Those who know Nigerian finance minister Ngozi Okonjo-Iweala were not surprised when she emerged triumphant from negotiations with Paris Club creditors, having secured an $18bn debt write-off that many had dismissed as unlikely. The formidable former chairman of the World Bank Development Committee was able to insist on a fair hearing, convincing this influential and highly discriminating group not just that Nigeria deserved a deal (on the grounds that the debts were accumulated under corrupt rulers) but that the reforms in the country were proceeding steadily.

There is no doubt that, in such a setting, the well-connected and convincing Ms Okonjo-Iweala was Nigeria’s trump card. But, ultimately, it was the government’s growing track record of reform that won the deal. In exchange for an effective $12bn debt repayment, Nigeria gets the $18bn write-down, substantially clearing its external debts and freeing up almost $1bn a year to be spent on poverty reduction and economic development.


Upbeat recognition

Endorsement of the government’s reform programme has come from other quarters, too. The conclusion of the IMF’s Article IV Consultation generally was upbeat, saying: “A number of key priorities of the [reform] programme have been achieved, including enhanced predictability and transparency of policies, growth in the non-oil economy, including the agricultural sector, and reduced vulnerability to oil price shocks.”

This year, the economy is expected to grow by 3.5%-5%, slower than in 2004 but still fairly brisk. Encouragingly, the non-oil sector is growing faster, which is indicative of improving business confidence. Perhaps more significantly, inflation continues its downward trend and may even end the year in single digits, auguring a phase of price stability. And, for the second year running, windfall gains from the high price of oil – which account for the bulk of government revenue – will be saved, reducing the inflationary impact of pro-cyclical fiscal expansion.

Market potential

Strong economic growth and macroeconomic stability are important pre-requisites before investors will consider plunging into a market – but these are only two of the factors that investors that are targeting Nigeria ought to consider.

Raw opportunity exists in abundance in Nigeria, and sophisticated market data is not needed – generally it does not exist – to prove it. Anecdotal evidence is increasingly compelling, be it the growth of mobile phone users from zero to more than 12 million within five years, making Nigeria the fastest-growing market in the world, or the instant success of the Nu Metro Media Store in Lagos, retailing books, CDs and DVDs, that has brought a world-class shopping experience to Nigeria for the first time. The extent to which the basic consumption needs of the country’s 130-million strong market go unmet is generally self-evident.

However, the scale of the opportunity has to be measured against considerable challenges. Civil war, corruption and economic mismanagement, with all the attendant risks and costs to business, have eroded the government sector and structurally distorted the economy. With its manufacturing sector comprising only 5% of GDP, for instance, Nigeria is one of the least industrialised countries in sub-Saharan Africa.

Development plan

The National Economic Empowerment and Development Plan (NEEDS), the government’s reform blueprint, is a firm break with the past. Its main policy objectives are to create an environment conducive to private-sector–led growth. The aim is to boost productivity growth and external competitiveness, diversify the economy away from oil, reduce the role of the public sector in economic activity, and free the business sector from government regulations, controls and inefficiencies. Priority sectors, like agriculture, solid minerals and manufacturing, will all get a boost.

The government wants to raise growth in the non-oil economy to 7% per year over the next decade, which is necessary to halve poverty by 2015. The IMF describes the target as “very ambitious”, pointing out that investment would have to increase by about 15% in real terms and total factor productivity growth would need to average about 2% growth per year for the next 10 years. Realistic or wishful, if the government is serious about reaching the target, it will have to get serious about attracting FDI.

The government’s strategies to achieve 7% non-oil sector growth include creating a stable macroeconomic environment; strengthening institutions and governance standards; improving infrastructure; privatising state-owned enterprises; liberalising the trade regime; enforcing the rule of law; creating competitive business regulations; and developing the financial sector.

The verdict: so far, so good. In fact, President Olusegun Obasanjo has embarked on reform with vigorous determination, shielding his small, elite group of reformists from political backlash and revealing a willingness to tackle the toughest, most unpopular issues, such as the removal of fuel price subsidies.

Front and centre

Ms Okonjo-Iweala is front and centre of the reform programme, in particular overhauling the way the budget is planned for and executed. Key changes include implementing a medium-term expenditure framework, and building predictability into budget planning, as well as imposing fiscal rules that match spending to revenues based on a specific oil price, saving any windfall that arises in the event of oil prices being higher than the budgeted level. She has also encouraged unprecedented levels of transparency and accountability, publishing fiscal allocations to the various levels of government as well as championing the ground-breaking Fiscal Responsibility Bill, which will place additional onus on public officials to monitor spending and prevent corruption.

Having brought some order to the budgeting process, Ms Okonjo-Iweala is now turning her attention to the infrastructure question.

