Posted in: Business

Insecurity and Nigeria’s business climate

Photo : Jonathan •Sanusi

The security situation in Nigeria has become a major challenge for investors, and the economy of many of the affected states are on the verge of collapse with implication for investment and job losses. Group Business Editor, ROTIMI DUROJAIYE, reports that the present security challenge in the country would diminish Nigeria’s ability to command international respect.

Activities of Boko Haram in Nigeria have taken their toll on businesses, particularly the hospitality industry, in Abuja and the North. As a result, a majority of hoteliers in the areas are bemoaning their situation, having lost business opportunities.

General Secretary of Hotel and Personal Services Senior Staff Association (HAPSSA), an affiliate of Trade Union Congress (TUC), Dele Dada, said the hotel industry had lost over N1 billion since the Boko Haram insurgency started in the North.

Dada said: “Hotel owners have lost huge revenue to this despicable action of Boko Haram, and it has also affected the take-home pay of workers. We have a situation that some hotels operate at abysmal percentage, as low as 10 per cent. The government needs to arrest the ugly situation or else the few hotels that manage to operate will close shop.

“The amount we have lost for the past one year is unquantifiable. Put together, we should be talking of over N1 billion loss in the hotel business. In Abuja alone, we have Sheraton Hotel, Transcorp Hilton and all the small hotels.

“Due to the Boko Haram menace, most of the hotels in Kaduna no longer have patronage. In Maiduguri, the international hotels are seriously affected. The situation is the same in Gombe,” he lamented.

HAPSSA chairman, Transcorp Hilton branch, Ayo Adesina, also regretted the situation, calling for action against violence in the country.

“The Boko Haram problem has really affected us heavily. Although Nigerians love good things, they will not like to go to any place where their lives would be threatened. That means our business is low in terms of patronage.

“As you know, Nigerian businessmen will always look for a way of cutting costs. When two elephants fight, it is the ground that suffers. Employers will push you up and down and you may be on your way out. We have lost tremendous amount of money,” Adesina said.

On his part, the Recreation/Public Relations Manager of Transcorp Hilton, Sola Adeyemo, said: “We are only interested in business and not after terrorism.”

The Lagos Chambers of Commerce and Industry (LCCI) also affirmed that the security situation in Nigeria has become a major challenge for investors, stressing that the economy of many of the affected states are on the verge of collapse with implication for investment and job losses.

LCCI’s Director-General (DG), Muda Yusuf, said this in Lagos last Sunday while explaining the outcome of an evidence-based account of experiences of members of the chambers and the larger business community on investment climate issues of the second quarter business environment report.

According to him, while the hospitality industry in the affected states has been paralysed, many investors, especially Small and Medium Enterprises (SMEs), are relocating to other states with the attendant challenges, and inventory and stocks of many companies have been trapped in some locations in the affected states.

According to the LCCI DG, the challenges of the operating environment for business intensified in the second quarter across all sectors, and there were concerns over weak consumer demand reflecting the general downturn in the economy.

He said structural and institutional problems persisted as well, putting pressures on operating cost.

Arguing that many firms have lost up to 30 per cent of their sales, as they can no longer access most part of the northern market, Yusuf said: “Our report shows that manufacturing firms sourcing raw materials from the North are now facing serious challenges, while projects funded by banks in the affected states are now at risk.

“Serious perception problem has been created for the country, as many bank branches have been closed, sales representatives of many companies have fled the affected states, many projects under construction in the North have been abandoned, security budgets have been scaled up by many firms, while the working hours for others have been drastically reduced.”

Yusuf, who emphasised that the business environment was generally adjudged harsh during the quarter with the adverse performance of the variables that drive the enterprise productivity and profitability, said “this condition was compounded by the fact that government treasury bills and bonds have returns of between 13 and 16 per cent”.

His words: “The consequence is that available funds have been mopped up by government. It is clearly more attractive now to invest in government securities than invest in ventures that would create jobs. Even banks now would rather buy treasury bills and government bonds than give loans to investors. This credit and interest rate structure would continue to create distortions in the economy, which will only perpetuate the phenomenon of jobless growth and further depress the stock market.”

On his part, former Secretary General of the Commonwealth, Emeka Anyaoku, warned that the present security challenge in the country would diminish Nigeria’s ability to command international respect.

Anyaoku, who spoke while leading a delegation of the Presidential Advisory Council (PAC) on Foreign Relations to present two books to President Goodluck Jonathan, noted that the conditions in the country played a vital role on how the country is assessed internationally.

According to Anyaoku, “the insecurity in the land is a drag on our foreign policy, no doubt; because our standing abroad depends on our domestic conditions. So, to the extent that we have insecurity at home, it is a drawback to our foreign policy. But I believe that government is determined to address insecurity, and I hope the efforts will succeed.”

