Country Risk Assessment_NIGERIA

8/14/2019 Country Risk Assessment_NIGERIA

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A Country Risk

Assessment of

NIGERIA:InternationalBusinessOpportunitiesandThreats

LawrenceO.EmeagwaliTheAmericanUniversity,Cyprus. 2009


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ABSTRACTTheNigerianinvestmentenvironmentisaverypromisingone,ladenwithlotsofopportunities.

The countrywhich is amajoroilproducing, exporting anddependentnation alsohasother

lucrativesectors filledwith investmentopportunities. Itsmineral resources includescoal, tin,

bauxiteandzinctomentionafewwhilemorerecently,hugebusinessopportunitiesexistinthe

aviation, IT, energy and education sectors of the economy. Its government and people are

foreign investment friendly and the governmenthas recently takenbold steps toencourage

FDIs. Foreign investors incorporated in Nigeria have equal access to financial instruments

offered by all banks aswell as theNigerian stock exchange.However, investorshave tobe

cautious and sensitive tooccasionalethnic tensions, intellectualproperty violations, identity

thefts, aswell as uneven import and export tariff systems.Despite all of these the general

business environment is very conducive for foreign investments as the opportunities far

outweighthethreats.

LawrenceO.Emeagwali [email protected] http://strategylawrence.blogspot.com


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TABLEOFCONTENTSAbstract.2 Introduction 4HistoricalEnvironment 4GeopoliticalEnvironment.. 5SocialEnvironment. 6EconomicEnvironment. 7PoliticalEnvironment. 8CuturalEnvironment.. 8OpportunityandThreats.. 9ConclusionandRecommendation...10



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INTRODUCTIONBACKGROUNDNigeriaisthemostpopulousblacknationonearthandsitsonageographicallocationofabout

923,768sqkminthewestofAfrica,andsharesborderswiththegulfofGuinea,lyingbetween

BeninandCameroon.Nigeriaisgeographicallyandadministrativelydividedinto36statesand1

territory. Its states include Abia, Adamawa, Akwa Ibom, Anambra, Bauchi, Bayelsa, Borno,

Cross river, Delta, Ebonyi, Edo, Ekiti, Enugu, Federal Capital Territory, Gombe, Imo, Jigawa,

Kaduna,Kano,Katsina,kebbi,kogi,kwara,Lagos,Nassarawa,Niger,Ogun,Ondo,Osun,Oyo,

Plateau,Rivers,sokoto,Taraba,YobeandZamfarastates.ThecapitalofNigeriaisAbuja,which

isalsoreferredtoastheFederalCapitalTerritory.

Outofthecountrystotalgeographicalsize,910,768sqkmismadeupoflandandabout13,000

sqkmofwater. Its landborder isatotalof4,047kmwhich itshareswithborderingcountries

suchasBenin(773km),Cameroon(1,690km),Chad(87km)andNiger(1,497km).Inaddition,its

coastlinespansatotalofabout853km.

Thecountrys land terrainconsistsofplains in theNorth, lowlandswhichmerge intocentral

hillsandplateauintheSouthandmountainsintheSoutheast.


Nigeria laysclaim tomaritimeterritorywhichconsistofabout200nmofexclusiveeconomic

zone,200mofcontinentalshelfortothedepthofexploitationandatotalof12nmofterritorial

sea.


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Weather conditions in Nigeria, changes between arid conditions in the North, tropical

conditionsinthemiddlebeltorthecenter,andequatorialclimaticconditionsinthesouth.

Nigeria

has

got

huge

deposits

of

natural

resources

in

both

land

and

sea.

Some

of

these

resources include petroleum, natural gas, ironore, tin, limestone, coal, lead, zinc, bitumen,

niobiumandarablelandtomentionafew.Thecountryisamongthetenlargestoilproducing

andexportingcountriesoftheworld,and itsarable landconstitutesabout33.02%of itstotal

landmass.

Despiteall

of

these,

the

country

like

most

other

countries

of

the

world,

still

deals

with

alot

of

geographical and environmental issues, which include, increased deforestation, increasing

desertification,oilspillagesandtheresultantoilpollutionofwater,airandsoil;soildegradation

andlossofsoilnutrients;fastpaceofurbanizationresultinginthelossofarableland.

