Investing in Nigeria

EconomyAs politiciansmonopolise oilfunds, patience iswearing thinPage 2

Inside »

The northIslamist violencecompounds declineof nation’spoorest regionPage 3

TelecomsFor a generation ofNigerians, thesmartphone isa musthave itemPage 4

Oil and gasInquiry finds statehas been shortchanged at mostaccounting stagesPage 5

LuxuryBig brand itemsare a surefirebet to empty thewallets of the elitePage 15

FT SPECIAL REPORT

Investing in NigeriaWednesday November 28 2012 www.ft.com/reports | twitter.com/ftreports

If President Goodluck Jonathansucceeds in just one thing – turn-ing on more lights – Nigeriansmay forgive him for falling shorton other fronts.

Having risen serendipitouslythrough ruling party ranks to reachthe top in 2010, following the death inoffice of his predecessor, and then onto win elections last year, the affable,former zoology lecturer has madereforming the power sector his prior-ity.

A decade of rapid economic expan-sion on the back of high oil prices anda boom in services has deliveredgreater prosperity and confidence toparts of Nigeria’s south – notablyLagos, the commercial capital, andmore recently the oil-producing Nigerdelta from where Mr Jonathan hails.

But the development of the mainlyMuslim north has been left trailingdangerously, at the same time as theregion’s elites are smarting from a

loss of political power. It is notentirely coincidental that an Islamistinsurgency has taken root, its rankand file peopled by young men withlittle hope of finding jobs.

Conventional wisdom has it that thecountry will struggle to turn the cor-ner in a more balanced and stableway if it fails to resolve the greatestimpediment to growth and invest-ment: electricity shortages. Last-minute vacillation by the governmenthas nevertheless come close to stall-ing the privatisation programme onwhich hopes rest following the failureof past multi-billion dollar attempts toimprove supplies via state invest-ment.

In the epicentre of Nigerian dealmaking – the Abuja Hilton – success-ful bidders expecting to take overpower plants and distribution net-works went in a short space of timefrom celebrating breakfast over cham-pagne to staring disconsolately into

their coffee. Mr Jonathan’s decision inmid November to revoke a transmis-sion management contract perplexedthe experts, unnerved the bankrollersand caused dismay. The president sawhis mistake – caused by turf warsamong officials – and back pedalledagain last week. But the confusionhad already reinforced the impressionof an administration inclined to set offin the right direction only to shootitself in the foot.

The muddle has added to a morepervasive mood of uncertainty aboutthe direction in which Nigeria is head-ing: forwards in the fast lane where itcould overtake South Africa as thecontinent’s largest economy; back-wards to political turmoil and conflict;or stumbling along somewhere inbetween.

Mr Jonathan is liked – his provin-cial roots, good humour and humilitygive him the touch of the commonman. But to listen to fractious politi-

cal and business leaders, he is notuniversally respected. In a countrymore accustomed to ruthless generals,there is concern that he lacks back-bone.

Moreover, the former state governorhas depended on the same patronagesystem that he claims to be fighting.Some reformers and activists believehe is too compromised to drivethrough meaningful change.

It is not only electricity at stake.Investment worth tens of billions ofdollars in the 2.4m barrels a day oilindustry has stalled pending the pas-sage of long delayed legislation aimedat improving efficiency and deliveringgreater returns.

Meanwhile, the theft of oil in theNiger delta has reached unprece-dented levels, with criminal networksstealing upwards of 150,000 b/d worthmore than $7bn annually. The percep-tion that corruption is waxing hasbeen reinforced, ironically, by the

greater transparency Mr Jonathanhas begun to bring to murkier sectorsof the economy.

A series of investigations into thepetroleum industry has shone a lighton billions of dollars in losses causedby mismanagement and fraud.

“Unless we get a government inplace that can squarely face corrup-tion and punish it at all levels, wecan’t see the end of this situation,”says General Muhammadu Buhari,the ascetic former military ruler whohas run two failed bids to win presi-dential elections.

Yet there are signs of progress.Partly as a result of optimism overpower reform – and the prospect ofthis unleashing Nigeria’s industrialpotential and cutting dramatically thecost of doing business – Standard &Poors, the rating agency, upgradedthe country this month.

