After the longest period of macroeconomic stability in Nigeria’s 50-year history of independence from UK rule, the country is facing a serious economic challenge: plunging oil prices combined with the global economic downturn.
Addressing a conference of potential investors in London, Nigerian vice-president Goodluck Jonathan extolled the country’s economic growth over recent years, which has been driven in part by economic reforms as well as abundant natural resources, Africa’s primary stock exchange and freedom from military rule. He says: “We don’t take for granted the attractiveness of our country and we are introducing new investment incentives and regulation because we need foreign investment to realise our aim of joining the league of 20 industrialised nations by 2020.”
An ambitious goal, considering the short-term prognosis; both threats of falling oil prices and global economic gloom are likely to stem the flow of badly needed foreign investment to Nigeria at a time when the country’s growth is dependent on greater infrastructure development, particularly in the oil and gas sectors, the country’s main exports.
However, Mr Jonathan insists that the government is aware of the link between good infrastructure and inward investment and is therefore taking what he calls drastic measures to improve the systematic barriers to investment of the past which include corruption and poor governance as well as a lack of public infrastructure investment.
The lack of government investment, compounded with violence in the oil-producing Niger Delta, have further shaken investor confidence in the oil sector. “We are doing everything possible to improve the security in the Niger Delta – the state governors are the key actors at a regional level in the solution to this problem,” says the vice-president.
However, the problem is ongoing and militants resumed oil pipeline attacks with a vengence in late May. Controversy about regulation of the sector has also created unease among major oil investors. Nigerian president Umaru Yar’Adua launched an oil sector reform process two years ago to transform the state-owned Nigerian National Petroleum Corporation in an effort to boost flagging investment in exploration and production. The result has been foreign oil companies calling for greater clarification about the process and what it means for them.
Unease about regulatory reform was highlighted in June last year when Nigeria issued retro-active changes to fiscal terms of contracts negotiated in 1999 with oil operators Shell and ExxonMobil, demonstrating the potential pitfalls for foreign investors in the face of unpredictable governance.
Although not denying the reality that the country needs improved governance, Mr Jonathan insists that Nigeria is ready to encourage partnerships with foreign investors. He says of the missed investment opportunities: “The challenge we face is that many members of the international investment community are ignorant of the changes we have implemented since 1999.”
The private sector is now the key driver of the Nigerian economy, says the vice-president, but whether or not the private sector continues to thrive will depend largely on how effectively investor confidence can be maintained.
Mr Jonathan says that the government has taken great strides in fighting corruption through the establishment of the Economic and Financial Crime Commission eight years ago. “We are concentrating on reducing the threat to foreign investors by fighting fraud and those who attempt to deceive our foreign investors.”
Running mate to president Umaru Yar’Adua for the ruling PDP party