Computer Warehouse Group (CWG), a large IT company in Nigeria, spent nine months trying to sell a 30 per cent stake to a European company seeking a foothold in Africa’s most populous nation.
The company was close to a deal. “We were on the verge of a big investment,” says the chief executive and founder of CWG, Austin Okere, which has annual revenues of $120m. “Then, suddenly, the investor requested an extension. They said they wanted to see normalisation in Nigeria.”
This was early January and Nigeria was far from normal. Boko Haram, an Islamist group, had scaled up its insurgency, killing 37 people on Christmas day at a church near Abuja, the capital, where CWG has a large office.
At the same time, the government’s removal of fuel subsidies – a centrepiece of the economic reform policy meant to attract investors – pushed petrol prices higher and sparked a week-long nationwide strike, estimated to have cost at least $1.3bn. The outcry forced the government partially to reinstate the subsidy.
“I am sure that our deal was not the only one put on hold at that time,” says Mr Okere.
The mass action – which raised questions about the government’s ability to deliver reform – and the escalating insecurity have combined to cast a shadow over what has been seen as one of Africa’s most attractive frontier economies.
Already some analysts have downgraded their 2012 growth forecasts. Bismarck Rewane, of Financial Derivatives, a consultancy, says: “If the government resolves the issues (oil sector reform and insecurity) quickly, we could still see growth of around 8 per cent. But if not, it could be as low as 6 per cent.”
It’s a chastening development for Nigeria’s business elite, who have seen their country talked up as an investment destination thanks to its enormous market, vast energy reserves and largely untapped economic potential.
The election of President Goodluck Jonathan was seen as another step towards entrenching democracy, and his pledge of sweeping reforms raised hopes that the country was on the way up.
Provisional figures released by the Central Bank of Nigeria (CBN) suggest that GDP may have reached 8.68 per cent for the last quarter of 2011. Inflation in December was 10.3 per cent, the lowest year-end figure since 2008, while the stock market rose nearly 4 per cent the same month.
But in January, the Nigerian Stock Exchange All Share Index was flat, with volumes and values traded cut by half.
In a briefing note last week, Renaissance Capital estimated that 2012 growth will be 6.8 per cent – down 0.2 per cent from its January forecast, and the lowest figure since 2008. The 50 per cent rise in fuel prices plus a similar rise in power prices will cause inflation to rise by 2 to 3 per cent, analysts say.
“I was so bullish last year,” says Opeyemi Agbaje, senior consultant at Resources and Trust Company, an advisory firm. Now, political risk has reached a level “that questions the country’s unity and stability”, he told a recent meeting organised by the Lagos Business School.
The most damaging part of the fuel saga were the non-financial costs, says Mr Rewane. It raised doubts about the reform process, damaged market confidence and Nigeria’s reputation.
Not everyone is gloomy. Kayode Akindele, a partner at 46 Parallels, an Africa-focused fund, in Lagos, says that by trying to remove the fuel subsidy idespite opposition, the government showed it was serious about reform. “From a business point of view, it was encouraging,” he says.
Chief executive of ARM Investment Managers, in Lagos, which has nearly $2bn under management, Deji Alli says the street protests have pressed Mr Jonathan into promising to tackle wasteful expenditure and graft, especially, in the oil sector.
“This was a classic example of a ‘good crisis’,” Mr. Alli says. “It has forced the government to act, and become more transparent.”
He adds that, since foreign investors “already had an acceptance of Nigerian risk”, recent events, including the northern insurgency, have not affected confidence much. The appetite for participation in public-private infrastructure projects, remains strong, he says.
But a business lecturer who requested anonymity because he also does government work, says he knew of local companies that had abandoned investment plans for northern Nigeria because of the insurgency.
Some wealthy Nigerians are considering selling real estate assets in Abuja, because of the Islamist attacks there in 2011, the lecturer says. “I’d say that if business confidence was 70 per cent last year, then it’s 50 per cent now,” he adds.
(Source: Financial Times)
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