Country Risk Assessment - NIGERIA

A Country Risk
Assessment of
NIGERIA:
International Business Opportunities and Threats
Lawrence O. Emeagwali
The American University,
Cyprus.
© 2009

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ABSTRACT
The Nigerian investment environment is a very promising one, laden with lots of opportunities.
The country which is a major oil producing, exporting and dependent nation also has other
lucrative sectors filled with investment opportunities. Its mineral resources includes coal, tin,
bauxite and zinc to mention a few while more recently, huge business opportunities exist in the
aviation, IT, energy and education sectors of the economy. Its government and people are
foreign investment friendly and the government has recently taken bold steps to encourage
FDIs. Foreign investors incorporated in Nigeria have equal access to financial instruments
offered by all banks as well as the Nigerian stock exchange. However, investors have to be
cautious and sensitive to occasional ethnic tensions, intellectual property violations, identity
thefts, as well 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
outweigh the threats.

Lawrence O. Emeagwali lawrenceemeagwali@gau.edu.tr http://strategy‐lawrence.blogspot.com

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TABL E OF CONTENTS
Abstract ………………………………………………………………………….2
Introduction …………………………………………………………………… 4
Historical Environment …………………………………………………… 4
Geopolitical Environment ……………………………………………….. 5
Social Environment …………………………………………………………. 6
Economic Environment ……………………………………………………. 7
Political Environment ………………………………………………………. 8
Cutural Environment ……………………………………………………….. 8
Opportunity and Threats ………………………………………………….. 9
Conclusion and Recommendation ………………………………….. .10


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INTRODUCTION
BACKGROUND
Nigeria is the most populous black nation on earth and sits on a geographical location of about
923,768 sq km in the west of Africa, and shares borders with the gulf of Guinea, lying between
Benin and Cameroon. Nigeria is geographically and administratively divided into 36 states and 1
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, Yobe and Zamfara states. The capital of Nigeria is Abuja, which
is also referred to as the Federal Capital Territory.
Out of the country’s total geographical size, 910,768 sq km is made up of land and about 13,000
sq km of water. Its land border is a total of 4,047km which it shares with bordering countries
such as Benin (773km), Cameroon (1,690km), Chad (87km) and Niger (1,497km). In addition, its
coastline spans a total of about 853km.
The country’s land terrain consists of plains in the North, lowlands which merge into central
hills and plateau in the South and mountains in the Southeast.
Nigeria lays claim to maritime territory which consist of about 200 nm of exclusive economic
zone, 200m of continental shelf or to the depth of exploitation and a total of 12nm of territorial
sea.


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Weather conditions in Nigeria, changes between arid conditions in the North, tropical
conditions in the middle belt or the center, and equatorial climatic conditions in the south.
Nigeria has got huge deposits of natural resources in both land and sea. Some of these
resources include petroleum, natural gas, iron‐ore, tin, limestone, coal, lead, zinc, bitumen,
niobium and arable land to mention a few. The country is among the ten largest oil producing
and exporting countries of the world, and its arable land constitutes about 33.02% of its total
land mass.
Despite all of these, the country like most other countries of the world, still deals with a lot of
geographical and environmental issues, which include, increased deforestation, increasing
desertification, oil spillages and the resultant oil pollution of water, air and soil; soil degradation
and loss of soil nutrients; fast pace of urbanization resulting in the loss of arable land.
HISTORICAL ENVIRONMENT
The history of Nigeria dates as far back as about 1000 AD. In the northern cities of Kano and
katsina, records to suggest the existence of ancient and historic Hausa kingdoms can easily be
found. These kingdoms along with the Borno empire which was close to lake chad, grew and
prospered as significant travel routes and terminals for north African and South African trade,
which involved the trade by barter of slaves, ivory and kola nuts for salt, glass beads, corals,
cloth, weapons, brass rods and the ancient cowry shells which were legal tender as at that
period. Other kingdoms which existed in Nigeria include the Yoruba Kingdom of Oyo, which


