Nigeria's economic risks and business viability assessment

Country Assessment and Business Recommendation

Group Project - Nigeria

Cultural Infrastructure

Nigeria is one of the most culturally, socially and geographically diverse country in the whole of sub-Saharan Africa. Cultural heritage plays a very influential role in both the politics and the economic policies of the country. The country's intellectual and leadership have repeatedly called on its people to embrace cultural values and activities for the development of the country since it attained independence from Britain. Several studies have associated development in the country to its authentic cultural activities/values (Culturelink, 1996).

Risk Assessment

Non-oil sector of the economy is not sufficiently dynamic to prevent a slowdown in growth

The economy of Nigeria, which is Africa's leading economy in terms of the size of its GDP, is more than 50% dominated by the services sector. Oil production is often heavily affected by sabotage of pipelines and facilities, oil smuggling and theft of both oil and equipments. The continuing low oil prices have also limited the contributions of the oil sector to the economy. Private consumption, which is the main contributor of growth, will be less dynamic due to reduced public spending. And since the country's financial sector is highly exposed to its oil sector (about 25% of the loans in the country have been made to players in the oil sector), it will also be heavily affected by falling oil prices.

A widening budget deficit and a reducing current account surplus

The Nigerian public finances are predicted to weaken by the end of 2015. Reduction in spending by the government and also the revision of the budget that was brought about by reduction in oil prices are proof of the deteriorating public finances. In the next few months, income from the oil sector will also be affected by the reduction in oil prices (from the previous high of 78 per barrel to 65 dollars per barrel).

Worsening security situation and possible risk of social tensions

There is a lot of insecurity in the north of Nigeria, particularly in the state of Borno. The insecurity has been brought about by attacks from the Al-Qaeda affiliated Boko Haram. The social tensions in the country have been worsened by the recent economic slowdown and the increasing rate of inflation and unemployment. For instance, businesses in Nigeria were recently paralyzed by a strike by fuel suppliers, in the second quarter of this year. Some analysts project that the social unrest could become worse if the economy doesn't improve (Coface, 2015).

Should you do business in the country?

No

Why not?

The Nigerian economy, despite its huge potential, has become a victim of weak leadership, poor social cohesion, poor infrastructure, corruption and mismanagement, which have slowed the growth of the economy. The risks outweigh the possibility of a business succeeding in the country (Babalola & Rashidat, 2013).

What are the country's:

Strengths

Local Environment

The country has the potential for huge economic growth being an oil producer. Nigeria has the fastest growing communications industry and also is Africa's leading oil and gas producer. Nigeria's large population provides cheap labor to both new and existing businesses.

Global environment

A business set-up in Nigeria can also easily go global. The export of hydrocarbon fuels enables it to get a lot of money in terms of foreign exchange. The country is also a member of AGOA (African Growth and Opportunity Act), a legislation passed by congress, that allows African countries to export goods at reduced tax rates to the U.S. The country also has the potential to add value to its crude oil and get much more money than what it is getting by selling just crude oil.

Weaknesses

Local Environment

The two biggest obstacles to business in the country are poor management of public finances and erratic power supply. These obstacles have been troubling businesses for years and have forced many of them to relocate to other destinations.

Global Environment

The Nigerian economy is not self sufficient and often depends on foreign investments and loans to manage its deficits, hampering productivity (Babalola & Rashidat, 2013).