HISTORICALENVIRONMENT


ThehistoryofNigeriadatesas farbackasabout1000AD. InthenortherncitiesofKanoand

katsina,recordstosuggesttheexistenceofancientandhistoricHausakingdomscaneasilybe

found.ThesekingdomsalongwiththeBornoempirewhichwascloseto lakechad,grewand

prosperedassignificanttravelroutesandterminalsfornorthAfricanandSouthAfricantrade,

which involved the tradebybarterofslaves, ivoryandkolanuts forsalt,glassbeads,corals,

cloth,weapons,brass rods and the ancient cowry shellswhichwere legal tender as at that

period.Other kingdomswhichexisted inNigeria include theYorubaKingdomofOyo,which


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influencedmostofwestAfricaasfarasTogo,andalsotheBeninkingdomwhichasearlyasthe

15th

and16th

centuries,haddevelopeda functionalandhighlyefficientarmyandceremonial

courts.Intheearly19th

centuryhowever,Islamwaspromulgatedinthenorthbyaprominent

Fulanileader,UsmanDanfodio,whileChristianitywasalreadybeingintroducedinthesouthby

Britishslavetradersandmissionaries.Between1885and1914,theBritish interestwentfrom

trade,tocontrolofboththesouthandnorth,whereithadawidesphereofinfluence.Itunited

thenorthandsouthin1914,anduseditspopularadministrativestrategyofdivideandruleto

strengthen itsgripandcontrolofthearea.However,afterWorldWar II,thereweregrowing

nationalistic tendencies and sentiments, and demand for independence; and in response to

these intense demands, the British government legislated consecutive constitutions which

moved Nigeria into a federal based self government structure. The country finally gained

independencein1960.


However,itsexistencebetween1960and1999,weremarredwithdifferentproblems,different

coups saw the country suffer about 16 years of military rule and dictatorship, one or two

experimentswith shortlived democracy inbetween and a civilwarwhich spanned about 3

years. However, following the death of the last military dictator General Sani Abacha, an

interim government led by General Abdulsalam Abubakar, handed over power to a

democratically elected president Olusegun Obasanjo in 1999. Obasanjo who had been a

politicalprisoner

in

Gen.

Sani

Abachas

military

regime,

assumed

office

in

1999

and

successfully

handed over to the newly elected and current democratic government of President Umaru

Musa YarAdua, after serving two terms in office. This is the first time the country would

witnessacivilianciviliantransitioninitslonghistory.


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GEOPOLITICALENVIRONMENTAlthough

avery

wealthy

nation,

years

of

mismanagement

by

past

military

rulers,

have

seen

the

decayofthenationsbasicinfrastructure,leadingtoloweconomicdevelopment.Althoughthe

presentgovernmentaswellastheObasanjogovernmenthave triedto improvethesituation

with the involvementof theprivatesector,anda targetedeffortaimedat reducingendemic

corruption in thenationspolity, the country stillneeds todoa lot in theprovisionofbasic

infrastructuresuch

as

electricity,

transportation

and

communication,

ifit

is

to

achieve

the

desired levelofdevelopment.Alsodueto lackofcoordinationbetweenthefederalstateand

localgovernments,aswellaslackofstafftoimplementandmonitorprojectsonhealth,poverty

and education,Nigeriawillnotbe able tomeet itsmillenniumdevelopment goalofhalving

povertyby2015.

Onthe

aspect

of

defense,

the

country

maintains

asizeable

armed

services

of

about

76,000

activedutypersonnelcomprisedof theNigerianArmywhichhasgotabout90%of the total

servicepersonnelaswellastheNigerianNavyofabout7,000personnelandtheNigerianAir

force of approximately 9,000 personnel. Nigeria plays an important role in regional and

continentalpeace,contributingthelargestbulkofsoldiersintheUNpeacekeepingmissionsin

Liberia,Sierra

Leone,

Rwanda,

Yugoslavia,

and

Sudans

Darfur

region.

The

country

currently

pursuesapolicyofdevelopingdomesticmilitaryproductioncapabilities.


