and technological) describes a framework of macroenvironmental factors assessed as a strategic tool for environment scanning, understanding risks and opportunities, market growth or decline, business position, and potential and direction for operations, helping companies to become more competitive. Chart 1 Main PEST Points in Nigeria

So urce: Euro m o nito r Internatio nal

POLITICAL ENVIRONMENT Sum m ary 1 Political Env ironm ent Analy sis in Nigeria

Opportunities Popular protests on the rise: Although an increasing number of demonstrations is negatively impacting on the peace of the country, this led to an improvement in Nigeria’s ranking in the Voice and Accountability Index over 2014-2019. Calls for the release of one of Nigeria’s most important Islamic leaders caused protests in 2019. Additionally, street protests against police brutality and corruption in October 2020 led to the dissolution of the Special Anti Robbery Squad.

Challenges Poor ranking for Economic Freedom: In the Index of Economic Freedom 2021, Nigeria’s ranking is unfavourable causing it to remain in the ‘mostly unfree’ group of countries. An unstable political environment and a lack of respect for the rule of law lead to a depressed ranking, whilst policy is not implemented effectively. Although its Trade Freedom pillar ranking has improved over 2016-2021, the government took a more protectionist stance in 2019 when it chose to close the country’s land borders and prevented goods flows, in order to combat smuggling, a policy that that could be troublesome to reverse. Having said that, the Labour Freedom ranking has improved over 2016-2021 and stands very favourably.

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Opportunities Government finances relatively resilient: Despite the required spending to fight the negative effects of the Coronavirus (COVID19) pandemic on the economy, amounting to USD1.3 billion, the impact on the budget deficit and public debt was less than experienced in other countries around the world. Additionally, the International Monetary Fund (IMF) allocated a loan of USD3.4 billion to the Nigerian government to help alleviate the impact of the COVID-19 pandemic and the sharp fall in oil prices. Given that public debt equated to around 35.0% of GDP in 2020, it remains sustainable. The relatively small deterioration in state finances is also recognised in the Index of Economic Freedom, whose Government Spending pillar ranking is extremely favourable and has remained unchanged in 2021 versus 2016.

Challenges Pervasive corruption: Nigeria’s ranking in the Corruption Perceptions Index deteriorated further over 2018-2020, demonstrating that corruption is endemic in the country. With a judiciary that is heavily influenced by politicians, corruption is common in court dealings. Additionally, the crucial hydrocarbon sector, as well as security forces, is also at risk of corrupt practices, whilst public sector graft is routine.

Extremely challenging rankings for Global Peace and Terroris: In both the Global Peace Index and the Global Terrorism Index, Nigeria recorded some of the worst rankings globally in 2020. Boko Haram, the terrorist organisation, has been a major contributor to the poor rankings, with hundreds of deaths recorded in 2019 as a result of its activities and the government’s attempt to reign in the terrorists. Furthermore, the shutting of borders to prevent smuggling and armed robbery has destabilised the country, whilst Nigeria’s relationship with its neighbours have also worsened, further placing peace at risk. Both Cameroon and Nigeria claim the Bakassi peninsula, a 1,000-sq-km area in the Gulf of Guinea, which is believed to contain significant oil reserves. The Nigerians have questioned Equatorial Guinea’s claim over another oil field. Source: Euromonitor International Chart 2 Political Environment Dynamics in Nigeria

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So urce: Euro m o nito r Internatio nal fro m the Heritage Fo undatio n/Internatio na l Mo neta ry Fund (IMF)/Go ve rnme nt Finance Statistics (GFS)/Institute fo r Econo mics and Peace/Transparency Inte rnatio nal/W o rld Bank/Euro stat/na tio nal sta tistics

ECONOMIC ENVIRONMENT Sum m ary 2 Econom ic Env ironm ent Analy sis in Nigeria

Opportunities Economy expected to bounce back: In 2020, the Nigerian economy experienced a sharp contraction, owing to the COVID-19 pandemic and drop in oil prices. Imposed lockdown measures, supply and demand shocks, a sharp decline in oil prices, and heightened uncertainty resulted in decreasing private consumption, contracting investment flows, and business closures. However, the economy is forecast to witness a rebound over 2021 and reach prepandemic levels by early 2022, underpinned by recovering global demand, the easing of containment measures, and supportive monetary and fiscal policies. Nevertheless, economic performance will be below that of peers over the long term, owing to structural impediments like high inflation and unemployment.