The upgrade still leaves theContinued on Page 2

Pressure onpresidentto switch onmore lightsElectricity shortages remain the greatestimpediment to growth and investment,write William Wallis and Xan Rice

Uncertain: President Goodluck Jonathan is liked but there is concern that he lacks the backbone to steer changes Reuters

2 ★ FINANCIAL TIMES WEDNESDAY NOVEMBER 28 2012

Investing in Nigeria

As political honeymoons go,it was brief. A little over sixmonths after GoodluckJonathan was sworn in aselected president, protestersin Lagos were carryingaround mock coffins bear-ing his name.

It was early January thisyear and, after badly mis-reading the national mood,Mr Jonathan had decided toend the fuel subsidy thatfor decades had enabledNigerians to buy cheap pet-rol.

After a week of strikesand protests, he was forcedto back down and reinstatehalf the subsidy. Althoughaides suggested that remov-ing even part of it wasa victory, his standing inthe eyes of the public haddipped. Ten months on, andit is hard to say that theimage of the affable formeracademic has fully recov-ered.

“People believed in him,especially the younger gen-eration, thinking he was ofa different breed,” saysJibrin Ibrahim, director ofthe Centre for Democracyand Development, a civilsociety group in Abuja.“But the general feeling isthat he has performedpoorly.”

Chief among the com-plaints is that Mr Jonathanhas failed to deliver on hispromise to tackle high-levelcorruption.

It is true that no actionhas been taken against sen-ior officials who, as in pre-vious administrations,appear to be using theiroffices for personal gain.

It is also true that greateropenness in government, aswell as investigationslaunched by the presidency,have illuminated the scaleof the graft.

Instead of sacking theofficials implicated andsending them to jail, MrJonathan says it will bemore useful to reform thesystem by removing the

easy opportunities for brib-ery and corruption. Deregu-lation of the electricityindustry is one example ofhow this is happening, hissupporters say.

Mr Jonathan’s approvalof the Petroleum Industrybill, which will liberalisethe graft-filled oil sector isanother. The bill, however,still vests much power inthe president and the petro-leum minister. To give thatup means ending the mainsource of political patron-age.

The second chargeagainst Mr Jonathan is thatthe country is driftingunder his leadership.“There appears to be noreal sense of purpose,” saysMr Ibrahim. “What is hetrying to achieve?”

Mr Jonathan’s low-keypersona, a marked contrastto the forcefulness of manyprevious rulers and some-thing welcomed by manyNigerians when he came to

power, means that this isnot always easy to discern.Besides the privatisationprocess, the economy islooking more stable.

Yet when the country isfacing what some say is anexistential threat, in theform of the Boko Harammilitancy, Mr Jonathan’smild manner can make himseem indecisive and ineffec-tual.

His opponents are eagerto unseat him and the polit-ical manoeuvring ahead ofthe 2015 election is wellunder way.

Mr Jonathan has not yetstated that he will seekanother term, though hewill be under pressure to doso. He is the first presidentfrom the oil-producing deltaregion and there is afeeling among people therethat “our turn” should notjust last for a single term.

“I think it’s clear that thepresident will run for a sec-

ond term,” says EmmaEzeazu, general secretary ofthe Alliance for CredibleElections. “This is notgoing to go down well insome parts.”

Northern Nigeria is one ofthose areas. The unwrittenagreement on “zoning” bythe ruling People’s Demo-cratic party in 1999 heldthat power should rotatebetween the mainly Chris-tian south and Muslimnorth. Olusegun Obasanjo,a southerner, ruled until2007 when Umaru Yar’Aduatook over.

But Mr Yar’Adua’s illnessand then death in 2010meant that a northernerhad ruled for fewer thanthree years before anothersoutherner – Mr Jonathan –took power.

The continued sense ofnorthern political marginal-isation comes as theregion’s economy is slip-ping ever further behindthat of the south.

“The north still feels enti-tled to the presidency in2015 because they thinkthey were short-changedin 2011,” says ClementNwankwo, executive direc-tor of the Policy and LegalAdvocacy Centre, in Abuja.

Mr Nwankwo says thatthere is no guarantee thatthe PDP will give MrJonathan the nomination ifhe seeks it. Some of theparty’s godfathers, includ-ing Mr Obasanjo, are nolonger close to the presi-dent and are said to be con-sidering alternative candi-dates.

