Nigeria for investors has always been a nation with great potential since independence from the United Kingdom in 1960. The Civil War from the years 1967 to 1970 dashed the earlier hopes for a stable and prosperous economy. This was the end result of corruption and a series of military coups that culminated into violence on a massive scale. The era of the military juntas from 1970 to 1999 would then follow. Only in the 21st century, did the country painfully make its way toward a more democratic and open society.
Nigeria has been referred to as the Giant of Africa because at 174 million, it has the largest population in all of Africa. In fact, it is the 7th most populous nation in the world. In 2014 it would pass another milestone, it would now be the largest economy in Africa. The GDP (Gross Domestic Product) of Nigeria would surpass that of South Africa, becoming the 21st largest economy in the world.
Nigeria has a GDP in excess of $500 billion USD (United States Dollar). Another important factor that sets the country apart, is the low debt to GDP ratio which is only 11%. In fact, this percentage is actually declining. It is now 8% below the debt figure for 2012. The GDP growth is 6.3% at present.
Again it is all about the future. By 2050 or even earlier, Nigeria is expected to be in the top 20 nations in the size of the economy. For now, the World Bank considers the country as an emerging market, that has become a major regional power. Nigeria has been identified as one of the Next Eleven.
These are the countries analysts have picked that will become among the largest economies in the world. It is also one of the MINT nations, the next BRICS (Brazil, Russia, India, China, South Africa) like group of countries. The MINT refers to the nations of Mexico, Indonesia, Nigeria and Turkey.
Nigeria is a member of the Commonwealth of Nations, the African Union, and the United Nations. Along with political participation in various different organizations, there is the important membership the country holds in OPEC (Organization of the Petroleum Exporting Nations). Nigeria’s oil wealth has played a major role in the development of the country, as well as been a contributor to the country’s rising influence and wealth. It has proven reserves of 37.2 billion barrels and is estimated to have the largest natural gas reserves in Sub-Saharan Africa. It has become the largest producer of oil in all of Africa.
As a precursor to the future, Nigeria has one of the largest populations of youth in the world. The country has over 500 different ethnic groups, of which the 3 largest are Hausa, Igbo and Yoruba.
The nation is divided roughly between the religions of Christianity and Islam. Christians are concentrated in the southern and central parts of the country. Muslims are in the majority in the northern and southwestern regions. There can also be found a small minority of indigenous religions. These differences among the population have created knotty divisions, throughout the short history of the country since independence.
The latest difficulty which began in 2002 in the impoverished northeast of the country, has been centered on Boko Haram, an Islamist group. The objectives of this radical organization, is to rid Nigeria of a secular government and society. Their ultimate goal is to establish Sharia Law throughout the country.
A year ago, Boko Haram was already responsible for the deaths of over 12,000 individuals and the maiming of 8,000 more. An additional estimated 1 million people have been forced from their homes by the violence. This Islamist insurgency gained world wide notoriety with the kidnapping of 276 school girls. However, it also resulted in a united effort to combat the insurrection by the neighboring countries of Benin, Cameroon, Chad and Niger, in addition to Nigeria.
Hindered by years of corruption and mismanagement, more recent economic reforms have put Nigeria back toward achieving more of the potential that the country always had. Nigerian GDP in Purchasing Power Parity (PPP) has tripled since the beginning of the 21st century.
Although much has been made of Nigeria’s crude oil production the country is only responsible for less than 3% of the world supply. In comparison Saudi Arabia provides close to 13% of the total global production. Put another way, less than 10% of the Nigerian GDP comes from the sale of oil overseas. However, the government is overly reliant on this source of revenue for regular expenditures.
Nigeria at one time was a large food exporter. This has been reversed in recent years and the country has now become a net food importer and on a massive scale. The mostly subsistence farming has not kept pace with the rapid population growth that has taken place over the past few decades. It matters considering that 70% of the population is involved in agriculture.
In the recent presidential election held last month, the country faced a choice between the incumbent Goodluck Jonathan from the PDP (People’s Democratic Party) and a Christian and the challenger Muhammadu Buhari from the APC (All Progressives Congress) party and a Muslim. The electoral results were 9% in favor of the latter. The new President will face the task of dismantling the patronage system, that presently exists with the party in power.
The most important result in the recent election is that this is the first time in the history of the country, that the incumbent has been defeated at the ballot and has agreed to the peaceful transfer of power. Mr Buhari won the vote by promising to curb corruption, fight Boko Haram and attempting to boost the economic prospects of the country.
A daunting task awaits the new president considering a third of the country is still below the poverty line. Over 60% of the population, lives on less than $1.00 USD a day.
Mr. Buhari is not new to Nigerian politics. He ruled the country as a military strongman in the 1980s. His regime was brutal as well as repressive. His simple lifestyle and previous experience, made the difference in the amount of support he received throughout the country. There is hope that he will not only end the insurgency, but will help unify the country through more economic and infrastructure development.
President elect Buhari will be held back by the additional problem of inheriting a government and national budget that is overly dependent on oil revenues and foreign exchange earnings. The low international price of oil has emptied the national reserves and cannot be made up through the cutting of corruption and waste alone, despite electoral pledges.
There is also the renewed threat that insurgents who had laid down their arms in the oil rich delta region in 2009, may take up the struggle again. This is a distinct possibility, largely because these rebels were promised a portion of the oil wealth, in exchange for their cooperation.
The election of Mr. Buhari has caused a rally in the Nigerian stock market. Yields on government bonds fell to their lowest levels since December. This was caused by the return of a number of foreign investors. The Nigerian currency (naira) which had been plummeting in value, finally stabilized. There is also renewed confidence in the business community inside the country. It matters that Mr, Buhari was able to win in Lagos, the financial and economic capital of the country. The question now is whether the return to a more democratic and peaceful government, translates to greater economic reforms?
There is no doubt, the new President will need to make deeper and unpalatable spending cuts, that will be politically damaging even as they are quite necessary. He will also need to deal with an annual inflation rate of 8.5% and an official unemployment rate of 7.5%. He will not be able to meet the high expectations, that many of his supporters will want fulfilled.
Nigeria’s rule of law remains weak and uneven. This is best exemplified by the poor management of property registrations, which ultimately weakens property rights in general. The corruption that accompanies the high levels of government spending as a result of the oil wealth, suppresses the continued development of the private arena.
Many sectors of the economy remain protectionist and adverse to outside competition. The numerous legal and regulatory bureaucracies are a bit challenging to foreign investors. Regulatory procedures and licensing remain lengthy in time and are relatively expensive. Nigeria is below the world average for establishing a good environment for business and investment.
New investors will want to adopt the wait and see approach. Electoral promises and speeches do not replace the actual reforms that will be necessary, to turn the economy around. Becoming less dependent on oil revenues, will be a good thing for Nigeria in the long run. The country continues to have immense potential. Has the time finally arrived for the Nigerian economy to enter a new high growth phase, fueled by new domestic and foreign investment? Only time will tell.