The 36 state governors, under the aegis of Nigeria Governors’ Forum (NGF), on May 10, 2012, described the insecurity situation in the country as a national embarrassment and condemnable.

Rising from a meeting at the Rivers State Governor’s Lodge, Asokoro, Abuja, the governors noted that as part of moves to address the lingering security challenges, an enabling environment will be created for economic development as well as channel more resources towards the empowerment of the citizenry, especially the youth, women and the vulnerable.

Reading the communiqué at the end of the meeting, chairman of the forum, Governor Rotimi Amaechi of Rivers, pleaded with Nigerians for understanding with government’s efforts at addressing the insecurity situation.

He disclosed that the governors would organise a security summit in June where there would be a brainstorming session on the issue, with a bid to nipping it in the bud.

The House of Representatives on June 18 invited President Jonathan and the security chiefs to address the insecurity situation in the country at a closed-door session.

No date was, however, given for the address.

Central Bank of Nigeria (CBN) governor, Sanusi Lamido Sanusi, recently identified poverty and marginalisation as being partly responsible for the growing violence in Nigeria. But this does not mean that he justified Boko Haram’s activities to the uneven distribution or resources and derivation funds to the Niger Delta.

Sanusi said the growing restlessness among the youth, which makes them embrace a life of crime, could be traced to their disillusionment with the system.

“I have long held the view that ethnic and religious violence in Nigeria has its roots in poverty, deprivation and perceived marginalisation. I always said this about the militancy in the Delta, while fully condemning it, the truth remains that militants tapped into a groundswell of frustration.

“In addressing that problem, we have gone to an extreme now where the levels of poverty in the North are recreating the same conditions and results we saw in the Delta,” Sanusi had said.

He added that it had become necessary to direct funds on regenerating other regions, if Nigeria wants to secure long-term stability.

“When you look at the figures and look at the size of the population in the North, you can see that there is a structural imbalance of enormous proportions. Those states simply do not have enough money to meet basic needs while some states have too much money. The imbalance is so stark because the state still depends on oil for more than 80 per cent of its revenues,” he said.

Analysts have warned that unless the Federal Government shows that it is capable of containing the current insecurity precipitated by the series of bombings in the country, the much expected capital inflow will not materialise.

The increasing level of insecurity is already frustrating efforts by the Nigerian Investment Promotion Commission (NIPC) to attract investments into the country, its director, policy advocacy and external relations, James Ebuetse lamented recently.

Ebuetse regretted that Nigeria is fast becoming one of the unsafe nations of the world, advising that security is a critical area that needs to be looked into to encourage investments.

“Unless the government shows that it is in charge of this situation, it will scare investment inflow into the country. As long as foreign investors get the perception that government is in charge of the situation, then they will not leave; but if there is a perception that the government has no control over what is happening, then it will lead to investor flight in the long run,” said Farooq Oreagba, director, Karahoo Capital Partners.

Figures from the CBN 2010 Annual Report show that total foreign capital inflow into the Nigerian economy in 2010 was $5.99 billion.

A breakdown of this amount reveals that the foreign direct investment (FDI) portion was just 12.2 per cent or $668 million, which is a 78.1 per cent drop from $3.31 billion in 2009. This is the third consecutive year of decline in FDI inflow into the country.

The CBN blames the drop in FDI inflow into the country on “poor state of infrastructure and the global economic uncertainty”.

According to analysts, a new net capital flow of $33 billion forecast for Nigeria in 2011 by Morgan Stanley, one of the world’s leading investment banks, is under threat by the bombings.

The recent trend in the capital market, however, shows that even portfolio investment may be leaving the country, as the stock market has been on a consistent fall.

Traders say that foreign investors may be taking out their funds from the capital market, following the crisis in the international capital markets.

They note, however, that these funds will not flow back easily into the country, if the current insecurity is not resolved by the Federal Government quickly.

Adedayo Idowu, an analyst at Vetiva Capital, observed that the spate of insecurity in Nigeria is a big issue and an embarrassment.

“While there are opportunities in Nigeria, insecurity and infrastructure continue to deter investment to this country. FDI flow has shown a drop from 2009 to 2010 figures. We continue to see investors developing cold feet for Nigeria, driven by insecurity concerns. We hope that there would be a strong statement on how government would tackle this development. It is very embarrassing,” she said.

Ibinabo Princewill, head, research and investment, APT Securities and Funds, said: “Insecurity and FDI have negative correlation. With the rate of insecurity in Nigeria, in terms of investment flow, the uncertainty is too high. Foreign investors will not like to put their money in long-term investments because of insecurity. They would rather consider short-term investments.”

