|
|
A Special International Report
Prepared by
The Washington Times
Advertising Department - Published on September 30, 1999
[Home Page]
|
|||||
|
Sponsors (1) Federal Ministry of Finance
|
 |
Inviting international players into the fold
For the last 15 years Nigeria’s succession of military leaders kept it from realizing its full potential. Corruption, mismanagement and state control had been the norm and, as a result, investors and, for the last five years the international community, have kept the country at arms length. Given the political instability and turmoil in the country’s past, their caution was understandable.
So with the country’s transition to democracy on May 29, it was as though a veil had been lifted. What was uncovered was a land endowed with human and economic resources beyond imagination, and the will to finally put its past behind and stride into the 21st century as an economic powerhouse.
It also signaled an end to U.S. sanctions that had strangled the country’s economy for almost five years. The U.S. government’s vote of confidence freed up some $30 million in development assistance and sent a green light to investors.
President Olusegun Obasanjo, recognizing the important role foreign private investment will play in strengthening the economy and thus consolidating democracy, is welcoming investors. His administration is working hard on all policy levels – social, economic and political – to create the necessary enabling environment that will draw in investors for their mutual benefit. In real terms, this means instituting stable political and economic policies, transparency, accountability, enforceability, information and administrative delays.
His first steps since assuming office have given every indication his administration is well on its way to doing just that. He has already emphasized his priority will be to provide good governance by attacking corruption, creating sound institutions and renewing faith in the rule of law. His emphasis on transparency and accountability have come as a welcome change from the past unaccountability of military regimes.
“We intend to create a stable macro economic and political situation,” Minister of Finance Adamu Ciroma said. “We intend to be investment friendly in every sense of the word in the hope of attracting investment inflow to the tune of $7 billion.”
Ambassador Andrew Young, chairman of GoodWorks International in Atlanta whose clients include some of America’s largest multinationals, says he is confident Nigeria can achieve that goal simply by having an honest and efficient government service and a stable regulatory environment.
The newly autonomous Central Bank has also redefined its role in the new democratic dispensation and is committed to developing a credible set of macroeconomic policies designed to establish and maintain stability. “Confidence is very important in the running of any economy,” said Joseph Sanusi, governor of the Central Bank of Nigeria (CBN). “So we want to have a safe and sound financial system of consistent policy, and of controlled inflation in place. We believe if we can do this than we will generate confidence in the system, and once that is done we will have created an enabling environment for people willing to come to Nigeria for investment.”
In the meantime, Young says, the administration is working to improve existing relationships with companies that are already doing business in Nigeria. “Those that already have successful operations, the government is working directly with them to facilitate their business success.”
As a result of these endeavors, the confidence of local and foreign investors is being restored.
Dismantling Obstacles
Ever since Nigeria opened up to democracy, investors have been tripping over themselves to get through the door. Enticed by the potential of the country’s vast natural and human resources, Managing Director Alhaji Buba Bukar Gujbawu of the newly established Nigerian Investment Promotion Commission (NIPC) says his group has been overwhelmed by the number of inquiries it has received in the last 3 months.
Already the world’s eighth largest oil producer, investors are beginning to explore Nigeria’s abundance of other resources, including vast natural gas reserves – which may prove to be the world’s largest – metal ores, timber, solid minerals, coal and rich agricultural land.
In addition, Nigeria is endowed with human potential made up of an educated urban elite, entrepreneurial spirit and a private sector knowledgeable in the ways of international business practices and standards. The largest black nation, Nigeria is the world’s eleventh most populated country with a market of more than 110 million people starved for goods and ready to work. The surrounding West African countries raise the size of the potential market to more than 250 million.
“You almost can’t make it in business in Africa if you are not involved in Nigeria,” Young opined. “Nigeria certainly influences all of what happens in West Africa.” He added, that people tend to forget Nigeria has one of Africa’s better-educated populations and has always been a free enterprise society. “Once they get things stabilized, re-establishing civilian control of the economy and the polity, things should do extremely well there.”
Large multinationals such as Coca-Cola and International Business Machines (IBM), which put their plans on hold, are now looking at new investments. Small and middle-sized companies are also exploring for untapped opportunities in the areas of housing, healthcare, agriculture, mining, manufacturing and the environment.
In the last few months, General Manager of the Sheraton Hotel and Towers Karl Franck has seen almost a 20-percent rise in the hotel’s own business as entrepreneurs from all over the world come to the nation’s capital, Abuja, to speak with government officials and potential business partners to determine the opportunities firsthand.
Following the discovery of oil, the country rose from a struggling agricultural economy to become an oil-rich nation. This enormous economic stride brought billions of dollars in earnings but a shift in attention away from the non-oil sectors of the economy. Obasanjo is eager to reawaken the real sectors to diversify and reduce the economic dependence on oil exports. By injecting capital into these sectors, particularly mining and agriculture, the view is to improve their attractiveness and simulate investment.
With the new emphasis on agriculture Young foresees a lot of opportunities opening up. “If President Obasanjo is going to crank up farming in a nation of over 100 million people someone ought to be selling them some tractors,” Young joked. “There is a market for all kinds of agricultural investment, like a fertilizer plant. The country has the capacity to feed itself and export.”
The government has already set in motion a number of changes to the economic structure, including a privatization program of state assets which will return the most important elements of the economy to the private sector. With electric power and telecommunications still in disarray, much remains to be done to attract new money to the sectors from abroad. The government, however, is primed to receive foreign private investment. Deregulation and liberalization are expected to transform Nigeria’s crumbling infrastructure from an irritation to an opportunity.
