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The Nigerian challenge

Updated: Dec 13, 2020

Nigeria, a true powerhouse with an abundance of natural resources, the most populous country in Western Africa, and one of the biggest populations of youths in the world. It is one of the most dominant players in the region, with one of the biggest economies. This Dyami Insights will outline some of the country's opportunities and challenges for doing business in Nigeria. To successfully operate in this powerhouse, it is vital to know the operational challenges businesses will face. By: Jaap Muijs

Nigeria is known for its immense natural oil and gas reserves, which made the country grow economically for years. Besides oil, however, there are lots of other investment opportunities, but when seeking opportunities in Nigeria, it is crucial to know the risk environment in which you will operate. Besides these risks, Nigeria remains one of the most exciting and promising countries for investment.

The country wants to make the economy more sustainable. For doing so, The Nigerian economic sustainability plan was developed. With this plan, the government tends to stimulate the economy, retain and create jobs, undertake growth, promote manufacturing, and extend protection of its citizens. Some key projects in the plan are; a mass agricultural program, extensive public works and road construction, mass housing, installation of solar home systems, and improving digital technologies.

Stagnation in the Nigerian Economy

Nigeria has one of the biggest economies in Africa. However, the economy is dependent mainly on the distribution of oil and gas. With falling oil prices in recent years, the economy’s rise stagnated and began to decline. The incumbent president, Muhammadu Buhari, won the elections in 2019 and promised to take measures to diversify the economy, to make the nation less dependent on oil and gas. The economic growth of the last decade has raised inequalities in terms of income and opportunities and further divided the north and south. The southern regions profited most from the resource business, while the north was left behind. Employment opportunities do not equal the fast-growing labour-force. This results in a high unemployment rate (23% in 2018), with another 20% of the labour force underemployed. This is expected to grow due to the COVID-19 pandemic further increasing unemployment and underemployment.

Economic opportunities The Nigerian economy has much room for improvement. Diversification of the economy, as President Buhari said, is needed to let the country grow more equally and be more sustainable in the future. 60% of the population is younger than 25, carrying much strength in future economic prospects. More so, it is expected that the population of the country will increase significantly in the coming years, from 200 million people in 2019 to 475 million in 2060. Unfortunately, the country’s economic growth is unlikely to keep up with the population growth, deepening the economic divides among the population and their living standards in the process.

In many economic sectors, especially in the north, there is ample room for improvement. The agricultural sector, for example, is weak and can be improved in many ways. It is responsible for 20% of the current economy and is required to keep growing because of the ever-growing population. The current incompetence/fragility of the sector, weakens prospects for the rural poor, while high food inflation impacts the livelihood of the urban poor. Thereby, Nigeria experiences energy shortages, which resulted in the government intending to invest in sustainable energy sources, and improvements can be made in water management, especially in the capital city of Lagos. Furthermore, the government has indicated that it sees IT both as a promising sector to improve other economic sectors as well as - due to the vast young population - potential to find sustainable IT solutions.

Challenges Despite the many economic opportunities, Nigeria is a challenging environment in which to operate. Terrorism, insurgencies, kidnapping and violent crimes are one of the biggest challenges to business operations in Nigeria. These challenges spread throughout the country, and have the potential to affect business operations. The north/south division has widened in recent years and is expected to increase further because of the Boko Haram insurgency’s presence and the lack of economic growth in the north. Furthermore, the north is experiencing a high degree of desertification, due to mass irrigation and draughts, which worsens the livelihoods of the people in the north. This has led to violent clashed between the, mostly, Muslim cattle herders migrating from the north, and Christian farmers in the south. The conflict emerges over the scarce water resources and ownership of land. Due to these conflicts, the agricultural potential remains unexploited; More so, Nigeria consists of multiple ethnic groups, which are often conflicting with each other due to their cultural and religious diversity.

Although Nigeria has abundant biodiversity, is rich in natural resources and has a variety of ecosystems, it suffers from a lot of environmental challenges in the recent decade. Most of these issues are the results of human activity, population density and overpopulation. This has led to urban air and water pollution, rapid deforestation, soil degradation, and desertification. These developments have, in turn, worsened the livelihood of the population across the country. On top of it all, Nigeria has an underdeveloped healthcare system, which is challenging but could also present opportunities.

The Nigerian challenge Despite the challenges that business is facing in Nigeria, the country offers numerous opportunities. Some of the significant challenges in contemporary Nigeria can be seen as lucrative opportunities for improvement. However, when operating in Nigeria, businesses need to be aware of the environment they operate in and the risks they face. A good understanding of the ecological, societal and environmental situation and risks are needed to be successful and to enable business opportunities. When the situation and the risks are confronted and mitigated in the right way, Nigeria is a true powerhouse with tremendous opportunities.

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About the author Jaap Muijs is a global security consultant at Dyami, currently pursuing a master’s degree in International Security and investigating social structures concerning international security issues.

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