"GDP growth and the risks of doing business in Nigeria"

" \n GDP growth and the risks of doing business in Nigeria \n \n\n \n Nigeria\u2019s economic performance in 2021 has been positive so far as the economy reopens for business after last year\u2019s lockdown, which caused the worst recession recorded in 33 years. \n \n\n \n According to the recently published GDP report released by the National Bureau of Statistics (NBS), Nigeria\u2019s Gross Domestic Product (GDP) grew by 5.01% (year-on-year) in real terms in the second quarter of 2021, marking three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020. \n \n\n \n Year to date, real GDP grew 2.7% in 2021 compared to -2.18% for the first half of 2020. However, quarter on quarter, real GDP contracted at 0.79% in Q2 2021 compared to Q1 2021, reflecting slightly slower economic activity than the preceding quarter largely due to the seasonality effect. \n \n\n \n Nigeria\u2019s Service Sector which makes up about 55.6% of GDP was the major reason for the growth, as the Trade Sector was the major driver of growth contributing about 64% to Nigeria\u2019s growth rate. The Trade Sector which currently contributes about 16.66% of GDP rose by a whopping 22% in the second quarter of 2021, its fastest since at least 2016. \n \n\n \n Despite the economic growth, which also is the fastest quarterly economic growth in over 5 years, Chief Executive Officer of Financial Derivatives Company Ltd, Mr Bismarck Rewane warned that Nigeria\u2019s positive Gross Domestic Product has yet to have a significant impact on socio-economic conditions. \n \n\n \n \u201cFastest growing sectors were the most impacted by the [COVID-19] shutdown. They are job-elastic and have the potential to boost productivity. \n \n\n \n \u201cReal GDP (2.7 per cent) is still below potential GDP (8.3 per cent). Economy still in a recessionary gap. Population (3.2 per cent) growing faster than GDP. Nigeria still the poverty capital of the world: 93.9 million people now live below the poverty line. \n \n\n \n \u201cYouth unemployment fast approaching 45%. Misery index, 50.68%. Nigeria [is] a hunger alert hotspot, according to FAO and WFP. Over 18,000 Nigerians seeking asylum. Health sector brain drain rising (e.g. about 500 doctors moving to Saudi Arabia),\u201d\u00a0 he said. \n \n\n \n Still, the GDP growth can be seen as the economy \u201chealing\u201d from a string of bad policies over the last few years that adversely affected the ease of doing business and investor confidence in Nigeria, such as the border closure, which was a major driver of food inflation and stifled cross-border trade between Nigeria and its other West African neighbours. \n \n\n \n In particular, the closure (which the government has since jettisoned) affected Nigeria\u2019s relations with Ghana, as Ghana\u2019s Foreign Minister, Shirley Ayorkor Botchwey, said last year that Nigeria\u2019s border closure in 2019 hurt Ghanaians and nearly bankrupted many Ghanaian export businesses after their goods were stuck at the Seme Border for months. \n \n\n \n In a separate statement, the Ghanaian government said it imposed the $1million levy on traders in the country, including Nigerians, due to certain steps that were taken by the Nigerian government including the border closure. \n \n\n \n Read: 80% of Kenya\u2019s crude oil cannot be tapped \n \n\n \n Nigeria\u2019s performance compared to other African nations in attracting investments \n \n\n \n Following the recent GDP report, Nigeria\u2019s Trade Minister, Niyi Adebayo assured investors that Nigeria\u2019s recent economic numbers have also come with a few benefits, stating that the economy is showing signs of improvement and that foreign investors are making strong commitments. \n \n\n \n \u201cInvestors from Europe, China, Morocco and the UK are making strong commitments and this administration is working tirelessly to ensure that these commitments turn into projects that positively affect our nation,\u201d the Minister said. \n \n\n \n The timing of the Minister\u2019s comments couldn\u2019t be more auspicious as Nigeria\u2019s economic growth from 2015-2020 lost pace to other African nations with fewer Foreign Direct Investments flowing into the country. \n \n\n \n According to Nairalytics, Nigeria\u2019s economy averaged growth of just 0.70% from 2015 to 2020, compared to 8.43% averaged by Ethiopia for the same period. Nigeria did not make the top 10 growing economies in Africa for the period, as 10th place was the Niger Republic at 4.95%, while Nigeria was ranked 39th place in average GDP growth for the same period. \n \n\n \n Ghana grew by 4.45% for the same period, while Kenya grew by an average of 4.62% for the same period. It\u2019s a no-brainer that FDIs went to where they could find better comparative value. \n \n\n \n Meanwhile, in the recently published Nigeria\u2019s capital importation report for the first and second quarter of 2021, by the National Bureau of Statistics (NBS), it was revealed that Nigeria received a sum of $875.62 million foreign inflows in Q2 2021, representing a significant year-on-year decline, as foreign direct investment (FDI) fell to its lowest level in over 11 years. \n \n\n \n FDI dropped to $77.97 million in Q2 2021, indicating a 49.6% and 47.5% decline compared to $154.76 million and $148.59 