Challenges Highly elevated inflation: The inflation rate in Nigeria increased in 2020, owing to the rising prices of commodities and food products. The conflicts in the northern part of the country, between the herdsman and farmers, led to a shortage of agricultural production, while limited transportation options enforced as part of the COVID-19 pandemic containment measures, as well as unfavourable weather conditions, deepened the disruptions in food supply chains. Furthermore, electricity prices also increased, given higher electricity tariffs, which were introduced as a measure to save and preserve electric power during the COVID-19 pandemic. Whilst it is expected to retrench slightly over the medium term, inflation is likely to remain elevated over the long term, owing to pressure on the Nigerian currency that will lead to higher import prices.

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Opportunities Major FTA to support external sector: In 2020, the Nigerian government ratified a free trade agreement (FTA), the African Continental Free Trade Area (AfCFTA). The agreement seeks to strengthen economic integration within the African continent through the establishment of a single continental market, with the free movement of goods, services, capital and people. In December 2019, the Nigerian government created the National Action Committee on the Implementation of the African Continental Free Trade Area (AfCFTA), which, over 2020, worked on the scope and reach of the country’s strategy to align its trade and economic policies with continental integration efforts. This is likely to be highly beneficial to Nigeria’s external sector, particularly as the country is one of the largest and most important constituents in Africa.

Challenges Suffers from high unemployment: Unemployment is expected to resume its upward trajectory in the short term, compounded by the negative effects of the COVID-19 pandemic on the jobs market. Over the long term, it is expected to remain extremely high, with youth unemployment very elevated, owing to structural issues like skills mismatches that prevent job vacancies from being filled and rapid population growth that leaves the economy unable to produce a sufficient quantity of jobs to meet demand. Furthermore, the spectre of ‘stagflation’, where growing joblessness is accompanied by higher prices and subdued GDP growth, is ever-present for the Nigerian economy, which could create societal tensions amongst the populace.

Large dependence on hydrocarbons: Given that over 85.0% of total goods exports was derived from mineral products in 2020, this illustrates Nigeria’s considerable susceptibility to global oil price fluctuations whilst also highlighting the undiversified nature of the export base. Indeed, extremely low oil prices in the first half of 2020, resulting from collapsing global demand that was due to the COVID-19 pandemic, has had a major adverse impact on Nigeria’s economy and external sector. Lacks ability to attract FDI: With a low foreign direct investment (FDI) intensity of only 0.7% of GDP in 2019, Nigeria’s foreign investment climate is unappealing to investors, owing to endemic corruption, volatility in the regulatory landscape, and a massive infrastructure gap in its energy sector, which is also a major impediment to further economic development. Additionally, only a third of the country’s road network is paved and current power generation is less than a third of estimated demand. Nigeria also needs about USD10.0 billion over the next five years to repair and build new railways. Source: Euromonitor International Chart 3 Economic Environment Dynamics in Nigeria

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So urce: Euro m o nito r Internatio nal fro m Eurostat/OECD/United Natio ns (UN)/Inte rnatio nal Mo netary Fund (IMF)/W o rld Econom ic Outlo o k (W EO)/Internatio nal Financial Statistics (IFS)/Internatio nal Labo ur Organisatio n (ILO )/UNCTAD/Internatio nal Me rcha ndise Trade Sta tistics/natio nal statistics

SOCIAL ENVIRONMENT Sum m ary 3 Social Env ironm ent Analy sis in Nigeria

Opportunities Population explosion to support consumer market: Natural increase will be the sole driver of huge population expansion of 55.7% in Nigeria over 20212040. When the population reaches 329 million in 2040, Nigeria will remain the biggest country in the Middle East and Africa region, and the fourth most populous country globally, up from seventh in 2020. A surging populace will make Nigeria an increasingly attractive consumer market up to 2040. However, inequality and poverty will remain high, limiting purchasing power