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influenced most of west Africa as far as Togo, and also the Benin kingdom which as early as the
15th and 16th centuries, had developed a functional and highly efficient army and ceremonial
courts. In the early 19th century however, Islam was promulgated in the north by a prominent
Fulani leader, Usman Danfodio, while Christianity was already being introduced in the south by
British slave traders and missionaries. Between 1885 and 1914, the British interest went from
trade, to control of both the south and north, where it had a wide sphere of influence. It united
the north and south in 1914, and used its popular administrative strategy of divide and rule to
strengthen its grip and control of the area. However, after World War II, there were growing
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
independence in 1960.
However, its existence between 1960 and 1999, were marred with different problems, different
coups saw the country suffer about 16 years of military rule and dictatorship, one or two
experiments with short‐lived democracy in between and a civil war which 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
political prisoner in Gen. Sani Abacha’s military regime, assumed office in 1999 and successfully
handed over to the newly elected and current democratic government of President Umaru
Musa Yar’Adua, after serving two terms in office. This is the first time the country would
witness a civilian‐civilian transition in its long history.


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GEOPOLITICAL ENVIRONMENT
Although a very wealthy nation, years of mismanagement by past military rulers, have seen the
decay of the nation’s basic infrastructure, leading to low economic development. Although the
present government as well as the Obasanjo government have tried to improve the situation
with the involvement of the private sector, and a targeted effort aimed at reducing endemic
corruption in the nation’s polity, the country still needs to do a lot in the provision of basic
infrastructure such as electricity, transportation and communication, if it is to achieve the
desired level of development. Also due to lack of coordination between the federal state and
local governments, as well as lack of staff to implement and monitor projects on health, poverty
and education, Nigeria will not be able to meet its millennium development goal of halving
poverty by 2015.
On the aspect of defense, the country maintains a sizeable armed services of about 76,000
active duty personnel comprised of the Nigerian Army which has got about 90% of the total
service personnel as well as the Nigerian Navy of about 7,000 personnel and the Nigerian Air
force of approximately 9,000 personnel. Nigeria plays an important role in regional and
continental peace, contributing the largest bulk of soldiers in the UN peace keeping missions in
Liberia, Sierra Leone, Rwanda, Yugoslavia, and Sudan’s Darfur region. The country currently
pursues a policy of developing domestic military production capabilities.
Nigeria shares territorial borders with Benin, Cameroon, Chad and Niger; and had been
involved in a long territorial dispute with the republic of Cameroon over the potentially oil‐rich


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Bakassi peninsula. However, the issue was addressed by the international court of justice (ICJ)
in 2002 and in 2008; the Obasanjo government officially cede Bakassi to Cameroon ending the
decade‐long dispute.
SOCIAL ENVIRONMENT
Nigeria ranks 8th in the world when it comes to its population. As at June 2009, its population
stood at almost 150million. The majority of its population re aged between 15‐64 years old
(55.5%) and the average age of its nationals is 18.9 years according to a 2009 estimate.
Generally, there are no public discriminations based on gender and although women are visible
in every facet of the country; from politics to sports, yet more still has to be done especially in
the north of the country to encourage female participation. The average life expectancy of the
Nigerian female and male is 46/45 years respectively and this is mostly due to health related
mortality as well as illiteracy levels. This means that the average productivity of the Nigerian
citizen may be limited. There are also more than 250 ethnic groups and thus languages in
Nigeria. Occasional ethnic tension and riots erupts especially in the predominantly Muslim
north with reprisal attacks in the predominantly Christian south and east. These sad
phenomena marked several periods during president Obasanjo’s administration.
Since the restoration of democracy in the country, a new middle class has sprung up due to the
more transparent system introduced by the Obasanjo administration as well as the
deregulation and consolidation of the banking and telecommunication sector of the economy.
The per capita GDP however, stood at $1,149 in 2007. A 2003 estimate, shows that


