Problems jostle with promise in bullish Nigeria

ON THE FACE of it, little is going right in Nigeria. Production of oil, the country’s main foreign exchange earner, has been hit by political uncertainty and violence in the Niger delta. Onshore production is said to have dropped by 600,000 barrels a day, with a further 300,000 barrels a day going missing and unaccounted for. This year already, more than 130 expatriate workers have been snatched and held hostage. At a going rate of $200,000 for a European – more for an American, less for an Indian or Indonesian – it’s good business. As a result, oil companies are finding it hard to recruit workers, or are having to boost their salaries.

Nigeria’s deputy president, Goodluck Ebele Jonathan, is from the delta, but he seems unable to find solutions to the crisis. Many of the oil workers have now moved up to Lagos, which has led to the gangs following them, leading to increased instability and tension in the city. It is advisable not to be on the roads after 8pm. It is sensible not to spend too much time in the hotel bars, because gangs have a habit of barring the doors and robbing everyone in the place. The criminal gangs seem to operate beyond the reach of the authorities. In the delta, many of the kidnappings are the work of so-called cult boys – who use a combination of guns and voodoo to subdue their victims. Kidnappings are no longer just motivated by politics. Mend – the Movement for the Emancipation of the Niger Delta – has stepped back from the scene. Now kidnapping is a business, which might make it harder to stop. Finding a political solution is one thing; putting an end to financial need and greed is another.

Beyond the security issue, there is the crumbling infrastructure to contend with. There are frequent power cuts. It is estimated that only 20% of the country’s power needs are met. Failure to sort out the electricity situation was one of the marked failures of president Olusegun Obasanjo’s rule. His successor, Umar Musa Yar’Adua, has appointed Fatima Ibrahim as minister of state for power. She will have her work cut out. She is relatively inexperienced, although she has a reputation for honesty. Some of the power sector’s problems are linked to the insurgency in the Niger delta. Militants have cut pipelines, thus restricting gas supplies to the power stations.

But the newspapers are full of good news. According to Business Day, Wesco Energy, a United States-based company, is planning to invest up to N1.37 trillion ($11 billion) in the country over the next six years. The first phase will be the design, construction and operation of a $3 billion gas-to-liquid facility in Aboh in Delta State and Idoni in Rivers State. This will lead to the generation of 1,000MW of electricity. This could be good news for the economy. There are other contracts in place that should double the country’s power output from 4,000MW to 8,000MW.

"Just making savings on the inefficiencies in the power sector would lead to GDP growth of 20%," says Godwin Obaseki, managing director of investment bank Afrinvest West Africa. "You only have to look at the people fixing cars by the road or the small industries. They suffer constant power cuts."

There has been virtually no investment in the power sector over the past 30 years. Even if new power generating plants are built, there is still the problem of distribution.

Power is the most obvious infrastructure problem; the decrepit fixed-line telephone system has been effectively superseded by the rise of the mobile phone, probably one of the biggest factors in the growth of African business activity in the past five years. But there are still problems with roads and railways – the few rail lines are narrow gauge and unsuitable for transporting much in the way of freight – and the River Niger needs constant dredging to keep it navigable. Moreover, there is a housing shortfall of some 20 million homes in Lagos alone.

Some even doubt that Nigeria’s much vaunted large population, often put at 140 million or 150 million, one in four Africans, is as large as stated. "The fact is, nobody knows how many people there are in the country," says a financial analyst. "What we do know is that it is in the states’ [of the Nigerian federation] interests to claim they have bigger populations than they really do. That way they get a bigger slice of the pie. I think in some cases they are counting the cattle as well."

Moreover, these people, however many they are, are poorly educated. Everyone admits that the state-run education sector has failed.

In some respects at least, those who feared that the new president would wander from the path of reviving the economy, were reassured when Umar Musa Yar’Adua, speaking at the Financial Services Strategy 2020 meeting in Abuja, stressed that the keypoints of his presidency would be: "Economics, economics, economics".

Could this be why many people in Lagos are so bullish? Foreign capital has poured into the country but local money is also playing a major part in its rejuvenation. When the locals are willing to invest, it’s a sign that things have changed for the better. Bank share prices – some fed by speculators borrowing short-term money from those very banks – have soared by an average of about 150% this year. Renaissance Capital, a Russia-based investment bank, has opened an office in Lagos and has ambitious plans for the country. "We were looking for somewhere to expand with similar conditions to Russia. Africa is the last frontier," says Rotimi Oyekanmi, managing director of Renaissance Partners (see story on page 336).