In the latest Global Competitiveness Report, Nigeria’s quality of infrastructure was rated third from last out of 102 countries, consistent with a World Bank survey in which manufacturing firms in Nigeria ranked infrastructure as their most severe business constraint. The survey found that 97% of respondents operated their own power generator, well above the 22% average the World Bank has found in other surveys. Telephone coverage is among the lowest in the world, with 0.6 lines per capita, compared with 10.2 for South Africa and 27 for Mauritius; the port system is inefficient and costly; and the country’s road density is among the lowest in Africa, with just 31% of roads paved compared with 52% in other middle-income countries.

Ms Okonjo-Iweala’s first order of business has been to ensure that infrastructure projects are completed. For instance, up to 3000km of paved road surface is work-in-progress. The government’s Due Process unit has also proved its value, saving the government almost $1bn by checking government procurement contracts for fraud and over-charging.

The biggest improvement to infrastructure is promised by a renewed impetus given to privatisation, backed up by the appointment of a new director general of the Bureau of Public Enterprises, the government’s privatisation agency. Irene Chigbue has set an ambitious schedule to bring in private sector involvement in the power sector, ports and railways, intending to emulate the hugely successful liberalisation of the telecoms sector.


Ms Okonjo-Iweala has promised to clean out the red tape that inhibits new investment. For instance, according to the World Bank’s Doing Business survey, Nigeria’s regulations for registering and transferring property, which are among the most cumbersome in the world, comprise 21 procedures, 27% of the property value in official fees and a registration period of 274 days.

In a pilot project, the Federal Capital Territory has taken the lead in reforming the land registry system and privatising state-owned land. So far, it has computerised all land records and, in the process, has uncovered significant forgeries of certificates of title and multiple ownerships. Plans to roll out the system nationwide are under way.

The government is planning to overhaul customs and reform its complex tariff structure, too. Ms Okonjo-Iweala says that by next year, tariffs will have been simplified to a five-band structure and by 2007, the government will begin phasing out the unwieldy import ban that was meant to encourage import substitution.

Referring to the Doing Business survey, Ms Okonjo-Iweala admits that Nigeria came out better than she was expecting, and better than some other African countries. “My point is that the government knows the investment environment is not yet perfect but we are definitely looking to improve in the next survey.”

The government also wants to improve on its corruption reputation, redoubling its efforts to curb graft and bring offenders before the courts. “[Corruption watchdog] Transparency International was recently in the country and they were encouraged by what they saw,” says Ms Okonjo-Iweala.

Attention has been directed to the courts. Although Nigerian laws are largely adequate, they are not adequately enforced. An IMF cross-country comparison shows that Nigeria’s court procedures are among the slowest and that commercial cases take a long time to resolve. Lagos State, which accounts for the bulk of the country’s commercial and financial activity, has been at the forefront of judicial reform.

Since the return of civilian rule in 1999, the state has appointed more than 25 young professional judges and has established a specialised commercial court to resolve commercial disputes expeditiously. The salaries of judges have been increased to attract qualified candidates and remove incentives for corruption.

Reform of the financial sector also continues. A Central Bank of Nigeria directive that banks increase their minimum capital requirements from N2bn ($15m) to N25bn is having the intended effect of consolidating the sector. And there are now greater demands for better corporate governance in the country’s banks. The central bank has responded to concerns about supervisory capacity by beefing up this function.

Perception problem

Despite real, measurable reform momentum – which has been recognised by the IMF, Nigeria’s Paris Club creditors and a handful of foreign investors – perception lags reality.

“There is no doubt Nigeria suffers a perception problem,” says Mustapha Bello, CEO of the Nigerian Investment Promotion Commission. “The situation has improved here and some investors, such as those from South Africa and China, have recognised this and done well.”

Others are adopting a wait-and-see attitude, believing that Nigeria is still at risk of undoing the reforms if Mr Obasanjo’s successor in 2007 is not reform-minded. A number of candidates have emerged, including former military leader Ibrahim Badamasi Babangida, around whom allegations of corruption swirl. Ms Okonjo-Iweala is emphatic that the present government of Mr Obasanjo is institutionalising reform and there can be no going back.


Reform began in earnest in 2003, when Mr Obasanjo won his second term. Two years is a short period to talk of as a track record, yet the government has achieved more than other countries have managed in decades. Moreover, it has shown itself to be responsive to investor concerns and fears. Whatever risk or obstacle to investment is cited, the government has a plan to solve it.

No-one is suggesting that investing in Nigeria is easy, least of all the government. But there are opportunities aplenty. Last year was a bumper year in terms of reform delivery and 2005 has sustained that momentum.