The Nigerian economy is both the fastest-growing in Africa and its largest, with a nominal gross domestic product (GDP) of US$510 billion. While 35% of this GDP stems from an oil and gas sector that also accounts for 70% of total export revenue, the agricultural sector, which employs between 60% to 70% of the population, has arguably the greatest impact on Nigeria’s 169 million people. Aside from agriculture, other sectors that represent opportunities for foreign trade and investment in Nigeria include infrastructure, energy and power, and education.

Although the World Bank still ranks Nigeria as a lower middle-income country, the country is also home to an aspirational middle class and a moneyed elite with extravagant tastes – in 2012, Nigerians spent nearly US$60 million on champagne.

 However, Nigeria faces a number of challenges of which foreign enterprises should be aware. Security issues, most visibly from the Boko Haram Islamist insurgency, and corruption and fiscal mismanagement, including the firing of the head of the central bank earlier in 2014 after it lost an estimated US$29 billion, have shaken positive perceptions.

Are the short-term setbacks indicative of deeper trends in Nigeria, or is this outweighed by the longer-term strategic advantages of this young, fast-growing economy at a time when growth in Asia and Europe is sluggish?

Nigeria’s Opportunities

There is a great opportunity for Singaporean companies in Nigeria, especially given the potential for skills transfer in the fields of agriculture, education and human and infrastructural development, asserts Nonye Rajis-Okpara, Nigeria High Commissioner to Singapore.

The country’s diverse climate, from the tropical coastal areas to the arid north, allows Nigeria to produce virtually every agricultural product that grows in tropical and semi tropical climates. Singapore’s biggest investments into Nigeria are in this sector, led by Asia’s two largest agribusinesses, Wilmar and Olam. Olam launched its global business off the back of its Nigerian cashew operations, and has diversified to include managing agricultural supply chains, direct investment and exporting agri-commodities in palm oil, cashew, rubber and sugar. Wilmar, the world’s largest refiner of palm oil, is similarly diversifying into other industries in Nigeria, including sugar and rubber. “Wilmar consider their investment into their oil plantations in south-east Nigeria to be one of their most profitable ventures,” said Rajis-Okpara.

While the sectors of oil and gas and agriculture require heavy investment – witness the US$150 million Temasek paid in March 2014 to become a shareholder in Nigeria-based oil and gas group, Seven Energy – there are opportunities for small-to-medium enterprises (SMEs). “Our recent GDP rebasing exercise shows that the services sector now accounts for about 51% of our economy,” said Rajis-Okpara. “We have introduced targeted measures to further support their development.” She highlights the information and communications technology, agro industrialisation, capacity building and waste management sectors as areas where Singaporean SMEs in particular can offer knowledge, skills transfer or technical support.

Challenges and Issues

Nigeria has a weak track record on tackling corruption, particularly amongst public institutions and the extractive industries. In 2012, the World Bank reported that 80% of Nigerian businesses make some kind of informal payment.

“Nigeria is a difficult terrain for businesses on that front,” said Yibakuo David Amakiri, Associate at Lagos-based law firm Edward Ekiyor. “Sometimes it can appear practically impossible to do business, especially high-level business, without corruption. A number of organisations see ‘graft’ as part of their survival strategy.” In contrast however, Africa-based business consultancy Frontier Market Intelligence asserts that the “commonly held assumption that [foreign organisations operating in Nigeria] can’t do successful business without offering bribes is wholly untrue”.

As with entering any country, foreign enterprises should do their due diligence. “When you try to get into a house through the back door you can get shot,” said Rajis-Okpara. “My advice to potential investors in Nigeria is: follow due process.”

Talent

Boasting the largest population of Africa’s cities, Nigeria has a relatively deep skilled-workforce pool. The agricultural sector is the biggest employer, but most industries should be able to draw the majority of their workforce from local talent.

“Initially, [Indian petrochemical firm] Indorama went into Nigeria with a lot of expatriates, which was not cost-effective. Within a few years they were able to reduce their number of foreign workers by more than 80% by engaging local skilled labour,” Rajis-Okpara pointed out. “If you are going to Nigeria to set up a business, you will have access to a vast workforce with a diverse variety of skills.”

However, Lagos-based professional services firm Kerma Partners argues that attracting and keeping talent is the biggest challenge for many companies. On a blog post on their site they argue that the professional services sector in Nigeria is “in a brutal war for talent”. The legal and consulting sectors are desperately short of talent, with the highly qualified Nigerian diaspora able to earn much higher wages overseas.

Is the Future Bright?

Nigeria, as the continent’s largest economy, will play an important role in shaping Africa’s development over the next decade. Rajis-Okpara is confident that this influence will be a positive one. “Our economic growth is strong, the social indicators are improving, and the middle class is expanding,” she said. When it comes to trade and investment, Nigeria remains an attractive destination. “None of the Singaporean companies who have gone into Nigeria have regretted it,” she noted. “The advantages outweigh the challenges.”

This article was first published in HQ Asia (Print) Issue 08 (2014).