Challenges Lowest income class to remain predominant: Despite economic growth, social class E (the lowest-income class) is forecast to double by 2040, remaining the largest social class in the country. Given the elevated unemployment rate, a significant portion of the population will continue to live with high vulnerability to poverty, consuming mostly essential goods and services. In addition, according to the International Finance Corporation, owing to a widespread housing shortage, Nigeria is in need of 17.0 million units, potentially creating social issues. As the middle class share within the total population is set to remain largely unchanged, Nigeria will maintain relatively high income inequality compared with regional peers. In order to avoid social unrest, the government has to tackle structural challenges, such as weak access to financial services, low quality of education, and an undiversified economy, which limits employment opportunities. Furthermore, an extremely high unemployment rate further increases the risk of poverty and contributes to instability in the country.

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Opportunities Fertility rate to remain considerably above replacement rate: Although fertility and birth rates will continue to decline over 2021-2040, supported by rising female education and employment opportunities, and better contraceptive access, they will continue to be extremely elevated, with the fertility rate above the 2.1 replacement rate, owing to social norms that encourage early marriage and large families. Live births will rise every year up to 2040, as a result of surging numbers of women of childbearing age. Furthermore, the number of children (aged 014) will expand, creating further opportunities for child-related segments.

Challenges High-value consumption is constrained: During 20212040, Nigeria’s market potential for high-value consumption is forecast to decrease, largely owing to the fall in the number of wealthy consumers. Hence, the country is forecast to worsen its position in the Wealth Index in the long term. As the Africa Wealth Report 2019 highlights, in recent years, wealthy populations have been significantly affected by currency devaluation, falling oil prices, security concerns, and a lack of investment. Thus, Nigeria is expected to see active highnet-worth-individual (HNWI) migration to European and North American countries.

Young population creates challenges: Ageing will speed up somewhat; however, the median age will remain one of the lowest in a regional and global context by 2040. While growth will be most rapid in the 80-90 and 90 age cohorts, it will be from an extremely low base. As the age composition of the population changes, with vast numbers of young people entering working age over 2021-2040, consumer trends should alter somewhat. To benefit from the potential economic dividend that this will present, Nigeria will need to ensure that sufficient jobs are available and also that workers can meet the requirements of the labour market, which will be a key challenge for policy makers. Relatively low life expectancy: Life expectancy should rise further, owing to ongoing advancements in healthcare and better sanitation practices. Nevertheless, poverty and infant mortality will remain high and healthcare access limited, so life expectancy will remain extremely low in comparison to regional and global averages. Rapid urbanisation generates issues: Urbanisation will be brisk over 2021-2040, as a result of rural to urban migration, as many look for better economic opportunities or move to be near family. By the end of the period, the urban population will account for 64.9% of the total. All major cities will expand extremely quickly, which will continue to put great pressure on infrastructure and raise pollution levels. Source: Euromonitor International Chart 4 Social Environment Dynamics in Nigeria

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So urce: Euro m o nito r Internatio nal fro m United Natio ns (UN)/Euro stat/OECD/W o rld Bank /Internatio nal Diabetes Fe deratio n/natio nal statistics Note: So cial classes present da ta referring to the num ber o f individuals with a gross incom e A - o ve r 200%, B be tween 150% and 200%, C - between 100% and 150%, D - between 50.0% and 100%, E - less than 50.0% o f an average gro ss incom e o f a ll individuals age d 15 .

TECHNOLOGICAL ENVIRONMENT Sum m ary 4 Technological Env ironm ent Analy sis in Nigeria

Opportunities Massive forecast rise in internet use: With the percentage of the population using the internet set to rise from 56.0% in 2020 to 96.0% in 2040, there will be plenty of opportunities for expansion in e-commerce and greater use of social media platforms like Instagram and Facebook. However, it is interesting to note that the COVID-19 pandemic led to a significant slowdown in the rate of retail current value sales growth in e-commerce, owing in large part to the disruption it caused to supply chains and deliveries.

