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PEST Analysis of Nigeria by Euromonitor

International business strategy (University of London)

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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 macro-
environmental 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

Source: Eurom onitor International

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 (COVID-
19) 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.
Source: Euromonitor International
Chart 2 Political Environment Dynamics in Nigeria
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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.
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Source: Eurom onitor International from the Heritage Foundation/International Monetary Fund
(IMF)/Governm ent Finance Statistics (GFS)/Institute for Econom ics and Peace/Transparency International/W orld
Bank/Eurostat/national statistics

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 pre-
pandemic 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.
Source: Euromonitor International
Chart 3 Economic Environment Dynamics in Nigeria
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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.
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Source: Eurom onitor International from Eurostat/O ECD/United Nations (UN)/International Monetary Fund
(IMF)/W orld Econom ic O utlook (W EO )/International Financial Statistics (IFS)/International Labour O rganisation
(ILO )/UNCTAD/International Merchandise Trade Statistics/national 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 2021-
2040. 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 0-
14) will expand, creating further
opportunities for child-related
segments.
Source: Euromonitor International
Chart 4 Social Environment Dynamics in Nigeria
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Challenges
High-value consumption is constrained: During 2021-
2040, 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 high-
net-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.
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Source: Eurom onitor International from United Nations (UN)/Eurostat/O ECD/W orld Bank/International Diabetes
Federation/national statistics
Note: Social classes present data referring to the num ber of individuals with a gross incom e A - over 200%, B -
between 150% and 200%, C - between 100% and 150%, D - between 50.0% and 100%, E - less than 50.0% of
an average gross incom e of all individuals aged 15 .

TECHNOLOGICAL ENVIRONMENT
Sum m ary 4 Technological Env ironm ent Analy sis in Nigeria
Opportunities Challenges
Massive forecast rise in internet use: Extremely low number of fixed lines: By 2020,
With the percentage of the population fixed telephone lines in use totalled around
using the internet set to rise from 126,000, having dropped from around 418,000 in
56.0% in 2020 to 96.0% in 2040, there 2012. Given Nigeria’s massive population, the
will be plenty of opportunities for numbers are extremely low to service the
expansion in e-commerce and greater country’s communications needs, particularly in
use of social media platforms like rural areas that have limited access to mobile
Instagram and Facebook. However, it is networks, especially against the backdrop of
interesting to note that the COVID-19 Nigeria’s large geographical expanse.
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.

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Opportunities Challenges
Exponential growth expected in mobile Poor rankings for technology in indices: In 2019,
subscriptions: By 2040, the number of Nigeria performed the worst out of regional peers
mobile telephone subscribers is expected in the ICT Adoption pillar of the Global
to reach 345 million, up enormously from Competitiveness Index (CGI). The country also
190 million in 2020. This will allow the ranked near the bottom of the Network Readiness
rapid development of m-commerce in Ranking (NRI) 2020, falling behind major regional
Nigeria, which will be mainly driven by countries in all pillars. Furthermore, in 2019,
increasing penetration of smartphones Nigeria performed poorly in regard to the
whose prices are expected to decline in Innovation Capability pillar of the CGI and
light of greater supply from cheaper received relatively less FDI (except investment in
Chinese manufacturers. The affordability oil and gas sectors) compared to major regional
of smartphones and their ease of use economies. The country continues to lack
has enabled consumers that cannot advanced level technology as well as skilled IT
afford a desktop or laptop computer to professionals, both of which would allow for more
access the internet. productive use of available technology.
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 non-
standalone 5G deployable by the first
quarter of 2022.
Source: Euromonitor International

Chart 5 Technological Environment Dynamics in Nigeria

Source: Eurom onitor International from International Telecom m unications Union

(ITU)/Eurostat/O ECD/UNESCO /W orld Econom ic Forum (W EF)/national statistics

Statistical Summary
2015 2016 2017 2018 2019 2020

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2015 2016 2017 2018 2019 2020

Inflation 9.0 15.7 16.5 12.1 11.4 13.2
(%
change)
Exchange 192.59 252.99 305.33 305.58 306.42 356.32
rate (per
US$)
Lending 16.8 16.9 17.6 16.9 15.4 13.5
rate
GDP (% 2.7 -1.5 0.8 1.9 2.2 -1.8
real
growth)
GDP 95,084,760.8 102,575,418.0 114,899,249.9 129,086,907.5 145,639,139.4 154,252,318.9
(national
currency
millions)
GDP (US$ 493,704.2 405,449.0 376,312.1 422,427.7 475,286.1 432,900.4
millions)
Birth rate 39.4 38.9 38.4 37.9 37.4 37.0
(per '000)
Death rate 12.7 12.4 12.1 11.9 11.6 11.4
(per '000)
No. of 38,290.2 39,423.3 40,571.0 41,734.0 42,912.9 44,107.0
households
('000)
Total 50,022.7 33,370.3 44,534.8 60,645.7 62,632.7 35,870.2
exports
(US$
millions)
Total 34,840.5 35,607.1 31,319.8 43,077.5 55,346.8 55,784.3
imports
(US$
millions)
Urban 86,640.3 90,519.0 94,504.7 98,595.7 102,790.7 107,088.4
population
('000)
Urban 47.8 48.7 49.5 50.3 51.1 51.9
population
(%)
Population 44.1 44.1 44.0 43.8 43.7 43.5
aged 0-14
(%)
Population 53.1 53.2 53.3 53.5 53.6 53.8
aged 15-64
(%)
Population 2.7 2.7 2.7 2.7 2.7 2.7
aged 65
(%)
Male 50.6 50.6 50.7 50.7 50.7 50.7
population
(%)
Female 49.4 49.4 49.3 49.3 49.3 49.3
population
(%)
Life 52.3 52.7 53.1 53.5 53.8 54.1
expectancy
male
(years)
Life 54.0 54.4 54.8 55.2 55.6 56.0
expectancy
female
(years)
Infant 68.1 65.7 63.4 61.4 59.5 57.9
mortality
(deaths per
'000 live
births)
Adult 59.6 60.6 61.3 62.0 62.2 62.4
literacy
(%)

Imports and Exports

2020 Share 2020 Share
Major export destinations (%) Major import sources (%)
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2020 Share 2020 Share

Major export destinations (%) Major import sources (%)
Exports (fob) to Asia Pacific 49.7 Imports (cif) from Asia Pacific 37.0
Exports (fob) to Europe 26.8 Imports (cif) from Europe 29.4
Exports (fob) to Africa and the 12.8 Imports (cif) from Other 13.2
Middle East Countries
Exports (fob) to North America 5.6 Imports (cif) from North America 10.4
Exports (fob) to Latin America 3.2 Imports (cif) from Africa and the 7.8
Middle East
Exports (fob) to Other 1.4 Imports (cif) from Latin America 2.1
Countries

© Euromonitor International 2021

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