Businesses already plagued with high political and security risks in Nigeria have one more thing to worry about in operational risks, according to Control Risks, a global business risk consultancy.
In its annual risk map report for 2017, the UK-based consultant rated Nigeria’s economy as highly risky, given the uncertainty surrounding the upcoming elections in 2019 and the growing concern posed by militants in the oil-rich Niger-Delta and the Fulani herdsmen attacks in the northern part of the country.
“There are issues around political and security risks, but a lot of time we are talking to clients about broader operational risks,” said Tom Griffin, senior partner, West Africa, at Control Risks, with the foreign exchange uncertainty in mind. “Investors want predictability and clarity,” Griffin added.
Nigeria is reeling from a fragmented foreign exchange market, with almost four different exchange rates, although the Central Bank has insisted it has the situation under control and has been somewhat encouraged by the recent rally in the black market naira.
The currency firmed further to N385 per dollar on Friday, extending gains for a straight week, thanks to improved dollar supply. On the official market, the naira exchanged for N308/$, weakening for a third straight day.
The naira was first allowed to weaken last June, after 16 months of a currency peg, but the CBN appears to have returned to a currency regime that sent foreign investors fleeing from the nation’s markets and exacerbated a dollar shortage.
“We have seen a significant amount of interest in Nigeria across all sectors but you will notice growing uncertainty in terms of committing the cash to those investments, until there is some clarity,” Griffin said.
There were however some improvements made this year, compared to 2016’s risk outlook.
Some areas in the Boko-Haram ravaged north-east are now back on the table for investments, as the Islamist group loses ground under the current administration, says Daniel Magnowski, a senior analyst at the risk consultancy firm.
“I think the perceptions at corporate level are changing for the possibilities of involvement in large sections of Nigeria, which for quite some time have been considered as being far too dangerous.”
There are also signs of a relative calm in the Niger-Delta, where militant attacks on pipelines brought huge repair costs on oil companies and dealt a lethal blow on Nigeria’s oil revenue.
“The diplomatic visits by the vice president did seem to make a difference,” said Magnowski.
“All that was required was a physical presence visit from the Presidency. It was notable that Buhari himself hadn’t been to the delta and then the VP was able to give some reassurance that it wasn’t something forgotten about,” Magnowski added.
Oil production is said to have inched up to an estimated 1.9 million barrels daily in February, according to data from state oil company, the Nigerian National Petroleum Corporation (NNPC), on the back of reduced militant attacks on oil pipelines.
Timothy Cox, an associate director at Control Risks, however said that oil companies needed to brace up for falling demand for oil.
“The cost of oil production is also declining on the back of technological advancements. It is important to diversify their revenue base,” Cox added.
Gbenga Abosede, also an associate director, advised businesses looking at Nigeria to partner with credible operators to avoid falling on the wrong side of an anti-corruption campaign tipped to heighten as electioneering draws close.
For Control Risks, the top five risks for businesses globally in 2017 range from a Trump presidency clothed with unpredictability, the rising tide of populism, great power tensions in the US, Russia and China, as well as cyber risks. Lastly is a fragmented terror threat.
LOLADE AKINMURELE