“Through deregulation we are hoping to attract huge investments to utilities and we believe the democratic system should provide stable political ambiance,” Ciroma said.
Companies interested in power generation, natural gas pipelines, telecommunications and even television are wide open and ready for investors.
Investors are welcome
“Previous governments broke the cardinal rule of separating private and public investment,” says James Obi, a native Nigerian who now runs an international business development firm in Connecticut. “The new paradigm which dictates government should open up the market and encourage and create an environment where business can thrive is a welcome one.”
He points out that in addition to the apparent investment opportunities such as Nigerian Telecommunications (NITEL), Nigerian Electric Power Authority (NEPA) and Nigeria Airways, all slated to go on the block in the next few years, each of the 36 states owns its own enterprises. “These offer tremendous opportunities for entrepreneurs who want to pick them up,” Obi said.
Rebuilding infrastructure will go a long way, not only in strengthening the foundation on which industry is built, but by helping to stimulate overall economic development by creating employment, a market for raw materials and injecting much needed capital into the system. Increased prosperity would provide enormous opportunity for imported U.S.-manufactured and capital goods.
Investing in Incentives
Ironically, government policies have probably been the factor that has most discouraged past investors from taking advantage of Nigeria’s huge opportunities. An immense, inefficient and under-funded bureaucracy made entering the economy difficult and the complexities of repatriating profit too cumbersome. Coupled with the possibility that military administrations might nationalize foreign industries without proper compensation, the risks simply became too great. Since 1993, however, Nigeria has been pursuing a program of liberalization and deregulation of its economy.
Many of those barriers to entering the Nigerian market have already been dismantled. In 1997, the government repealed the Nigerian Enterprises Promotion Decree – widely referred to as the Indigenization Decree – that restricted or denied foreign equity participation in some categories of business activities. Now, investors – local and foreign – are welcome to participate in any business enterprise in Nigeria.
They are also free to bring in as much capital for investment in any business as they require, and to send out as much as they make. Equity contribution may be in cash or in machinery and equipment while foreign capital invested in any venture is guaranteed unconditional repatriation.
Since 1995 Nigeria has enacted laws protecting investors from nationalization or expropriation by the government, and backed up those regulations with international criteria. According to the Nigerian Investment Promotion Commission Act of 1995, “In the event of a disagreement between the investor and the Federal Government as to the method of settlement to be adopted, the rules of the International Center for the Settlement of Investment Disputes shall apply.”
Nigeria is also a signatory of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank, which issues guarantees against non-commercial risks to enterprises that invest in member countries. By reneging on its commitments Nigeria would close the door to rescheduling its $28-billion foreign debt – a risk it is unlikely to take.
The same legislation that opened up the country to investment also created an entrance. The NIPC welcomes investors by helping them to pinpoint opportunities and then easing them over bureaucratic hurdles and bottlenecks. By combining the activities of ministries, government agencies and organizations under one roof, government administrative processes have been streamlined, reducing investors’ time and cost.
To encourage investment, particularly in the non-oil sectors of the economy, the government has offered tax reductions. The Industrial Development (Income Tax Relief ) Act provides five to seven year tax holidays for pioneer industries. These are industries that the government considers beneficial to the Nigerian economy – such as solid mineral exploration, agricultural development – and whose assistance would be in the interest of the public.
By making relief from income tax possible during pioneer industries’ early years, the act is designed to attract capital to Nigeria to develop her natural resources and the expansion of industrial capacity.
All exports are zero rated under the Nigerian Value Added Tax (VAT) system. Input taxes paid in the course of production for export are also refunded under the VAT system.
Companies located in designated Export Processing Zones (EPZs) benefit from all the necessary infrastructure including land, water and power which they can use to produce goods in Nigeria for export free from all taxes, levies and duties. EPZs, such as Calabar, in eastern Nigeria, offer a modern port facility and easy access to nearby oil, gas and aluminum plants.
Going High-Tech
For decades, Nigerians’ entrepreneurial spirit was dimmed by the military rulers who insulated them from the outside world. Surrounded by resources – one of the largest deposits of solid minerals in the world, an abundance of rich agricultural land, a huge market and a willing work force – Nigerians have been frustrated by their inability to reap the benefits for lack of financial and technical resources.
Nigerians anxiously await foreign capital, but even more importantly foreign machines, technology and managerial expertise. Existing industries and enterprises are willing partners that can provide not only land and expertise in the local environment, but help in spreading risk and increasing the likelihood for continued stability and growth.
For American investors, some of the best potential business partners may be literally right around the corner. “There are lots of educated, highly motivated second generation Nigerians living in the U.S. with a wide open perspective that can serve as a resource,” Obi said. “Proceed with caution, but proceed and make sure you have the right people with you.”
Potential investors can also find funding partners such as the U.S. Trade and Development Agency, the International Finance Corporation (IFC) and the African Development Bank’s private sector window.
“This is the same country but the rules have changed,” Minister of Commerce Mustafa Bello said. To investors his message is clear: You are welcome back.
|
|
Table of Contents (1) It's a new dawn over Nigeria |
|
Deciding whether to invest in a developing country is, first of all, about assessing political risk. Once anxieties are assuaged, investors are free to look at the country’s enabling environment. What they will find in the case of Nigeria is an open door investment policy and an abundance of opportunity.