February 2012

During the ongoing eurozone turmoil – which shows no sign of ceasing any time soon – investors are looking to developing countries for fresh business opportunities. Africa, and in particular Sub-Saharan Africa, is among those developing countries providing a range of opportunities for companies looking to invest in emerging nations. This includes the frontier market of Nigeria, which boasts the second largest stock exchange on the continent after South Africa.

For a country whose economy is historically based on agriculture, Nigeria has witnessed an unrelenting surge in the power of the oil and gas sector, and has continued to reap its rewards since the industry experienced a boom after the 1970s. The oil and natural gas sector is now integral to the country’s economy. Nigeria is the tenth-most petroleum rich nation in the world, accounting for above 95 per cent of its total exports – making it one of the top suppliers to the US.

But there are concerns that the country has become overly reliant on this industry, and that other sectors have been overlooked by the government. This over reliance on one particular sector has been a major cause of recent unrest.

Yet, while oil and gas will continue to play an important role in the economy, there are signs other sectors are gradually growing in importance. In particular, the telecommunications market is experiencing steady growth due to the recent deregulation of the mobile phone market – Africa is now home to over 600m mobile phone users.

The Nigerian Communications Commission (NCC) only recently announced that it plans to release more licences next year in order to revive the country’s fixed-line telecommunications service. The NCC is hoping its efforts will encourage private investors. This expansion in broadband communication will create more competition, which in turn will lower prices and give additional choice for consumers. 

Agriculture, although put on the backburner by the Nigerian government, also remains a promising market for foreign businesses – the sector still continues to employ around 70 per cent of the population as well as 30 per cent of the country’s GDP in 2010. The industry also offers a range of benefits for potential investors; tax holidays, tariff concessions, financing and export support.

Olu Coker, Managing Partner of the Mazars Nigeria office says the government offers a number of incentives to investors across a range of sectors and encourages both import/export and joint venture opportunities. Although, the majority of investor incentives are aimed at those looking to invest directly and set up operations in the country, according to Coker.

Coker does however accept that more needs to be done to improve Nigeria’s corporate governance system. Corruption, corporate governance and unequal distribution of wealth are long-running issues within Nigeria’s economy. In addition, many business activies in Nigeria are not recorded in government statistics - this is what is known as the informal sector - making it difficiult to calcuate the true cost to the economy and business alike. Although growing coverage and awareness of the issues are beginning to see steps being taken to stamp out these problems.

President Goodluck Jonathan has outlined tackling corruption as one of the main goals of his new administration, following charges of fraud handed out to the managing directors of eight Nigerian banks last year over illegal loans.

As for the current political issues that are sweeping the country, Kade Sow, Head of the Africa Desk at Mazars, believes that the present influence of religious insurgents, Boko Haram, who insist on the imposition of Sharia Law, will not stymie growth in the long run.

“The current security challenges are a temporary phenomenon and a play for political-economic power in Nigeria,” Sow says.

“From the agitations for self-rule by the south-east of Nigeria in the 1960s, the plight for access to political power by the south-west of Nigeria in the 1990s and the presence of Boko Haram today – all have been resolved by political dialogues and negotiations. Within all of these difficulties, Nigeria has always offered unrestrained opportunities for business.”

Sow also refers to President Jonathan’s most recent agenda, which among his outlined top priorities include; employment generation – in particular for youth, improved security and better living conditions for Nigerian residents.

“This is why the federal government promptly set up a special task force to oversee the current security situation. The challenge is to identify a profitable business sector where there is predictable high growth, steer away from politics and focus on business outside of any unsafe core security spaces. These are the keys to success.”