million recorded in the previous quarter and Q2 2020 respectively. \n \n\n \n \n \n\n \n Workers remittances, the amount of dollar inflows sent through the banking system by Nigerians living in diaspora fell 24% in Q1 2021 when compared to the $5.6 billion reported same period last year, as Nigeria continues to grapple with foreign currency challenges. \n \n\n \n Risks associated with doing business in Nigeria \n \n\n \n Lack of policy direction and collaboration, unstable currency exchange rate, unfavourable profit repatriation policies, the fear of regulatory clampdown as well as disregard for the rule of law and human rights are some of the most highlighted factors affecting investor confidence in Nigeria. \n \n\n \n Insecurity is also a big issue. Besides the internal wrangling of armed militia groups, piracy in the Gulf of Guinea led globally with 32% of all reported incidents and accounted for all 50 kidnapped crew and the single crew fatality recorded during the first half of 2021. \n \n\n \n In June, Nairametrics reported that Global maritime insurers said Nigeria\u2019s coastal waters which recorded the highest piracy rates in 2020 remains the riskiest despite efforts by the FG to deal with the growing piracy like the Deep Blue Project. \n \n\n \n Neil Roberts, Head of Marine at the Lloyd\u2019s Market Association (LMA) which identifies and resolves issues that are of particular interest to the global underwriting community said the recent efforts by the FG are \u201cnot enough to fill crews, owners or insurers with confidence.\u201d \n \n\n \n \u201cThere is an enhanced risk to ships and crews and, until that has clearly been removed, Nigeria will remain a Listed Area,\u201d\u00a0 he warned. \n \n\n \n In August, Major International shipping companies announced they are drafting a policy towards dealing with piracy and maritime risks in the world\u2019s most dangerous ocean trade routes including the Gulf of Guinea, off Nigeria\u2019s coast. \n \n\n \n Jakob Larsen, Head of Maritime Safety and Security at BIMCO, one of the world\u2019s largest associations of shipping companies, disclosed that \u201cThe Gulf of Guinea is the biggest piracy headache vessels face, and these plans will help to directly assess this threat by widening the way in which the industry views risk.\u201d \n \n\n \n Evidently, Nigeria\u2019s waters is viewed as an international underwriting risk, a negative situation for the maritime industry and for both import and export trading. \n \n\n \n Foreign retail chain investors exit the Nigerian market \n \n\n \n Earlier in the year, major South African retail brand, Shoprite made known their decision to sell the business and exit Nigeria. Nairametrics reported in June that Ketron Investment Limited, a Nigerian company owned by a group of institutional investors led by Persianas Investment Limited announced the purchase of Shoprite Nigeria\u2019s assets after the approval from the Federal Competition and Consumer Protection Commission (FCCPC). \n \n\n \n Shoprite Nigeria in 2020 made a total loss of R87 million rand, down from R345 million loss it made in 2019, when converted to naira using the conversion rate indicated in the company\u2019s financial statement for 2020, the subsidiary made a loss of about N1.98 billion in 2020, and a loss of N8.85 billion in 2019 from its operation. \n \n\n \n Last month, South African retail giant, Massmart announced plans to join its competitor, Shoprite to sell assets in West Africa and East Africa, as it concludes to sell 14 stores in Nigeria, Ghana, Uganda, Kenya and Tanzania. \n \n\n \n Chief Executive Officer, Mitch Slape said Massmart is leaving Africa\u2019s largest market due to currency volatility and falling consumer demands, issues it does not really have to deal with back home. He added that the move to withdraw from Nigerian and East African markets will result in an annual profit before interest and tax improvement of 750 million rands ($50.24 million). \n \n\n \n Bottomline \n \n\n \n According to the World Bank Ease of Doing Business index, Nigeria ranks 131 in the world. On other factors on the Index, Nigeria is ranked 169th position globally on \u201cGetting Electricity, 183rd on \u201cRegistering Property\u201d and 179th place globally, on \u201cTrading Across Borders.\u201d \n \n\n \n Nigeria\u2019s poor policy environment, much of which is reactionary, affects the business environment adversely, as do the country\u2019s poor currency controls, inability to provide basic infrastructure, diversify the economy and increase its export capacity. \n \n\n \n The additional bottlenecks created by regulatory authorities in the tech space notably the Twitter ban earlier in the year and the fintech clampdown (first by the Securities and Exchange Commission and more recently by the Central Bank of Nigeria), are a constant reminder to would-be investors of the volatility of Nigeria\u2019s business environment and a clear pointer to why these investors may continue to shun Nigeria in favour of her more business-friendly neighbours. \n "

"GDP growth and the risks of doing business in Nigeria"

Space is booming; here’s how to embrace the $1.8 trillion opportunityAMP

Private credit faces liquidity risks if stress rises, IMF saysAMP

Cocoa climbs as shortages in Ivory Coast keep market on edgeAMP