Nigeria shares territorial borders with Benin, Cameroon, Chad and Niger; and had been

involvedinalongterritorialdisputewiththerepublicofCameroonoverthepotentiallyoilrich


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approximately68%ofthetotalpopulationisliterate.Thisfigurehasincreasedrecently,dueto

theimportanceandprivilegeswhichdegreeholdersenjoy.Thefastupwardmobilityofdegree

holders,fromlowincomefamiliestomiddleclassstatusisspurringthistrend.Whiletheupper

class citizens exists as the wealthy few, typically business and power brokers in the oil,

telecommunications,bankingandpoliticssectorsofthecountry.

TheaveragelifestyleoftheNigeriancitizenisdependsongeographicalandreligiousaffiliations.

Life is more conservative in the predominantly Muslim north, while a more western and

flamboyantlifestyleisthenorminthepredominantlyChristianeastandsouthofthecountry.A

marketforwesternproductsalthoughvibrantinallstatecapitalsofthecountry,ismorevibrant

inthesouth,whilethenorth ismore inclinedtobeingamarket forconsumables fromNorth

AfricaandtheMiddleEastduetoreligiousaffiliations.

Powerrestswiththetraditionalchiefs,thelocalgovernment,stategovernmentandthefederal

government.However,companies interested in investing intheextractive industrialsectorof

thecountry,wouldhavetomaintainstrongcordialrelationshipwiththetraditionalrulersand

chiefs of the communities which theyll be involved in and must take corporate social

responsibilityseriouslyasindigenouscommunitiesareadeptatmobilizingitsresidentsagainst

firmsperceivedtobecausingharmorseenasunfairtothecommunity.Thisisexemplifiedby

the ordeals US oil exploring organizations have had to face at the hand of theNigerDelta

militantsinrecenttimes.



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ECONOMICENVIRONMENTSince 1999, Nigeria has witnessed considerable economic stability with its GDP purchasing

power

parity

rising

to

US

$

336.2

billion

in

2008.

The

countrys

real

growth

rate

has

seen

steady

increasesince1999andgrewatabout6.4% in2007,butdue to fluctuatingglobaloilprices,

coupled with internal disruption of its oil production by the activities of the Niger delta

militants,thisgrowthsloweddowntoabout5.3% in2008.Althoughthecountryhasrecently

put in great efforts to diversify its economy by opening up the financial and

telecommunicationssectorsof, itstilldependsheavilyoncrudeoilexportswhichaccountfor

about95%of its foreignexchangeearnings.National capital reservesasatDecember,2008,

stood at over US $35billion while inflation and interest rates stood at 11.6% and 15.48%

respectivelyduringthesameperiod.Unemploymentratestoodat4.9%asat2007.

As per capital markets, the Nigerian Investment Promotion Commission Decree of 1995,

liberalizedNigeriasforeigninvestmentlaws.Thishasledtoincreasedandeasyaccesstoloans,

creditfacilitiesandinstrumentsprovidedbyfinancialinstitutions.Anyforeigninvestorwhohas

successfully registeredor incorporated their company in the countryhasequal access to all

financial instrumentsavailable.Thispresentsagreatopportunity for investors,moreover,as

commercialbanklendingratesarehighwithveryshortmaturityratesfordebtinstruments,the

NigerianStockExchange(NSE)isconsideredbymostinvestorstobeagoodfinancingoption.

OtherEconomicandForeignInvestmentPolicies


NigeriaisAfricasmostpopulousnationwithover140millionpeople,andasourceforlowcost

labor,abundantnaturalresourcesandpotentiallythelargestdomesticmarketinsub Saharan


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Africa.However,hurdlesexistswhichhindersitsattainmentofitspotentials,andtheseinclude

inadequate infrastructure,transportationandetc.Thusthepresentgovernmenthas loosened

controls over foreign investment in these and other areas; and previous decrees hindering

healthy competition, or giving monopolistic powers to public enterprises have either been

repealed or amended. The government of YarAdua has continued to solicit for foreign

investmentandhasimplementedvariousreformsaimedatattractingforeigninvestments.

ForeigninvestorscanownpropertyinNigeriathroughmortgages,althoughlittleproblemswith

the registration of properties exist, and theWorld Banks publication:Doing Business 2008,

rankedNigeria51outof178countriessurveyedforregisteringproperty.Thereportshowsthat

ittakesapproximately14proceduresand82daystoregisteranygivenproperty;whilecosting

about 22.2% of the propertys value. Most properties are long term leases which have

certificatesofoccupanciesa.k.aCofOsactingastitledeeds.Repatriationoffundshasalways

beeneasywithminimalregulatoryrestrictions.

