In May 1999, a new era dawned in Nigeria: President Olusegun Obasanjo, an experienced, savvy ruler from the 1970s, took office to complete Nigeria's successful transition to a civilian government after 15 years of military rule. Obasanjo has promised reforms with an emphasis on accelerating foreign investment and privatization, while fighting corruption, promoting good government, and strengthening the rule of law.

Nigeria, the most populous nation (120 million) and leading oil producer on the continent, is West Africa's powerhouse. The region depends on the commercial potential and political leadership of Nigeria. Nigeria's success (or failure) will likely spread throughout the region and the rest of sub-Saharan Africa. However, Obasanjo's reforms face the challenge of overcoming decades of colonial exploitation, followed by a brutal and corrupt dictatorship that depleted much of the nation's wealth. Furthermore, ethnic and religious conflict has splintered Nigeria since its independence in 1960. Its recent history has left the country with a poor foundation for democracy, good government, and fair trade - thus undermining its enormous potential.

Now, Nigeria's infant democracy is bursting with business opportunities due to Obasanjo's reform efforts and the country's vast, untapped natural and human resources. Many opportunities exist for companies that know how to cope with Nigeria's volatile environment.

Obasanjo's Investment Push

Obasanjo has made clear his intention to make Nigeria the driving force in West Africa's economy. He has lured foreign investment to privatize Nigeria's state-run sectors and improve its decrepit infrastructure, its erratic power supply, and its overdependence on petroleum. He believes improved regional integration will accelerate economic development and attract foreign investment to West Africa. He has also succeeded in lobbying US policymakers to grant increased duty-free trade with Nigeria and other sub-Saharan states.

Intense competition for energy contracts has begun as a result of Obasanjo's investment drive. American, German, and Italian engineering firms now active in Nigeria have recently committed themselves to build new power stations that will not only provide electricity to Nigeria but to neighboring countries as well. South Africa and China have been most active in exploring investment opportunities in non-oil sectors. The World Bank has begun to prepare an "investor road map" for Nigeria.

Nigeria is desperate for communications' investment, particularly in mobile telephones. In Lagos, many businesses use courier services instead of contending with defective telephones. Nation-wide, there are only four phone lines per 1,000 persons. Nigeria will approve new legislation on telecoms before the end of the year and auction four mobile phone licenses in January 2001. African leaders anticipate that communication through cellular and Internet networks will improve access to Africa's markets and alleviate development problems caused by the continent's limited physical infrastructure.

In March 2000, Obasanjo led efforts to further integrate the 16-nation Economic Community of West African States (ECOWAS), including pushing for eventual monetary union. Half of the members of ECOWAS are former French colonies who already belong to the Franc Zone (CFA) monetary union. Recognizing that two blocs may slow West African integration, Nigeria and Ghana have organized projects to include Francophone states. For example, plans have been made for a rail link between Lagos and Accra, commercial capitals of English-speaking Nigeria and Ghana, running through French-speaking Benin and Togo. Other projects include the establishment of a West African-specific shipping line and airline. Obasanjo has also called for elimination of physical barriers that congest traffic, restrict movement of goods, and spur corruption along local trans-border roads.

Recent developments in US foreign policy towards Nigeria and sub-Saharan Africa yield encouraging news for potential investment in the region. In August 2000, President Bill Clinton visited Nigeria, a country he avoided during his first African tour in 1998, to show support for the new democracy and Obasanjo's reforms. Secretary of State Madeleine Albright claimed Nigeria as one of America's four democratic priorities (along with Indonesia, Ukraine, and Colombia).

