- Post 25 June 2008
- Last Updated on 25 June 2008
- By Financial Times
Heady excitement damped by doubt
By William Wallis and Matthew Green
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When the oil price is standing far above $100 a barrel, it is tempting to think Nigeria is one very large part of Africa on which the world can safely bet. Its once formidable external debt is written off. Foreign reserves have expanded more than 10 times in as many years. A total of $55bn in oil earnings flowed into the treasury last year. As much as $76bn is anticipated in 2008. This is despite a slowdown in production caused by investment shortfalls and violence by militants vying for more power and wealth in the oil-producing Niger Delta.
If a shortage of funds were Nigeria’s problem, there would be grounds for a sigh of relief. The country from which one in five black Africans hail is undoubtedly in a better financial position than it has been for generations to rehabilitate its creaking infrastructure, revive state institutions corroded by prolonged misrule, and fulfil its promise as a continental leader.
Moreover, in those parts of the economy where the state has relaxed its grip since the military handed power back to civilians in 1999, the private sector has mostly flourished. Demand for services, such as mobile phone lines and bank accounts, and goods from televisions to cement, has far exceeded expectations – proof to businessmen that statistics recording the extreme poverty in which more than half the population of 140m live, tell only part of the Nigerian story.
The flip side, they contend, is a business community buoyed by a steady trickle of professionals returning from the diaspora and a record flow of home-grown funds. The private sector is seizing opportunities regardless of the federal, state and local governments’ more questionable capacity to do the same.
“Even when oil was at $50 [a barrel] people were optimistic. We are at two-and-a-half times that and there is no sign of a drop. You can’t ignore that, even if we waste a third,” says Atedo Peterside, chairman of the recently merged Stanbic IBTC bank in Lagos.
Excitement about Nigeria’s prospects, broadcast by its fast expanding banks and amplified by the competition between Asia, Europe and the US for its market and resources, has proved infectious.
It has been transmitted by private equity groups such as Britain’s Actis, which has in Nigeria its largest portfolio of investments outside India, and other fund managers who have carved out lucrative niches on the – according to most analysts – now overvalued Lagos stock exchange.
When hopes for Kenya foundered in the bloody aftermath of a flawed election this year, Renaissance Capital, among the more bullish foreign investment banks tapping into sub-Saharan African growth, was quick to point to Nigeria as a healthy counterweight. That could be interpreted as wishful thinking, or as the sign of a remarkable image makeover for a country perceived until 10 years ago as an international pariah, hovering on the brink.
Yet it is hard to reconcile talk at investment conferences of Nigeria’s irrepressible ascent into the ranks of the world’s big, emerging economies, with the mood of uncertainty pervasive that has returned to some quarters of the business, intellectual and political elite.
While Nigeria has so far survived its own elections – more flawed in many ways than Kenya’s – the strains within society have similar roots to those that fuelled violence on the other side of the continent: a political and electoral system hostage to venal members of the political elite and an economy expanding – unevenly, with huge regional imbalances and a growing gulf between rich and poor.
Adding to anxiety in political circles is speculation about the health of the president, Umaru Yar’Adua. He suffers from a chronic illness and was rushed to hospital in Germany for 10 days recently, but insists that he is fine.
With a Supreme Court ruling still pending on the legality of his election, there is ample motive for Nigeria’s multitude of political schemers, who smell an opportunity. By most accounts they are plotting round the clock.
When weighed against these pressures, the pace of change under the year-old government has begun to some Nigerians to seem precariously slow. “I’ve heard it said that this is not just a ‘go-slow’ [the name given to the notorious traffic jams in Lagos]. It is a road-block,” says MD Yusuf, a veteran politician and former inspector-general of police, reflecting on a perception taking root that the enigmatic president has pressed the pause button while wrestling with political demons and – on the economy – working out just what to do.
For those who pin their hopes mostly on oil and gas, this might not matter. With prices as high as they are, there is no shortage of grease with which to oil the wheels of the patronage system on which political stability tends to rest. Yet given the legacy of decay associated with the country’s turbulent, coup-ridden past, Nigeria cannot afford to drift.
Hundreds of thousands of students graduate each year from the country’s under-funded universities. In the absence of sufficient jobs, many resort to crime. Cash so far has proved an insufficient answer. Despite billions of dollars in investment under the former government of Olusegun Obasanjo there is scarcely more electricity in 2008 than there was 10 years ago on the national grid, which by some estimates meets only 5 per cent of potential demand.
The economy should be growing this year at 11 per cent, says Aderemi Babalola, minister of state for finance. The continuing power crisis, together with the problems in the Niger Delta, will shave off at least 2.5 per cent of that, he says.
More worrying, says Dele Cole, a veteran diplomat and politician in a guest column in this report, is the effect of criminality “choking the goose that lays Nigeria’s golden egg”. On a bad day, more than 200,000 barrels of oil are stolen by militant gangs, who ferry it out to tankers plying their illegal trade on the high seas. The proceeds, which by some accounts may now run beyond $10bn a year, he says, have a similarly corrupting effect on security services and institutions as the narcotics trade in other countries and militate against a resolution to the Niger Delta crisis.
In the crumbling and congested oil city of Port Harcourt and the nearby states of Bayelsa and Delta, where more than half the country’s oil is pumped, all pretence at providing public services appears to have been abandoned by state governments, comments one northern industrialist who visited recently for the first time in years.
His part of the country has its own woes. Swathes of the rural north, once home to the world’s largest groundnut crop, survive now on subsistence farming.
Mr Yar’Adua, who cuts a quiet, ascetic figure in contrast to his domineering predecessor, has promised a new kind of government: one that sticks firmly to rules, respects the constitution and brings a sense of service to public office.
So far, the focus of both his government and the National Assembly has been on investigating what went wrong in the immediate past. It has also been on reforms to the oil industry which, if successful, could curb corruption and promote greater investment. But they will need to be handled carefully to avoid spawning further worry in a country that is already one of the most challenging places for energy companies to operate.
For much of the past year, Nigerians have waited, distracted by a slew of investigations into the deal-making that took place under Mr Obasanjo and seemingly prepared to give his successor the benefit of doubt. But there is mounting impatience at the absence of a more forward-looking agenda.
“The PDP [ruling People’s Democratic party] leadership is acutely sensitive that time is running out for us to join the league of developed nations. It has been said so many times that 50 years ago our GDP was higher than the Asian tigers. There is now a sense of urgency,” says Ojo Maduekwe, the foreign minister. It is a view repeated among private sector businesspeople who, sensing the opportunity Nigeria has, hope the momentum is irreversible but are frustrated by delays.
There is no choice but to continue pushing forward with reforms if the country is to avoid decline, says Larry Ettah, managing director of UAC Nigeria, a diversified conglomerate. “It’s a marathon, but it has to be approached in the spirit of a sprint.”