EconomicopportunitiesHuge opportunities exists in the oil and gas field machinery sectors, aerospace / aviation/

avionics sectors; Computer software development and peripherals; telecommunications

equipmentsupply

sector;

medical

equipment,

automobile

parts,

assembly

and

manufacture

sectorsandconstructionequipmentsectorsoftheNigerianeconomy.



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POLITICALENVIRONMENTGovernancesystem inNigeria isdemocratic,consistingofthreebranchesofgovernment.The

Executive,

legislative

and

Judicial

branches.

The Executive branch of government is occupied by the presidentwho is both the head of

governmentandthechiefofstate.ThispositionhasbeenoccupiedbyPresidentUmaruMusa

YarAduasincethe29th

ofMay,2007.Whilethelegislativearmofgovernmentismadeupofa

bicameral national assembly consisting of 109 senators and the House of Representatives

consistingof

360

representatives.

Both

the

senators

and

representatives

each

have

4year

tenure.Thejudicialbranchofgovernancehowever,ismadeupoftheSupremeCourt,whichis

thehighestcourt,andthefederalcourtofappealaswellasothercustomaryandshariacourts.

The dependence of thejudiciary on the federal government for the appointment of its top

officialisakeyfactorwhichhasbeenattributedtothepresentfairlyunfairlegalsystemsinthe

country.

CULTURALENVIRONMENT


Religionand traditional/culturalaffiliationspermeatebusinesssettings,andhighmoralsand

respectisacustominsincerebusinessdealingsinNigeria.Forbusinesstransactions,visitorsare

expected to be appropriately dressed. Wearing casual clothes may convey an unserious or

casualattitude,

especially

to

European

trained

Nigerians.

People

are

commonly

addressed

by

theirtitles,especiallythehonorarytitlesofalltraditional leaders.Importantbusinessdealings

are usually done on a face to face basis in Nigeria. Meaningful business transactions are

normally not completed at one meeting. There are usually follow up meetings. Nigerians


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OPPORTUNITIESANDTHREATSOPPORTUNITIES THREATSSellingOilandgasEquipment Occasionalethnicupheavals

Selling Aviation and avionic components,

Equipmentsandcrafts.

Fairlyunreliablelegalsystems

Selling Computer software and hardware

peripherals

Weak enforcement of Intellectual Property

protectionlaws

Miningofmineralresources,suchastin,zinc,coal

etc.

Longprocessofpropertyregistration

Easyrepatriationofprofits

Equal financing opportunity from the Nigerian

capitalmarket



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CONCLUSIONNigeria isaveryattractiveeconomyto invest inastherearevery limitedrestrictionstodoing

businessandtherearenorestrictionstoimportsexceptthoseontheimportbanorprohibition

listavailableontheNigerianCustomswebsite.Withastablepoliticalenvironment,investments

aresuretobesecureandsafe.Theopennessofthegovernmenttoforeigninvestmentsandthe

easeof repatriationof fundsmake ita choice investmentdestination formost international

investors. However, occasional ethnic disturbances may erupt, but are usually of little

significancetomajorbusinessactivities.

RECOMMENDATIONSBelowareafewrecommendationsforinvestorsintendingtocarryoutbusinessinNigeria:

Investors interested inmaking foreigndirect investments shouldconsider investing in

themanyopportunitiesavailable in theOilandgas,Aviation,Computersoftwareand

peripherals,Medicalequipments,Constructionequipmentsand ITeducation;as there

are no legal barriers preventing entry into any business, except the minimum

qualificationsrequiredbythevariousprofessionalbodies.

Foreigncompanies

seeking

to

do

business

in

Nigeria

are

expected

to

do

so

with

incorporatedcompaniesorotherwiseincorporatetheirsubsidiarieslocally.


Despite the above recommendations, Firms interested in the Nigerian market are

stronglyadvisedtoseekandsecuretheassistanceofexperiencedcommerciallawyers,


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since the enforcement of intellectual property rights remains a problem in Nigeria

despiteseveralofficialpronouncementsandexistingcopyrightlaws.