Challenges Extremely low number of fixed lines: By 2020, fixed telephone lines in use totalled around 126,000, having dropped from around 418,000 in 2012. Given Nigeria’s massive population, the numbers are extremely low to service the country’s communications needs, particularly in rural areas that have limited access to mobile networks, especially against the backdrop of Nigeria’s large geographical expanse.

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Opportunities Exponential growth expected in mobile subscriptions: By 2040, the number of mobile telephone subscribers is expected to reach 345 million, up enormously from 190 million in 2020. This will allow the rapid development of m-commerce in Nigeria, which will be mainly driven by increasing penetration of smartphones whose prices are expected to decline in light of greater supply from cheaper Chinese manufacturers. The affordability of smartphones and their ease of use has enabled consumers that cannot afford a desktop or laptop computer to access the internet. Roadmap for 5G rollout outlined: In late 2020, the Nigerian Communications Commissions (NCC) set out plans for the potential rollout of a 5G network in the country and requested feedback from key stakeholders. Spectrum auctions are expected to occur in the second and third quarters of 2021, with nonstandalone 5G deployable by the first quarter of 2022.

Challenges Poor rankings for technology in indices: In 2019, Nigeria performed the worst out of regional peers in the ICT Adoption pillar of the Global Competitiveness Index (CGI). The country also ranked near the bottom of the Network Readiness Ranking (NRI) 2020, falling behind major regional countries in all pillars. Furthermore, in 2019, Nigeria performed poorly in regard to the Innovation Capability pillar of the CGI and received relatively less FDI (except investment in oil and gas sectors) compared to major regional economies. The country continues to lack advanced level technology as well as skilled IT professionals, both of which would allow for more productive use of available technology.

Source: Euromonitor International Chart 5 Technological Environment Dynamics in Nigeria

So urce: Euro m o nito r Internatio nal fro m Internatio nal Te leco m municatio ns Unio n (ITU)/Euro stat/OECD/UNESCO/W o rld Eco no m ic Fo rum (W EF)/natio nal statistics

Statistical Summary 2015

2016

2017

2018

2019

2020

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Inflation (% change) Exchange rate (per US$) Lending rate GDP (% real growth) GDP (national currency millions) GDP (US$ millions) Birth rate (per '000) Death rate (per '000) No. of households ('000) Total exports (US$ millions) Total imports (US$ millions) Urban population ('000) Urban population (%) Population aged 0-14 (%) Population aged 15-64 (%) Population aged 65 (%) Male population (%) Female population (%) Life expectancy male (years) Life expectancy female (years) Infant mortality (deaths per '000 live births) Adult literacy (%)

2015 9.0

2016 15.7

2017 16.5

2018 12.1

2019 11.4

2020 13.2

192.59

252.99

305.33

305.58

306.42

356.32

16.8

16.9

17.6

16.9

15.4

13.5

2.7

-1.5

0.8

1.9

2.2

-1.8

95,084,760.8 102,575,418.0 114,899,249.9 129,086,907.5 145,639,139.4 154,252,318.9

493,704.2

405,449.0

376,312.1

422,427.7

475,286.1

432,900.4

39.4

38.9

38.4

37.9

37.4

37.0

12.7

12.4

12.1

11.9

11.6

11.4

38,290.2

39,423.3

40,571.0

41,734.0

42,912.9

44,107.0

50,022.7

33,370.3

44,534.8

60,645.7

62,632.7

35,870.2

34,840.5

35,607.1

31,319.8

43,077.5

55,346.8

55,784.3

86,640.3

90,519.0

94,504.7

98,595.7

102,790.7

107,088.4

47.8

48.7

49.5

50.3

51.1

51.9

44.1

44.1

44.0

43.8

43.7

43.5

53.1

53.2

53.3

53.5

53.6

53.8

2.7

2.7

2.7
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