Nigeria - a wealth of opportunities for those in the know

Nigeria has gone from strength to strength since the new administration took office in early 2011, defying its reputation as a haven for corruption and political instability. The successful open and fair democratic elections in 2011 have led to substantial improvements in the political climate. The present government's strong desire is to diversify the economy beyond the oil sector. Nigeria now offers major investment opportunities to companies with a good understanding of the operational risks and to companies willing to learn more about its complexities.

Nigeria has the largest market and the fastest developing economy in Africa. It is sub-Saharan Africa's biggest oil producer and Africa's most populous country with a potential market of more than 150 million people. The Nigerian economy grew by 8.1% in 2010 on the back of strong oil prices, prudent macroeconomic policies and effective financial reform. Private consumption is currently growing at an annual rate of 15% - 20%. Nigeria has huge market potential. Against this background it is not surprising that Tito Mboweni, the former Governor of the South African Reserve Bank and current Chairman of Anglo-Gold Ashanti, recently commented that Nigeria will cause 'the next gold rush on the continent'.

Other encouraging trends for investors include Nigeria's 'Category 1' rating by the US Department of Transportation’s Federal Aviation Administration (FAA) in January 2011 and the US State Department's recognition of Nigeria as the only country in sub-Saharan Africa meeting the minimum Trafficking Victims Protection Act (TVPA) standards.

Where will this growth be? Tapping Nigeria's Growth Potential

The preference of successive Nigerian governments' for oil for export meant that other economic sectors were for a long time neglected. Oil still provides 95% of foreign exchange earnings and an estimated 80% of Government earnings. But President Goodluck Jonathan has committed himself to an industrial rebirth in Nigeria and his administration is increasingly focused on improving Nigeria's non-oil economy, not only by investing in human capital development, education and infrastructure reforms, but also by making more of Nigeria's other natural resources, where the potential for growth and for successful investment is substantial.

The stimulation of gas based industries (fertilizer, methanol and petrochemicals), will make fuller use of Nigeria's large supplies of natural gas. In mining Nigeria has vast, unexploited deposits of minerals (zinc, lead, limestone, iron ore, tin, gold, tantalite, bauxite and coal). Existing mining companies are largely Nigerian owned, but in April 2011 Nigeria approved new mining regulations to encourage greater investment in the sector.

Agriculture currently employs 60% of the population. Investment in agri-processing will help Nigeria to tackle poverty, achieve food security and establish self-sufficiency. Nestle is already strongly established in Nigeria, with an estimated 3300 workforce and a turnover of around $387 million. Guinness chose Nigeria as its first brewing location outside the British Isles. Guinness Nigeria has since performed strongly.

Nigeria's manufacturing capabilities are mixed. Manufacturing overall is less than 5% of GDP. But the manufacturing sector is growing (almost 10% per annum) and forms a large part of national and regional governments’ economic recovery plans. Food and beverages are strong (22% of the manufacturing sector).  Cement, textiles, and household chemicals also do well.

Nigeria's strong telecommunications market includes major emerging markets operators (Bharti Airtel and Etisalat) and western companies (Cisco systems (CSCO), Alactel-Lucent and Nokia-Siemens). All have a strong presence in Nigeria.

Local and international banks are active in the financial sector. Barclays acquired a 51% stake in Absa Group Limited in 2007. Absa is listed on the JSE Limited, is one of South Africa’s largest financial services groups and has representative offices in Nigeria. Other western banks include Standard Chartered and Citibank Nigeria Limited.

And the downside? Risks and Limitations

But in highlighting the business and investment opportunities it would be misleading not to address the challenges, risks and limitations of operating in Nigeria. Would-be investors not only have to think about the practical problems (lack of infrastructure or unpredictable power supplies), but also the legal and reputational risks of investment in a country well-known for so long for fraud and corruption, and the physical and security risks of violent crime, regional and religious instability and now indigenous terrorism and piracy.

Working with Intelligence in Nigeria

For each of these threats there are effective countermeasures. Given our extensive experience in high-risk environments across Africa and in other emerging markets and drawing on the specific experience Pasco has gained from working in Nigeria over the past fifteen years, we are well-placed to assist clients doing business in Nigeria to identify and mitigate risks. Comprehensive political risk assessments, training and guidance in the requirements of the Foreign Corrupt Practices Act (FCPA) and the new UK Bribery Act, discreet due diligence and forensic investigations should all be of interest to those wishing to enter the Nigerian market, as should the protective services, training and advice we provide through TravelSafe.

We recommend that any potential investor in the region and any company already operating there invest in proper personal security briefing and training for their staff with regular updates and reviews. We can also assist clients big and small to plan, review and update their existing physical and IT security arrangements and to ensure that their crisis and critical incident planning are fit for purpose.

By understanding Nigeria and how to manage its risks you can make the most of the many opportunities it offers and do business there legally, safely and successfully.