Nigeria’s defense expenditure expected to increase at a CAGR of 22.43% during the forecast period

Wednesday 11 July 2012, Amsterdam

Nigerian defense expenditure, estimated to equal US$2.1 bn in 2012, grew at a CAGR of 19.27% during the review period. During the forecast period, the country’s defense expenditure is expected to register a CAGR of 22.43% and to reach US$4.76 bn by 2016. The country’s cumulative defense expenditure over the forecast period is expected to be US$16.38 bn, of which US$14.55 bn is expected to be invested in personnel and others category, while the remaining US$1.83 bn is expected to be spent on equipment and infrastructure development costs. As the Nigerian economy is dependent on the export proceeds of crude oil, increasing oil prices resulted in a high growth in GDP, even during the economic recession. This caused defense expenditure to increase during both the review period and the forecast period (reference see graph).

According to the Corruption Perceptions Index 2010 of Transparency International, Nigeria is classified as a highly corrupt country. Corruption can result in unfair contract awards and has become a major obstacle for foreign companies aiming to supply arms to the Nigerian MoD. There is also widespread corruption in the Nigerian Police Force; embezzlement and mismanagement of the police budget has resulted in only a small portion of the budget being spent on protecting internal security, resulting in an increased internal threat to the country. In January 2008 the Chief of Army Staff, acting for and on behalf of the government of Nigeria, awarded contracts to Esquire Ventures, Profitel, Century Communications, and Jonny-Way Investments for the supply of various specialist military items to be used by Nigeria's UN-backed troops, for NGN1,190.7 m (US$10.3 m). Materials valued at NGN660 million (US$5.7 m) were supplied and others worth NGN530.7 m (US$4.6 m) were ready for shipment, but the contractors were paid only NGN175 million (US$1.5 m), leaving the contractors underpaid, despite the country receiving funding for the project from the UN worth several million dollars.

With a defense budget of US$2.1 bn in 2011, Nigeria invests only 0.9% of its GDP towards defense. During the review period an average of 16.5% of the defense budget was allocated for capital expenditure, representing a relatively low allocation for the purchase of equipment, and high-technology arms and ammunition. As a result, the country’s relatively small defense budget does not attract foreign defense companies, and the prohibition of FDI in the defense sector also acts as a barrier to market entry for foreign suppliers.