Opposition parties areplotting their own strate-gies. The PDP’s strengthhas forced the biggest onesto consider a merger.

The Action Congress ofNigeria, headed by BolaTinubu, the former Lagosstate governor, is reportedto be talking to theCongress for ProgressiveChange, under GeneralMuhammadu Buhari, theformer military ruler wholost out to Mr Jonathan in2011.

But analysts say neitherof the two men is likely tobe able to carry the vote,even under a merged party,meaning they would needto find a compromise candi-date.

Leader’s mild manneradds to sense of driftPolitics

President’s standinghas yet to recoverfrom subsidy upset,writes Xan Rice

‘People believed inhim, especially theyoung generation,thinking he was of adifferent breed’

sovereign rating threenotches below investmentgrade. But as Ngozi Okonjo-Iweala, the combativefinance minister and coordi-nator of economic policy,notes, downgrading hasbeen the norm for manycountries riding throughcurrent global economicturmoil.

Since last year’s fiscallyprofligate election, Nigeriahas begun to rebuild for-eign reserves, increase sav-ings above the budgetedprice of oil and marginallyimprove the proportion ofstate revenues available forcapital investment.

Banking reforms initiatedafter the 2008 crash havealso delivered more solidfoundations, and telecomsis still booming a decadeafter it was liberalised. Aforthcoming report by theInternational MonetaryFund gives a qualifiedthumbs up, predictinggrowth in gross domesticproduct this year of 6.3 percent while noting the risksposed by a fall in the worldprice of oil, on whichNigeria still depends formore than 80 per cent ofstate revenues.

Impatience with the sta-tus quo presents a growingthreat. The warning signalshave been flashing in multi-ple ways. One has comefrom the impoverishednortheast, where the Islam-ist insurgency took root andspread. Another is in theamount of irreverent com-ment on the web.

This peaked this yearwhen the government triedto remove the fuel subsidy,prompting nationwide pro-tests and strikes. To haltthe chaos, it was obliged torestore half of it.

The lifting of the subsidysparked an eruption of

anger because it forced upthe price of transport andfood. The public also per-ceived that people in busi-ness and political circleswere abusing the subsidyremoval for their own endsand forcing the poor to paythe cost.

“The government canattempt it again but resist-ance will still be there solong as people don’t see animprovement in theirlives,” says Ahmed Makarfi,who chairs the senatefinance committee.

Yet, signs of turmoil havenot dissuaded potentialinvestors from seeingNigeria as an increasinglyattractive frontier market,especially when returnselsewhere in the world areslowing.

Store openings by compa-nies such as Shoprite andWalmart’s subsidiary Mass-mart are growing at 36 percent a year, according to arecent McKinsey report.

Heineken held its world-wide financial conference inLagos earlier this month,bringing 60 analysts fromall over the world and cele-brating a 10 per cent annualgrowth in its business overa decade.

Heineken cites the coun-try’s demographics as oneof the reasons – with 160mpeople, it is home to one insix Africans.

What some economistssee as a demographic divi-dend, others see as a timebomb already detonating inparts of the country.

Up to six million peopleare entering the job marketevery year and youth unem-ployment is nearly 40 percent. Hence the urgent needto create conditions forNigeria to become moreproductive. This and otherdifficulties are far fromstraightforward, for, if suc-cessful, reforms will chipaway the patronage onwhich the political systemdepends.

“In terms of tangibleresults he [Mr Jonathan]hasn’t done well but if youlook nine months forward,power is working and thePetroleum Industry bill ispassed, things will be look-ing a lot better,” says Bis-marck Rewane, a Lagos-based financial analyst.

Continued from Page 1

Underpressureto switchon lights

Potential investorssee Nigeria asan increasinglyattractivefrontier market

Nigeria’s principle source ofrevenue has been squeezedextravagantly from allsides – upstream from theindustrial scale theft of oil

and downstream from fraud in theallocation of a multi- billion dollarfuel subsidy

But were it not for a recent string ofgovernment and donor funded investi-gations which have uncovered someof the rot, you would not necessarilyknow it. Standard & Poors, the ratingagency, has just upgraded Nigeria at atime that much of the rest of theworld is facing downgrades.

