2009 Index of Economic Freedom

Quick Facts

Population:

• 144.7 million

GDP (PPP):

• $233.2 billion
• 6.2% growth
• 10.6% 5-year compound annual growth
• $1611 per capita

Unemployment:

• 4.9%

Inflation (CPI):

• 5.5%

FDI Inflow:

• $5.4 billion

Nigeria's economic freedom score is 55.1, making its economy the 117th freest in the 2009 Index. Its score is unchanged, reflecting decreased scores in trade freedom and government size that offset some improvements in business freedom and monetary freedom. Nigeria is ranked 19th out of 46 countries in the Sub-Saharan Africa region.

Nigeria depends heavily on the oil and gas sector. The government has pursued structural reforms to diversify its economic base and stimulate more broad-based growth, but progress has been mixed.

Nigeria scores above the world average in monetary freedom, fiscal freedom, and labor freedom. Overall taxation is not burdensome compared to regional standards. Inflation has been reduced to below 10 percent. Relatively flexible labor regulations facilitate employment. A fiscal responsibility bill signed into law in November 2007 includes provisions to increase public expenditure accountability.

Challenges to economic freedom remain. The arbitrary application of regulations continues to hinder foreign investment. Nigeria's inefficient judiciary is prone to corruption, and contract enforcement is weak. Despite recent bank consolidations, the financial system remains relatively weak due to bureaucratic regulations and a cash-based economy.

Background Back to the top

Nigeria is Africa's most populous nation. Oil accounts for about 25 percent of GDP, over 90 percent of exports, and over 80 percent of government revenue despite violence in the Delta region that disrupts production. The informal economy is extensive, and a majority of the population is engaged in agriculture. Internal political violence reflecting ethnic, regional, or religious tensions has taken a heavy toll, most notably in the southeastern region of Biafra, where more than a million people may have died during a three-year civil war. Former General Olusegun Obasanjo, who oversaw a transition to civilian government in 1979, was elected president in 1999 and re-elected in 2003. His chosen successor, Umaru Yar'Adua, won what was widely viewed as a flawed election in 2007.

Business Freedom 55.1 Back to the top

The overall freedom to start, operate, and close a business is limited by Nigeria's regulatory environment. Starting a business takes an average of 31 days, compared to the world average of 38 days. Obtaining a business license takes more than the world average of 225 days. Closing a business can be relatively easy.

Trade Freedom 61.8 Back to the top

Nigeria's weighted average tariff rate was 11.6 percent in 2006. Trade liberalization has progressed, but prohibitive tariffs, import bans and restrictions, import fees, import and export taxes, arbitrary regulations, non-transparent government procurement procedures, export subsidies, weak enforcement of intellectual property rights, corruption, and inconsistent and non-transparent customs administration add to the cost of trade. Fifteen points were deducted from Nigeria's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 84.4 Back to the top

Nigeria has moderate tax rates. The top income tax rate is 25 percent, and the flat corporate tax rate is 30 percent. Oil and gas companies are subject to a special tax scheme. Other taxes include a value-added tax (VAT), a tax on interest, and a capital gains tax. In the most recent year, overall tax revenue as a percentage of GDP was 6.1 percent.

Government Size 64.3 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 34.5 percent of GDP. Government involvement in the economy is still considerable, and privatization has been uneven.

Monetary Freedom77.9 Back to the top

Inflation is high, averaging 7.3 percent between 2005 and 2007. With the exception of petroleum products, prices are set by the market. The government subsidizes agriculture and manufacturing; it also influences prices through state-owned enterprises and utilities. Five points were deducted from Nigeria's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom30.0 Back to the top

Nigeria treats foreign and domestic investment equally under the law, and most sectors of the economy are open to investment. Disincentives to investment include inadequate infrastructure, arbitrary application of regulations, corruption, crime, and security concerns. Additionally, dispute resolution can be burdensome, and contract enforcement is weak. Residents and non-residents may hold foreign exchange accounts. Some capital transactions are subject to documentation requirements and restrictions. Most payments and transfers must be conducted through banks.

Financial Freedom40.0 Back to the top

Although Nigeria's financial system has undergone rapid transformation and consolidation in recent years, it remains weak and inefficient. The number of banks in Nigeria has declined from 89 to less than 25 as a result of the government's minimum capital decree, which forced many banks to merge or sell shares. Development of the banking sector is hindered by bureaucracy and a cash-based economy. Banks interact with a very limited portion of the population, and limited access to financing keeps more dynamic entrepreneurial activity from taking place. The government owns six development banks and affects the allocation of credit under a scheme that requires banks to deposit 10 percent of their after-tax profits to fund its loan programs. Capital markets are not fully developed, but Nigeria's stock market is increasingly active.

Property Rights30.0 Back to the top

Nigeria's judiciary suffers from corruption, delays, insufficient funding, a severe lack of available court facilities, a lack of computerized systems for document processing, and unscheduled adjournments of court sessions because of power outages. One of the world's least efficient property registration systems makes acquiring and maintaining rights to real property difficult. Enforcement of copyrights, patents, and trademarks is weak.

Freedom From Corruption22.0 Back to the top

Corruption is perceived as pervasive. Nigeria ranks 147th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption is endemic at all levels of government and society, and the president, vice president, governors, and deputy governors are constitutionally immune from civil and criminal prosecution.

Labor Freedom85.8 Back to the top

Nigeria's relatively flexible labor regulations enhance employment opportunities and productivity growth. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is relatively easy. Regulations on the number of work hours are flexible.