Another problem is how hard it is for a 16-year-old to be a mom to a little baby; adjustments to motherhood, and pressures from school or family can make it very hard to provide an infant with an environment that is stimulating and enriching. While none of these factors may have played a role in your niece's early development, it's important for people to understand that such conditions are associated with a higher incidence of learning disabilities in children.
The difficulty that your niece has in reading is not typical. At the very least she needs to have some intensive instruction in reading that will help her get over this hurdle. It is quite likely that she has a learning disability that is having a negative impact on her learning and (as you have noted) on her self-concept. It's very important to have her evaluated to determine whether LD (or some other challenge) is responsible for her difficulties with schoolwork. Without some help now, this little girl is likely to fall farther and farther behind, and she may feel defeated and hopeless as a result.
It's very good news that she remembers what people tell her or read to her. This is evidence that she has the understanding that's required for reading to make sense; she needs someone to help her "break the code," so all those little letters start meaning something to her. Her immaturity could be related to her frustration and her need for help; it could also be related to the relationship she has had with her mom and other caregivers. A consultation with a family therapist might prove helpful.