Last Sunday’s terrorist attacks in Kano, Nigeria underscored the delicate condition of Africa’s most important emerging economy. President Goodluck Jonathan needs to show his own people and the international community that his government can respond to these terrorist attacks in a way that does not spread the violence, but instead contains it, thereby allowing Nigeria to continue to develop economically. As the largest market in Africa, Nigeria has much to lose if the violence spreads, or even should sporadic but effective violence continue, the latter illustrating Jonathan’s inability to provide a safe and secure environment for multinationals within which they can operate.
The Africa Report writes today, “It is too early to write off the Jonathan government, but it is struggling with political baggage that is holding up progress on energy policy and may completely derail it. The bold predictions last year of a period of high growth, economic reform and rising incomes sustained by strong demand for Nigeria’s oil and gas are now being rewritten, even by some of the more bullish banks and analysts. Renaissance Capital has cut its forecast for 2012 growth to 6.8 percent, its lowest level for three years. It predicts inflation could rise by as much as 3 percent due to the partial ending of the fuel subsidy.”
What is this fuel subsidy and why is it so integral to Nigeria’s development as an emerging economy? Originally designed as a means of signaling to outside investors that Nigeria was ready for FDI into its energy sector, the fuel subsidy will hit the average Nigerian consumer – already struggling to find work and deal with inflation – and reduce their discretionary income significantly. Nigeria’s fuel subsidy accounts for almost 1/3 of the country’s entire budget; only by opening to FDI will its energy costs go down and the country be able to redirect investment away from fuel into much needed public infrastructure. But entrenched interests are not eager to see the fuel subsidy go away.
At its core, the fuel subsidy is about corruption. Consequently, Nigeria’s ability to push the fuel subsidy through will require political will that has been found lacking during most of the country’s recent history. Perversely, the violence in northern Nigeria feeds into the desire of corrupt politicians to maintain the status quo by making it more difficult for the Jonathan administration to marshal its resources around an effective anti-corruption political strategy.
Nigeria is already home to many American and European multinationals who need access to the country’s various natural resources; however, the more exciting potential is the one companies like YUM! Brands are chasing in their early efforts to expand into Nigeria. If Nigeria is to develop, it will need to create a stable and safe environment where FMCG and industrial companies can securely deploy staff and expend business development resources. Should Nigeria be unable to do this, the country may well ride out the current boom in commodities to find that it never realized its long term potential of developing the first vibrant middle class in Africa. What a shame that would be.