Nigeria has recorded some major improvements to the business environment, but some challenges remain
For a long time, Nigeria has been a classic summary of everything that can go wrong in Africa. From deeply entrenched corruption, to extended periods of unstable military rule, Africa’s largest economy has had its fair share of challenges. But Nigeria has broken away from its dark past. It just concluded a peaceful and democratic election and there is a palpable sense of enterprise and readiness to do business, especially in the big cities such as Lagos.
After a statistical revision in 2013 revealed that Nigeria was Africa’s largest economy, displacing South Africa, there was no shortage of doubting Thomases. The international community was in disbelief and the World Bank, International Monetary Fund and African Development Bank had to independently verify the data to cast out doubts.
For someone that has been keeping a close eye on Nigeria, however, the news did not come as a surprise. Since the beginning of the new millennium, Nigeria has been doing things differently and it was apparent that economic leadership in the continent was inevitable.
Unlike other oil rich economies in Africa such as Angola, Nigeria has taken deliberate and bold steps to diversify its economy away from oil. The service sector in particular has expanded over the years. The telecoms sector has also grown and now contributes around 8.6 percent to the economy. The robust growth in these sectors of the economy has acted as a counterweight to periodic weakness in the oil sector, particularly now that crude oil prices have hit new lows and are within the $30 per barrel region.
Earlier in the year credit rating agency Moody’s admitted that Nigeria was one of the economies in Africa that was more resilient to lower crude oil prices, pointing to the progress that Africa’s largest economy has made in diversification.
Nigeria has also shown that it will not relegate its national interests in the face of donor interests. Most donor countries give generous subsidies to their agricultural sector while sharply criticizing the same in Africa. In some instances, the withdrawal of subsidies in the agricultural sector has even been used as a loan/grant condition by rich donor countries. Nigeria, however, continues to subsidize fertilizer in the agricultural sector. This has produced good results.
Moreover, Nigeria has completely removed the public sector from the issuance fertilizers. Dr. Akinwumi Adesina, former Agriculture minister and the African Development Bank’s new president, admitted that this new private sector led system, which he introduced upon becoming agriculture minister in 2011, ended corruption in the agricultural sector. “We ended four decades of fertilizer corruption within 90 days and with it the era of government buying and distributing seeds, and replaced it with a private sector driven system,” he said at an address at the Sheraton Hotel, Ethiopia.
The dreadful irony is that Africa has the largest tracts of arable land but also the worst cases of hunger and food underproduction. To add insult to injury, agriculture is the largest employer, but also one of the sectors performing way below optimum performance. Agriculture is a national interest for any African government and Nigeria has shown some leadership in its unwillingness to withdraw subsidies at the whimsical demands of donors.
The government is now increasingly keen to protect the interests of locals. This is seen in the steps taken to protect and grow not just agriculture, but ensure more public participation in business through the Local Content Act, which was passed in 2010. More private Nigerian companies are now part of the formal business world and this is creating wealth and jobs.
People who are more involved in economy are more inclined to peace and stability
Local participation is important in maintaining stability in an oil rich country like Nigeria where opulence of a few oil tycoons—sometimes foreigners—is typically staged against the backdrop of abject poverty. When people are more involved in the economy, they are generally more inclined to stability and amicable means of solving disputes and differences. This is because they have something to lose in case of instability. The accuracy of this theory was put to test in the recent election when power was transferred peacefully in an election that acted as a benchmark for the rest of Africa.
Nigeria’s growing economy is creating numerous opportunities. People are earning more and purchasing power has increased. But not all the opportunities that come with this can be exploited. Formal retail, for instance, is still low as mall development is being held back by high building costs and outdated land rules that make it hard to register land. Grocery chains account for less than 3 percent of retail sales, a report on The Economist says.
There are some even more pressing challenges. Corruption still persists, though not in the more overt fashion it did back in the years of military rule. There will perhaps be some need for patience in the current purge on corruption. Although President Buhari’s tough stance on corruption was instrumental in whipping up voter enthusiasm and delivering votes, things are usually different when it comes to the actual fight against corruption.
All too often, corruption, business and politics are intertwined and a more pragmatic—rather than uncompromising—stance works best. This is because political, business and long-term economic interests often clash. It is no secret, for instance, that the embarrassing state of oil refining in Nigeria is largely attributable to the interference of powerful businessmen who control oil import contracts.
President Buhari’s purge against corruption requires patience
The fight against corruption is one that is won in incremental steps rather than in one swoop. It also demands a special type of pragmatism and political maturity. This suggests that corruption will continue being one of the more unpleasant things about doing business in Nigeria for some time.
Other challenges also continue to drag Nigeria behind. Violent attacks by Boko Haram, an extremist Islamist group, are a constant reminder that conflict is never far away in Africa. Instability brought about by extremists and rebel movements is still a challenge for most of Africa. The IMF, in its periodic report on Sub-Saharan Africa for 2015, says that insecurity is one of the biggest challenges for Africa right now. Conflicts, whether in the form of terrorism or political mischief, could dampen investor interest and slow growth in future, the IMF says.