It is no secret that doing business in Nigeria is not for the faint-hearted. A tricky security situation combined with rampant corruption and fuzzy policies make it hard for entrepreneurs and big businesses to make money in the West-African country, despite its large economy and population. In a recent 2 part feature on the blog of our principal sponsor KPMG, Laurens Kreuze - a Dutch KPMG Partner stationed in Lagos - concludes that the new wind that is blowing after Muhammadu Buhari was elected president.
Read the original blog posts here and here.
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.
Editorial: Nigerian elections boon for business
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.
According to Kreuze the low oil price has also brought positives, since Nigeria is now realising that diversification is required to render the economy and the government budget more robust. He also sees more willingness to change crippling policies like the fuel subsidies.
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.
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.
Kreuze acknowledges that investors remain cautious, when it comes to predicting change.
There is confidence that the election of Buhari and the Nigerians' commitment to change will certainly lead to lasting positive changes in Nigeria; although it may not be without temporary setbacks. These positive changes, together with the proud entrepreneurial Nigerian spirit - as experienced here on a daily basis and in every part of society - make a solid combination for significant new trade and business opportunities. In conclusion, it is recommended to closely monitor further developments in Nigeria and to act on current and upcoming opportunities.
According to KPMG, the following 6 sectors promise the highest potential for investors and entrepreneurs:
- Energy as stated this is a top priority sector given the enormous positive impact on the economic growth if operating effectively. Anything, which contributes to raising the energy production and ensure more stable distribution is welcome.
- Infrastructure - not always a sector without specific risks, but hopefully Buhari's plans regarding improvement of safety and corruption will help to open up the significant opportunities for foreign investors and businesses.
- Agriculture - following the necessity to diversify the economy, Buhari has promised to continue and further strengthen his predecessor's successful policy and to make it into one of his absolute spearheads of the economy.
- Consumer products - a growing middle class in a large and strongly developing country is the right combination for a larger demand for consumer products.
- Transport - a growing economy with investments in infrastructure and more production from agriculture, among other things, also leads to a demand for more and improved transport.
- Healthcare - there are significant and continuous developments in the healthcare sector in Nigeria with the aim to have healthcare insurance coverage for all and also to have the necessary infrastructure in place.
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