In February 2000, at the Summit on Africa, Clinton called for congressional support to approve pending bills that would increase trade and investment and provide debt relief to many of Africa's poorest nations. In May 2000, the African Growth and Opportunity Act (AGOA) was signed by Clinton. The AGOA provides tax breaks and other benefits for US corporations that invest in Africa, and it expands the number of African exports eligible for the Generalized System of Preferences (GSP) program. In fact, during Clinton's August 2000 visit, he announced that Nigeria was one of 34 African countries added to the Generalized System of Preferences, which aims to spur economic growth in selected developing countries by allowing certain products to enter the U.S. duty-free. The GSP program is intended to help shift Nigeria away from its dependence on revenue generated by the petroleum industry.

Factors in Nigeria's Instability

Despite encouraging news on the international trade front, Nigeria's internal instability puts business opportunities at risk. Although Obasanjo and democracy remain popular among Nigerians, the Government has to deal with a series of problems left over from previous military regimes. Incidents of religious and ethnic conflict are frequent; unemployment and crime rates are high; and a lack of order is obvious in many parts of the country. Law enforcement agencies are overwhelmed and subject to corruption. Social services remain limited. Most of the population still relies on subsistence farming, and the economy has been stagnant. The alarming spread of HIV/AIDS threatens the entire workforce population in Nigeria as well as all sub-Saharan Africa.

Tribal differences, and the resultant conflicts, also plague Nigeria. The country was in effect cobbled together in the early 1900s, and tribal differences and ancient enmities were ignored. The end result is a continuation of internal conflict. Adding to this is a sense of alienation felt by many in the oil-rich Niger River Delta. The Delta is the source of the majority of the wealth harvested from oil deposits. But it is also here the region where past Governments, as well as many of the oil companies, have totally neglected and even abused those who live in the area. This area is a powder keg of discontent, and there is real potential for a virtual revolution that could shut down oil production until resolved.

Violence between Muslims and Christians also threatens the stability of Nigeria. Since early 1999 the governors of Nigeria's predominantly Muslim North have made plans to implement Islamic law (Sharia). Christians throughout the country have violently opposed it. Sharia imposes severe restrictions on citizens and harsh punishments: schools are segregated by sex, and men are prohibited from sharing public transportation with women; someone caught stealing risks amputation of a hand, and adultery and drinking are punishable by flogging. Over the last year, thousands have died in cities like Aba and Kaduna in bloody clashes between Muslims and Christians.

For political reasons, Obasanjo, a Christian from Lagos in the predominantly Christian South, is reluctant to oppose the implementation of Sharia. Nigeria's Constitution states that religion cannot be imposed on anyone. However, the country has been traditionally ruled by the northern (predominantly Muslim) elite who favor Sharia. Obasanjo credits the support of the northern elite for his victory in last year's election. It is believed that the elites, who enjoyed political influence during the rule of ex-dictator Sani Abacha (1993-98), are now trying to undermine Obasanjo and regain power in Nigeria.

Corruption, a remnant of prior military dictatorships, remains one of Nigeria's biggest problems. Since independence, Nigeria has earned US $300 billion from the sale of crude oil, but it owes $30 billion in external debt. Most of the money was reportedly squandered by elites, known as "big men," from the old regime. Such behavior has continued since several "big men" were elected to the National Assembly last year. They bicker for more money, which is often misappropriated. In the first six months after being elected, the legislature passed only five of the many bills sent to them by Obasanjo.

However, there are lawmakers committed to reform. The Government signed an anti-corruption bill in February 2000 that gives power to the country's Chief Judge of the Federal High Court to investigate corruption charges. The legislation also established an independent counsel to probe the nation's highest offices.

A newly focused Nigeria may open a door to sub-Saharan Africa that tantalizes with its promise of stability and prosperity in a continent that has been looked upon by many as desperate, if not hopeless. Businesses with interests in Nigeria will need to determine how to act quickly while proceeding with caution in its unique environment. A lucrative, long-range opportunity can turn into a dangerous situation without a sound understanding of the country's political pitfalls, civil unrest, and economic obstacles. Continuing political and economic risk analysis coupled with a strong due diligence program can help a business avoid many of the potential pitfalls in doing business in a wealthy but challenging Nigeria.

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