The International Monetary Fundhas given government finances a qual-ified thumbs up – warning in a forth-coming paper that budget and balanceof payments are nevertheless vulnera-ble to further slowdown in the globaleconomy which might soften oilprices. “In a normal country, pissing20 per cent of revenues up the wall onfuel subsidies would lead to a crisis inpublic finances,” says a senior donorofficial bluntly.

In Nigeria, however, when the priceof oil, on which the governmentdepends typically for 80 per cent ofrevenues, is above $100, the cracks getpapered over. Moreover, while someofficials have been busy colluding insiphoning off subsidy funds and steal-ing oil, others have been fighting toplug the leaks.

Ngozi Okonjo-Iweala, the financeminister, says foreign exchangereserves have risen back up to $45bn.The Excess Crude Account (ECA), setup to collect savings above the budg-eted price of oil, is back near $7bn,with another $1bn now dedicated to asovereign wealth fund.

This is a modest cushion when com-pared with the $19bn the governmenthad in the ECA and then spent afterthe world economy faltered in 2008.But it is nonetheless an improvement,even when compared with the middleof 2012. Then, continued arrears pay-ments on the staggering N2.1tn fuelsubsidy bill, together with a slow-down in oil production was beginningto erode the “financial viability of thegovernment”, some officials werewarning privately.

At stake was the ability to fullyfund salaries and the capital budget,internal documents seen by the FT

suggest. Any sudden fall in the oilprice would also have limited the abil-ity of the 36 states of the federation topay a recently approved minimumwage.

Meanwhile, Ms Okonjo-Iweala hasmade modest progress towards reduc-ing the proportion of the federalbudget dedicated to recurrent expend-iture from 74 per cent in 2011, to 71.5per cent this year and with a target of68.7 per cent next. This should free upmore funds for investment.

However, there is another battle tocome. The finance ministry has setthe benchmark oil price at $75 nextyear. The national assembly is seek-ing to raise this to $80, thereby reduc-ing potential savings.

“Seventy-five dollars represents anupper limit from our model, if Nigeriais to maintain a stable macroeco-nomic environment for next year,” MsOkonjo-Iweala argues in a paperdefending her case.

An $80 benchmark “would lead toan increase in liquidity . . . inflationrates would certainly rise signifi-

cantly” and the exchange rate wouldcome under severe pressure, leadingto a hike in interest rates above thecurrent 12 per cent.

Underpinning the debate about thenumbers is a more profound oneabout the way the political system isevolving. The imperative among mostpoliticians is to gain access to fundsand monopolise resources in the hereand now. This is sharply at odds witha longer term development agenda.

Both at federal and state level, theadministration is perceived as anunwieldy resource trap, peopled withrent-seeking mandarins. Patience withthis is wearing thin. “Oil prices arelikely to soften next year. If anythinghappens to the oil price it could pro-vide a trigger [for social unrest],” saysNasir el-Rufai, a former minister withthe ruling People’s Democratic partyand now one of the government’smost outspoken opponents.

The brash, confident business com-munity in Lagos, the commercial capi-tal, is less fazed. A decade of marketreforms has unleashed some of

Nigeria’s potential, agriculture andservices are beginning to boom andmany argue that, where the state hasmoved out of the way, the economy isthriving.

There is some progress, too, onother fronts. “We are transformingthe power sector. The ports are beingtransformed. The fertiliser subsidyhas been scrapped. It’s almost likeeconomic reform by stealth,” saysAtedo Peterside, a former banker, whosits on an economic advisory council.

Next year’s fuel subsidy bill is fore-cast to be half that of 2011. Thefinance minister hands over a list ofall the fuel marketers suspected ofhaving submitted fraudulent invoicesand some of whom face criminal pro-ceedings. This is evidence, she sug-gests, that the government is boldlytackling waste and graft.

But if oil production slows – a possi-bility according to industry expertsbecause of chronic underinvestment –and for whatever reason the oil pricefalls, even she admits there could betrouble.

