Business
Nigeria’s business scorecard
The government has sought to oil the slowly turning wheels with a planned specialized bank due to begin offering loans with low interest rates from next year. In collaboration with the World Bank and African Development Bank, the 10 to 15-year loans would bolster the manufacturing sector.
Low appetite for risk
But while companies wait for finance, swift industrial growth will remain elusive. “There is limited incentive to create risky assets, although we are seeing some increased appetite to lend to the power and oil and gas sectors,” says Samir Gadio, an emerging markets strategist at Standard Bank.
He went on to say, “Addressing these short-comings will require structural reforms, including the emergence of a credible credit bureau and a corporate bond market, and continued macroeconomic stability.” Kola Jamodu, the head of the Manufacturers Association of Nigeria, says capacity utilization jumped to 55 percent from 44 percent in 2013, while local raw materials usage reached 51 percent, up from 47 percent the previous year.
Jamodu also stated, “We have seen government initiatives to improve the sector, and these will help Nigeria maximize its key strategic position within ECOWAS (the Economic Community of West African States).” There has been serious back-tracking too. A spate of massive corruption scandals surrounding the management of Nigeria’s oil revenue, which the government depends on almost entirely to run the country, have dogged the government.
In the most recent one, $20 billion appears to be unaccounted for at the opaque state oil firm, the Nigerian National Petroleum Corporation. The government’s response was to sack central bank governor Lamido Sanusi, the country’s most respected economic official, who broke the scandal and called for a massive clean-up. Banking reforms were one of the success stories in Jonathan’s early years, but the environment is now becoming unsteady.
Easy come, easy go
Investors continue to seek a slice of Africa’s most dynamic economy, but many Nigerian governments have misspent their windfalls from the oil industry. Flush with around $11.5 billion at the end of 2012, the Excess Crude Account currently stands at some $3.5 billion. In March, two credit rating agencies put Nigeria on watch for a possible downgrade.
Other key reforms, such as those targeting the gas sector, which urgently needs to be sorted out to fight power shortages, are stuck in the mud. International oil majors are reducing their exposure to Nigeria’s onshore Niger Delta region as profits are eroded by oil theft, and regulatory uncertainty discourages further investment. Royal Dutch Shell announced in March that it lost nearly $1 billion through theft and pipeline disruptions at its Nigerian operations in 2013.