ForeigncompaniesinterestedinsellinginNigeria,shouldbearinmindtheinconsistency

of thenations tariff system.AlthoughNigeria isa foundingmemberof theEconomic

CommunityofWestAfricanStates(ECOWAS)andsupportsitsCommonExternalTariff,

however, thenations implementationofnontariffbarriersare arbitraryanduneven

andcontinuestoviolateWTOprohibitionsagainsttradebans.



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REFERENCES

1. http://www.nigeriaembassyusa.org/investment.shtml

2. http://www.buyusa.gov/nigeria

3. http://www.buyusa.gov/nigeria/en/7.html

4. http://www.cenbank.org/

5. http://www.state.gov/r/pa/ei/bgn/2836.htm

6. www.ncc.gov.ng

7. http://www.nigerianfranchise.org

8. http://www.nigeria.gov.ng/fed_min_health.aspx

9. http://www.nipc-nigeria.org/valueinfo.html

10. http://www.nbc-nig.org/Licenced_stations.asp

11. https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html

12. https://www.cia.gov/library/publications/the-world-

Factbook/fields/2144.html?countryName=Nigeria&countryCode=ni&regionCode=afni

13. https://www.cia.gov/library/publications/the-world-factbook/fields/2077.html?countryName=Nigeria&countryCode=ni&regionCode=afni

14. https://www.cia.gov/library/publications/the-world-factbook/fields/2115.html?countryName=Nigeria&countryCode=ni&regionCode=afni

15. http://www.doingbusiness.org/exploreeconomies/?economyid=143

16. http://www.otal.com/nigeria/nigeriaimports.htm

17. http://www.buyusa.gov/nigeria/en/serviceproviders.html?bsp_cat=80120000

http://www.nigeriaembassyusa.org/investment.shtmlhttp://www.buyusa.gov/nigeriahttp://www.buyusa.gov/nigeria/en/7.htmlhttp://www.cenbank.org/http://www.state.gov/r/pa/ei/bgn/2836.htmhttp://www.ncc.gov.ng/http://www.nigerianfranchise.org/http://www.nigeria.gov.ng/fed_min_health.aspxhttp://www.nipc-nigeria.org/valueinfo.htmlhttp://www.nbc-nig.org/Licenced_stations.asphttps://www.cia.gov/library/publications/the-world-factbook/geos/ni.htmlhttps://www.cia.gov/library/publications/the-world-factbook/geos/ni.htmlhttps://www.cia.gov/library/publications/the-world-Factbook/fields/2144.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-Factbook/fields/2144.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-Factbook/fields/2144.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/fields/2077.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/fields/2077.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/fields/2077.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/fields/2115.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/fields/2115.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/fields/2115.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttp://www.doingbusiness.org/exploreeconomies/?economyid=143http://www.doingbusiness.org/exploreeconomies/?economyid=143http://www.otal.com/nigeria/nigeriaimports.htmhttp://www.otal.com/nigeria/nigeriaimports.htmhttp://www.buyusa.gov/nigeria/en/serviceproviders.html?bsp_cat=80120000http://www.buyusa.gov/nigeria/en/serviceproviders.html?bsp_cat=80120000http://www.otal.com/nigeria/nigeriaimports.htmhttp://www.doingbusiness.org/exploreeconomies/?economyid=143https://www.cia.gov/library/publications/the-world-factbook/fields/2115.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/fields/2115.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/fields/2077.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/fields/2077.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-Factbook/fields/2144.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-Factbook/fields/2144.html?countryName=Nigeria&countryCode=ni&regionCode=afnihttps://www.cia.gov/library/publications/the-world-factbook/geos/ni.htmlhttp://www.nbc-nig.org/Licenced_stations.asphttp://www.nipc-nigeria.org/valueinfo.htmlhttp://www.nigeria.gov.ng/fed_min_health.aspxhttp://www.nigerianfranchise.org/http://www.ncc.gov.ng/http://www.state.gov/r/pa/ei/bgn/2836.htmhttp://www.cenbank.org/http://www.buyusa.gov/nigeria/en/7.htmlhttp://www.buyusa.gov/nigeriahttp://www.nigeriaembassyusa.org/investment.shtml


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