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approximately 68% of the total population is literate. This figure has increased recently, due to
the importance and privileges which degree holders enjoy. The fast upward mobility of degree
holders, from low income families to middle class status is spurring this trend. While the upper
class citizens exists as the wealthy few, typically business and power brokers in the oil,
telecommunications, banking and politics sectors of the country.
The average lifestyle of the Nigerian citizen is depends on geographical and religious affiliations.
Life is more conservative in the predominantly Muslim north, while a more western and
flamboyant lifestyle is the norm in the predominantly Christian east and south of the country. A
market for western products although vibrant in all state capitals of the country, is more vibrant
in the south, while the north is more inclined to being a market for consumables from North
Africa and the Middle East due to religious affiliations.
Power rests with the traditional chiefs, the local government, state government and the federal
government. However, companies interested in investing in the extractive industrial sector of
the country, would have to maintain strong cordial relationship with the traditional rulers and
chiefs of the communities which they’ll be involved in and must take corporate social
responsibility seriously as indigenous communities are adept at mobilizing its residents against
firms perceived to be causing harm or seen as unfair to the community. This is exemplified by
the ordeals US oil exploring organizations have had to face at the hand of the Niger Delta
militants in recent times.


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ECONOMIC ENVIRONMENT
Since 1999, Nigeria has witnessed considerable economic stability with its GDP purchasing
power parity rising to US $ 336.2 billion in 2008. The country’s real growth rate has seen steady
increase since 1999 and grew at about 6.4% in 2007, but due to fluctuating global oil prices,
coupled with internal disruption of its oil production by the activities of the Niger delta
militants, this growth slowed down to about 5.3% in 2008. Although the country has recently
put in great efforts to diversify its economy by opening up the financial and
telecommunications sectors of, it still depends heavily on crude oil exports which account for
about 95% of its foreign exchange earnings. National capital reserves as at December, 2008,
stood at over US $35billion while inflation and interest rates stood at 11.6% and 15.48%
respectively during the same period. Unemployment rate stood at 4.9% as at 2007.
As per capital markets, the Nigerian Investment Promotion Commission Decree of 1995,
liberalized Nigeria’s foreign investment laws. This has led to increased and easy access to loans,
credit facilities and instruments provided by financial institutions. Any foreign investor who has
successfully registered or incorporated their company in the country has equal access to all
financial instruments available. This presents a great opportunity for investors, moreover, as
commercial bank lending rates are high with very short maturity rates for debt instruments, the
Nigerian Stock Exchange (NSE) is considered by most investors to be a good financing option.
Other Economic and Foreign Investment Policies
Nigeria is Africa’s most populous nation with over 140 million people, and a source for low cost
labor, abundant natural resources and potentially the largest domestic market in sub‐ Saharan


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Africa. However, hurdles exists which hinders its attainment of its potentials, and these include
inadequate infrastructure, transportation and etc. Thus the present government has 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 Yar’Adua has continued to solicit for foreign
investment and has implemented various reforms aimed at attracting foreign investments.
Foreign investors can own property in Nigeria through mortgages, although little problems with
the registration of properties exist, and the World Bank’s publication: Doing Business 2008,
ranked Nigeria 51 out of 178 countries surveyed for registering property. The report shows that
it takes approximately 14 procedures and 82 days to register any given property; while costing
about 22.2% of the property’s value. Most properties are long term leases which have
certificates of occupancies a.k.a C of O’s acting as title deeds. Repatriation of funds has always
been easy with minimal regulatory restrictions.
Economic opportunities
Huge opportunities exists in the oil and gas field machinery sectors, aerospace / aviation/
avionics sectors; Computer software development and peripherals; telecommunications
equipment supply sector; medical equipment, automobile parts, assembly and manufacture
sectors and construction equipment sectors of the Nigerian economy.


