In theory, Nigeria has many attributes that could transform the country into one of Africa’s most exciting success stories. A large population, a well-educated and highly entrepreneurial workforce, improving democratic fundamentals, and a generally diversified economy (at least on paper).
As a result, Nigeria ranks highly in FSG’s recent Resilience to External Shocks Index, a ranking that scores African economies by their resilience to weathering external shocks such as a deep slowdown in China, extreme currency volatility, and low commodity prices. In theory, with the right economic policies and leadership Nigeria could navigate through the current low-oil price environment with manageable disruptions.
However, my recent visit to Nigeria revealed that the country stands at a critical turning point. While on the ground I spoke to various local and international business leaders and across the board, most people I talked to seem worried.
Businesses are facing real challenges and are forced to cut costs. Numerous empty billboards line the streets of Lagos as advertising budgets have come under scrutiny. Many companies experience difficulties importing goods critical for local production due to dramatic restrictions and foreign exchange shortages. But the biggest concern business leaders voice is not the low price of oil, but the lack of a clear policy direction coming from the new government that addresses the current economic environment.
To get a better understanding of the government’s plans first-hand, I visited Abuja to talk to policy makers. While I was able to speak to a handful of representatives at the Central Bank, the new government seems unusually reluctant to share information. This confirmed the impression that local business leaders previously expressed to me. Without a doubt, the new government still seems to be in a wait-and-see mode when it comes to determining and communicating strategies that go beyond the fight against corruption, which is a clear government priority.
The Central Bank seems firm in its decision not to devalue the Naira as they do not see the direct benefit for the general Nigerian population. To avoid forex pressures, they believe Nigerians should stop buying expensive imported products and shift instead to purchasing locally produced essential items. In a way, the government hopes that the low oil price will force the economy to rapidly diversify away from oil. However, the Central Bank seems reluctant to accept that this will be accompanied by a painful process for local companies and for all Nigerians, and neglects to recognize that with abysmal access to power, industrialization will take a very long time.
Nigeria’s new government has to take action now. The business community demands a clear message and transparent policy-making. If the government lays out economic policies aimed at navigating Nigeria through the current economic slowdown, investor confidence will improve. Fundamentally, investors will be reminded that doing business in Nigeria is about the long-term opportunity – but only if politicians don’t derail it in the short-term. In the meantime, it’s up to multinationals to wait and see.
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