Short termism threatens developmentEconomy Underpinning the numbers debate is a more profound one about the political system, writes William Wallis

The administrationis perceived as anunwieldy resourcetrap, peopledwith rentseekingmandarins

Oil supply: ifproduction slows,there could betrouble Getty

FINANCIAL TIMES WEDNESDAY NOVEMBER 28 2012 ★ 3


The YouTube video is chill-ing, both in its content andits making. It shows a mansmiling and relaxed at thesteering-wheel of a four-wheel drive on April 26 thisyear.

The vehicle is then showndriving along the road inAbuja, the capital, beforethe cameraman, or perhapsa second one, positions him-self in an empty field oppo-site the headquarters ofThis Day newspaper group.From a safe distance hecaptures the car movingslowly towards the maingate and suddenly explod-ing in a giant ball of orangeand grey.

The suicide attack, whichkilled several people andcaused extensive damage,was the work of BokoHaram, the Islamist move-ment based in northeastNigeria.

It demonstrated thecapacity of the group tocarry out bombings in thecapital, even after securitywas tightened followingattacks on the UnitedNations and police head-quarters in 2011. It was alsoan illustration of the chang-ing nature of the targets.

What began as an insur-gency against securityforces and local governmentofficials in the Muslimnorth has broadened withattacks on students, themedia and especiallychurches – causing muchanger in the mostly Chris-tian south and leading tofears the militants are try-ing to start a religious war.

The scale of the attacksand their geographicalrange has lessened inrecent months, which secu-rity forces say illustratesgains made against the mili-tants, as well as a possiblesplit in their ranks. But thefrequency of raids, espe-cially in northeastern statesof Borno and Yobe, has notfallen. This year has been

the most deadly, with atleast 815 people killed in 275attacks between Januaryand October, according to aHuman Rights Watchreport, compared withabout 700 between 2009 and2011. There are few otherplaces in the world wheresuicide bombings havebecome so commonplace.

“The group, whose pro-fessed aim is to rid thecountry of its corrupt andabusive government andinstitute what it describesas religious purity, hascommitted horrific crimesagainst Nigeria’s citizens,”Human Rights Watch says.

It also accused securityforces of serious abuses intheir counterinsurgencyefforts, including possiblecrimes against humanity.The military denies this.

Sitting in Lagos, the com-mercial capital, it is easy tofeel that the violence is tak-ing place in a distant coun-try.

The nearest place thathas been attacked is Abuja,nearly 500 miles away.Some businessmen – andfinancial analysts abroad –even argue that the insur-gency should have littleimpact on investment deci-sions, since the south has amuch stronger economy.

Northern Nigeria may bethe poorer half of the coun-try but it is still home toabout 80m people, half itspopulation, who represent ahuge market. And it is clear

that the insecurity has hitbusiness there. Consumergoods companies have seentheir sales in parts of thenorth cut.

Traders from Chad, Nigerand Cameroon who used totravel to markets to buyNigerian products can nolonger do so because of bor-der closures, says KeithRichards, managing direc-tor of Promasidor, a con-sumer goods company thatsells tea, powdered milkand other products to thelower end of the market.

Supermarket groups havedelayed expansion plans inthe north, while banksthere have had to shutbranches or reduce workhours due to the threat ofrobbery by gangsters andBoko Haram militants.Some non-Muslim workersno longer feel comfortablethere, while most expatriateworkers are banned fromtravelling in the north bytheir employers. Transportcosts have soared becauseof the risks and delays atmilitary checkpoints.

The effect has been to

further hurt the northerneconomy. Weak local pros-pects and lack of jobs ena-bled Boko Haram to recruitmembers after its emer-gence in the early 2000s.The group, whose namemeans “western educationis forbidden”, was then ledby the cleric MohammedYusuf. His execution bypolice in 2009 set off thechain of events that con-tinue today.

“It’s a vicious circle,”says Kole Shettima, who isthe Nigeria country directorof the US-headquarteredMacArthur Foundation, andcomes from the northeast.“The military has its ownsense of insecurity, so itresponds with greater force,increasing sympathy forBoko Haram.”

After a recent trip to Mai-duguri, the large, northeast-ern city in Borno statewhere Boko Haram origi-nated, Mr Shettima says thearea around the main hospi-tal reeks of “the smell ofcorpses” dumped at itsdoors. These are victims ofinsurgent attacks as well asthe military’s response.