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POLITICAL ENVIRONMENT
Governance system in Nigeria is democratic, consisting of three branches of government. The
Executive, legislative and Judicial branches.
The Executive branch of government is occupied by the president who is both the head of
government and the chief of state. This position has been occupied by President Umaru Musa
Yar’Adua since the 29th of May, 2007. While the legislative arm of government is made up of a
bicameral national assembly consisting of 109 senators and the House of Representatives
consisting of 360 representatives. Both the senators and representatives each have 4year
tenure. The judicial branch of governance however, is made up of the Supreme Court, which is
the highest court, and the federal court of appeal as well as other customary and sharia courts.
The dependence of the judiciary on the federal government for the appointment of its top
official is a key factor which has been attributed to the present fairly unfair legal systems in the
country.
CULTURAL ENVIRONMENT
Religion and traditional/ cultural affiliations permeate business settings, and high morals and
respect is a custom in sincere business dealings in Nigeria. For business transactions, visitors are
expected to be appropriately dressed. Wearing casual clothes may convey an unserious or
casual attitude, especially to European‐trained Nigerians. People are commonly addressed by
their titles, especially the honorary titles of all traditional leaders. Important business dealings
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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adhere to the “African Time” a parlance commonly used to refer to their never been punctual
to meetings. Elderly people are treated with respect in Nigeria and juniors are expected to be
respectful in their mannerism to older people in Nigeria.
Business communications involve preferably, making personal calls, hand delivered messages or
cell phone or text messages, to fix appointments. Normal postal system is very slow in Nigeria
and the landline system is very unreliable. Important documents should be preferably sent via
registered mail or reputable courier services such as FEDEX, DHL, or UPS. All mails should
contain a street address and a private mail bag (PMB) or a post office box (P.O.Box) number in
addition to the recipient’s name.
With regard to communications infrastructure, Nigeria ranks 69 in the usage of telephone main
lines as at 2008, with 1.308million subscribers, while it ranks 16th among about 200 countries, in
the use of mobile cellular phones, during the same year, with approximately 62.988million
users. Also, the country boasted of about 83 AM, 36 FM and 11 SW radio broadcast stations as
at 2001. It also had 3 television broadcast stations and two government‐controlled stations as
well as 15 repeater stations as at 2001. The country also ranks poorly in internet hosting, having
only 1,098 internet hosts early 2009, ranking 158 in comparison to other countries of the world.
Its internet usage however pegged at 11million in 2008 ranking 29th in the world.


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OPPORTUNITIES AND THREATS
OPPORTUNITIES THREATS
Selling Oil and gas Equipment Occasional ethnic upheavals
Selling Aviation and avionic components, Fairly unreliable legal systems
Equipments and crafts.
Selling Computer software and hardware Weak enforcement of Intellectual Property
peripherals protection laws
Mining of mineral resources, such as tin, zinc, coal Long process of property registration
etc.
Easy repatriation of profits
Equal financing opportunity from the Nigerian
capital market


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CONCLUSION
Nigeria is a very attractive economy to invest in as there are very limited restrictions to doing
business and there are no restrictions to imports except those on the import ban or prohibition
list available on the Nigerian Customs website. With a stable political environment, investments
are sure to be secure and safe. The openness of the government to foreign investments and the
ease of repatriation of funds make it a choice investment destination for most international
investors. However, occasional ethnic disturbances may erupt, but are usually of little
significance to major business activities.
RECOMMENDATIONS
Below are a few recommendations for investors intending to carry out business in Nigeria:
• Investors interested in making foreign direct investments should consider investing in
the many opportunities available in the Oil and gas, Aviation, Computer software and
peripherals, Medical equipments, Construction equipments and IT education; as there
are no legal barriers preventing entry into any business, except the minimum
qualifications required by the various professional bodies.
• Foreign companies seeking to do business in Nigeria are expected to do so with
incorporated companies or otherwise incorporate their subsidiaries locally.
• Despite the above recommendations, Firms interested in the Nigerian market are
strongly advised to seek and secure the assistance of experienced commercial lawyers,


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since the enforcement of intellectual property rights remains a problem in Nigeria
despite several official pronouncements and existing copyright laws.
• Foreign companies interested in selling in Nigeria, should bear in mind the inconsistency
of the nation’s tariff system. Although Nigeria is a founding member of the Economic
Community of West African States (ECOWAS) and supports its Common External Tariff,
however, the nation’s implementation of non‐tariff barriers are arbitrary and uneven
and continues to violate WTO prohibitions against trade bans.


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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=af&#ni
factbook/fields/2077.html?countryName=Nigeria&countryCode=ni&regionCode=af&#ni
factbook/fields/2115.html?countryName=Nigeria&countryCode=ni&regionCode=af&#ni
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


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

found. These kingdoms along with the Borno empire which was close to lake chad, grew and

avionics sectors; Computer software development and peripherals; telecommunications

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