Ona Ekhomu, a policy analyst and security consultant, feels that insecurity will have a very negative effect on FDI.

DG of Nigeria Economic Summit Group (NESG), Frank Nweke (Jnr.), noted that the efforts by the Jonathan administration to attract foreign investment and transform the economy would come to nothing, if such attacks do not cease, as no foreign investor would invest in an insecure environment.

Said he: “We must see the implications of what had happened and has happened again. We are talking of transforming the economy. We are talking of changing our perception in the international community. We are talking of bringing in more investors. While it is a nice thing to do, we also have to see the link between security and investment. Even local investors will not go to places that are not secure.”

One of the sectors bearing the brunt of the security scare is the aviation industry. At present, there are several security checkpoints mounted close to most of the major airports in the country. Airlines are now being forced to open their counters earlier than usual because passengers have to come to the airport hours before their flights to avoid missing their flights. Despite that, many have been missing their flights lately. The checkpoints are causing serious traffic gridlocks and many are not finding the stop-and-search situation palatable. All these are heightening the siege mentality pervading the country.

For president of the Aviation Round Table (ART), Captain Dele Ore, “To improve the aviation security, the government should conduct a vulnerability and risk assessment of the sector to comprehensively identify loopholes that terrorists could exploit to mount attacks. The Federal Airports Authority of Nigeria (FAAN), as a matter of urgency, should clear the airport of any illegal users who could constitute a major security threat. Another area is the need to deploy more surveillance and screening technology that will help detect and prevent the carriage of any prohibited item onboard a flight. Thorough screening of passengers, irrespective of their social status, must be maintained.  There is also the need to train and re-train airport staff, especially security agents, on enhanced passenger profiling and situation awareness.”

The rising insecurity in the country has impacted the business sector in no uncertain way. The last few months has seen businesses fret like never before, going by the activities of criminal gangs in the country. From the North to the South, the business community has been hard hit by the activities of these criminal groups that have embarked on a bombing campaign.

The consequence is that investors have all ran for the door, even as businesses put on hold critical investment decisions that could have gone a long way to impact the economy positively.

The pervasive insecurity across the country has affected all sectors of the economy. For example, in Maiduguri, the hotbed of the Boko Haram terrorist activities, the hitherto frequent siren-blaring bullion vans are virtually off the streets which highlight the growing fear of the banking sector.

According to sources, most banks have devised other means of moving cash without attracting public attention.

Most banks, sources claim, have suspended expansion projects in restive parts of the country due to rising insecurity.

In a broader view, experts ascertain that the damage done by pervasive insecurity to the economy as whole is incalculable.

On the macro-economic front, a general atmosphere of peace and security is needed for investment to thrive. Rating agencies hinge some of their criteria on political risk, which encompasses the stability of political leadership as sometimes defined by the ability of the government to maintain law and order.

A general atmosphere of insecurity also leads to high cost of living, as accessibility of certain goods and services becomes difficult, especially in areas where there is a total breakdown of law and order. The recent Jos crisis led to the scarcity of some farm produce in certain parts of the country, owing to the inability of transporters to find a safe route to bring their commodities down to where they are needed. This led to the scarcity of tomatoes, potatoes, onions and pepper among others.

Experts agree that the prevailing insecurity in the country adds substantial cost of providing goods and services, even as the Transformation Agenda of the President is called into question.

In the opinion of Dapo Oguntuga, chairman, Manufacturers’ Association of Nigeria, Ogun State chapter, constraints to doing business in Nigeria include: inability to access credit, high lending rates, lack of long-term credit facilities, lack of infrastructure, inconsistency in government policies, multiple taxation and the insecurity of lives and properties.

“These constraints combine to make the cost of doing business high,” he said.

Similarly, an entrepreneur, Louis Manuwa, said “Insecurity adds a significant portion to the cost of doing business which eats deep into profit.”

According to him, businesses incur extra cost to hire well-trained security personnel from security companies and insurance, which usually demands high premium.

The consensus is that the Transformation Agenda of the President could be derailed, if the rising insecurity in the country is not nipped in the bud. So far, the government appears confused on whether to confront or negotiate with the gangs. If the tendency towards appeasement wins, Nigeria would have won a world record as one of the very few sovereign states that cuddle criminals.

This is also an indication that Nigeria lacks the capacity to effectively protect lives and property. Add this to the rule that every government must exclusively retain the control and deployment of weapons of violence, the current picture of Nigeria becomes clearer.

The seeming helplessness of our security apparatus to deal with the recurring bombings that have come to define the state of insecurity fuels business uncertainty.

Post Your Comment