The situation in Potsikumand Damaturu, the eco-nomic and political capitalsof Yobe state, was scarcelybetter.

“Many business premisesin Potiskum and Damaturuhave closed,” he wrote inan essay after a visit.

“The operators have beenthrown to the list of teem-ing unemployed and under-employed . . . Evidence ofeconomic paralysis is every-where.”

A solution to the crisisdoes not appear near. Sev-eral times this year therehave been unconfirmedreports of tentative talksbetween Boko Haram andthe government. On the sur-face, the government’s onlystrategy is a military one.

“There needs to be a mul-tisectoral approach to thisproblem if this to end,” saysMr Shettima, adding thatboth the government andthe Muslim communityneed to do more. “Notenough attention is beingpaid to the ideological chal-lenge. Even if only one in 10members of Boko Haramare left, there will still beproblems.”

Circle of violence as Islamistgroup broadens its reachSecurity

Xan Rice reports onthe Boko Haramattacks cripplingparts of the country

The north may bethe poorer part ofNigeria but it ishome to about halfits population

Deadly: at least 815 people have been killed this year Reuters

The comparative economicdecline of Nigeria’s northwas putting a strain on thefederation long before anIslamist insurgency took

root. The insurgency, spawned in thepoorest part of the country, the north-east, is compounding this threat toNigeria’s unity.

Kidnappings, bombings and a brutalmilitary campaign against the al-Qaeda linked Boko Haram sect, havedeterred fresh investment, while slow-ing both national and regional trade.

Like the ancient walled city ofKano, Maiduguri in the northeast wasonce one of the largest trading centresin the semi-desert Sahel.

Under curfew, and subject to fre-quent bouts of violence, Maiduguri isa pockmarked city and a ghost townmuch of the time. Kano too is ashadow of its former self, its largeindustrial zone a wasteland, withmost of its warehouses and factoriesclosed.

Consumer goods companies saysales are falling as traders who usedto flock across the border from neigh-bouring countries go elsewhere.

Internally, trade has slowed andtransport has become more expensivebecause of shorter market hours andholdups at military road blocks. TheInternational Monetary Fund hasshaved its overall estimate of growthin gross domestic product for Nigeriathis year to a below trend 6.3 per cent.

Boko Haram was not inspireddirectly by the economic conditions ofthe predominately Muslim north. Itsorigins were in a radical Muslim cultdrawn into a fight with security agen-cies.

“Their beef was not originally politi-cal. It morphed when they felt moregrievances with the state,” says anofficial drafted in to help develop ade-radicalisation plan for the region,

including a shakeup of the Koraniceducation system.

Over the long term, this is unlikelyto work, regional politicians and busi-ness people argue, unless there issomething of a Marshall Plan toregenerate the economy and createjobs.

“The best thing is that the wholemess is waking people up to the needto revitalise the north. We have thelargest population and a huge youthbulge,” the official says.

As things stand, the way state fundsare allocated and the direction inwhich private investment is flowing,are skewed heavily in the south’sfavour.

Oil-producing areas of the southbenefit from 13 per cent of the reve-nues generated from oil in their area,on top of the federal allocations theyand other states receive.

As world oil prices have risen, thishas led to a widening gulf in incomebetween states with oil and thosewithout. The formula was introducedafter the military relinquished powerin 1999 as part of efforts to redresshistoric grievances among the inhabit-ants of the Niger delta and quell amilitant campaign that was jeopardis-ing output.

But by seeking to address one prob-lem, Nigeria may inadvertently havehelped create another, weakeningother states in the federation and fos-tering resentment in the poorestregion .

The imbalance is so stark becausethe state still depends on oil for morethan 80 per cent of revenues. It hasmade little progress in raising taxesfrom agriculture, which accounts for42 per cent of GDP, and the north’smining potential has long gone unex-ploited.

“When you look at the figures andlook at the size of the population in

the north, you can see there is a struc-tural imbalance of enormous propor-tions,” Lamido Sanusi, the centralbank governor told the FT earlier thisyear.

Broken down on a per capita basis,the contrast between allocations tothe states in the north and those inthe south are stark. Between 1999 and2008 the inhabitants of the six statesin the northeast received on averageN1,156 per person compared withN3,332 per person in the south.

