Nigeria: Recent developments offer opportunities (Pt 1)
“The ambitions of newly elected president Buhari offer a good perspective for the ease of doing business in Nigeria, and possibly also a double-figure economic growth for more than 170 million Nigerians.”
In the 7th most populous country in the world, Buhari has been elected as the new president with “Change” as his campaign theme. Change in the areas of corruption, diversification of the economy and reinforcement of infrastructure development. This article unpacks the impact of these changes on the economy and on the ease of doing business, and discusses sectors opportunities for foreign investors and businesses in general.
Elections and current economy
In March and April of this year, elections were held in Nigeria. Prior to the elections, Nigeria was focused on the possibility of violence and heavily contested results. However, when out-going president Goodluck Jonathan admitted his defeat even before the end of all counts, there was not only a palpable sigh of relief throughout the country, but moreover, you could feel the Nigerians’ pride in the streets. Pride of the fact that democratic and peaceful elections could be held in their country. This pride and the changes promised by the new president Muhammadu Buhari have put the country in a very positive mood since the elections from a social perspective.
On the other hand, economic confidence has partially dwindled in the past year. The drop in the oil price of over 50% did not spare the country. This is seen in light of the fact that 70% of government income in 2014 consisted of oil related revenue, and country’s export related income at 95%. Consequently, and as a result of this price drop, the government had to draw up a significantly decreased minimum budget for 2015. Although the impact on government spending is sizeable, the impact of the lower oil price on the economy as a whole is only 1 to 2% less growth. The reasons for this moderate impact on the economy as a whole are that the oil sector only constitutes 30% of the total Nigerian economy and the relative small size of government spending. Even with the lower oil price, Nigerian economy is still expected to show growth in the range of 5% in 2015.
A notable positive point of the low oil price is that Nigeria is now realizing that diversification is required to render the economy and the government budget more robust. In addition to the awareness of this necessity, the willingness to commit to this change is also there. The same commitment originated from a recent battle between the government and the petrol traders on fuel subsidies. The traders claimed large sums of un-paid subsidies from the old government, to be settled before the power transferred to the new president. This battle escalated and resulted in a large fuel scarcity for everyone due to non-distribution. The economy suffered greatly during those days. However, the outcome is that Nigerians understand the need for change and that the abolition of subsidies on fuel as planned by Buhari is necessary, although it might negatively impact their spending power in the short term. In the aftermath of the election, people view change as good. Change in the areas of corruption, diversification of the economy, infrastructure, etc.
Although 2015 will not be the best economic year for Nigeria, the economic prospects for Nigeria for the future are very good. Another robust growth of 6% is predicted by the African Development Bank for 2016, with other agencies predicting higher growth rates for the years thereafter.
Ambitions, reinforcement of economy and increased ease of doing business
Will Buhari’s election and his changes have an impact on doing business in Nigeria? Given Buhari’s reputation and his preliminary plans, which have been written as promises for the first 100 days, a positive impact can be expected.
In the 2014 World Bank report entitled “Doing Business 2015”, Nigeria ranks 170 out of 189 investigated economies when it comes to ease of doing business. Although this is a better score than that of 2013 (175), there is much room for improvement. The score is marked by large differences between partial scores. For instance, Nigeria scores poorly on obtaining energy, registering ownership and various taxes, but scores unexpectedly well on loans, credit and protecting minority stockholders. In addition, setting up an enterprise is much easier than the total score would lead one to believe.
Tomorrow, we’ll be publishing the concluding part of the article which showcases the sectors in Nigeria that has huge economic potentials.
Laurens Kreuze is partner with KPMG in Africa, stationed in Lagos, Nigeria. At KPMG, he is the contact for European companies and organizations that are interested in doing business in Africa (and vice versa).
This article was written in a personal capacity. A Dutch version of this article will be available in August.
About David Okwara
Africa, Africa brief, Africa challenges, Africa opportunities, African countries, agriculture, Angola, challenges, development, economic growth, economy, FDI, financial services, Foreign Direct Investment, foreign investment, GDP, government, growth, healthcare, infrastructure, investment, Nigeria, Oil and gas, private equity, private sector, sub-Saharan Africa, Zimbabwe