As might be expected, inhabitantsof the delta are fiercely defensive ofthis revenue formula, given that theirown region saw little benefit from oil

during the many years when Nigeriawas ruled by northern leaders. Butthe absence of dividends flowing tothe north is a source of national ten-sion, for which market forces havenot provided an answer.

Many of the state-owned or pro-tected industries established in thenorth as part of earlier efforts to pro-mote economic balance, were loss-making by the time the governmentaccelerated its privatisation pro-gramme in 1999. Almost all theregion’s textile factories have sinceclosed, at the cost of hundreds ofthousands of jobs.

The north’s inhabitants, althoughmore numerous, are among the poor-est in Africa, and therefore representa less attractive market for the banks,telecoms and retail companies boom-ing in southern pockets of compara-tive affluence.

While industry in the north mightbecome viable again if reforms inpower supply begin to deliver, thecase for more state intervention tobridge the gulf is unlikely to go away.

Unequal growthputs strainon federationThe north William Wallis reports ona region that is a shadow of its former self

National divide: people in the north are among the poorest in Africa Reuters

The epic scale of graft withinthe Nigerian bureaucracy is welldocumented. Out of 183 countries onTransparency International’s mostrecent index of perceived levels ofpublicsector corruption, Nigeria ranksas the 143rd worst. Human RightsWatch was even more damning in areport last year, saying that graft “hasturned public service for many into akind of criminal enterprise”.

But what about corruption in theprivate sector? Speaking to businessexecutives, there is little doubt that itis a significant problem, though onethat is usually kept under wraps.

“Most privatesector organisationsdo not seem to like to disclosefraudrelated incidents within theirorganisations, possibly due to concernabout reputational risk,” says LinusOkeke, partner and head of fraudinvestigation and dispute servicesfor west Africa, at consultancy Ernst& Young.

Some of the corruption is petty –lowlevel employees “chopping” money,by colluding with suppliers or stealinggoods. But, as in government, the rotcan go all the way to the top. Amongthe unreported fraud statistics arecases perpetrated or attempted bysenior management, Mr Okeke says.Even then, “more often than not, onerarely hears of such cases other thanin exceptional circumstances”, he says.

Awareness has shifted from thecleanedup banking sector to oil andgas, where the scale of fraud related tothe import of fuel has been under themicroscope since the beginning of theyear. Because Nigeria’s refineries donot produce enough petrol to satisfylocal consumption, the governmenthands out import licences to privatecompanies that sell it at subsidisedrates, then collect the difference fromthe government.

The system is rife with abuse, withseveral companies habituallyinflating their subsidy claimsand obtaining paymentwithout ever havingdeliveredfuel. One governmentpanel of investigationfound that Nigeria lost$6.8bn to the manipulationof the fuel subsidy schemebetween 2009 and 2011.Court proceedingshave started againsta number offuel marketers,including sonsof prominent

business people and politicians.Inevitably, graft has an effect on

foreign companies doing business. “Wehave seen a significant increase inconcern on the part of companieslooking to do business in Nigeria andother countries in the region aboutgovernance issues,” says AntonyGoldman, analyst at ProMediaConsulting. “[This is] not so muchbecause anything has changed inNigeria but because of greater scrutinyby the regulatory authorities in the USand parts of Europe.”

Mr Goldman says the shorttermbenefits of bribery will never offset therisks. “In every case, payment of bribesis a shortcut to trouble, an action thatforever leaves the company obliged toindividuals or institutions in Nigeriathat typically have less to lose thanthey do. There are all kinds of thingsa responsible foreign investor could orshould do to demonstrate socialresponsibility, but that should not beconfused with bribery.”

Awareness of corruption has grownamong Nigerians, via the media, theinternet and mobile phones. Fiveyears ago, the main platforms forreducing opaqueness were highlevelones such as the Extractive IndustriesTransparency Initiative, which hasconducted a series of audits of the oilsector. Now citizenled projects arepushing for transparency. BudgIT, the“civic startup” behind a mobile andwebbased app, converts governmentbudgets into easily understandablecharts. Integrity Nigeria, an NGOthat promotes transparency in thepublic and private sectors, this yearlaunched egunjedotinfo, a website forreporting bribery.

Increased awareness about thescale and impact of corruption hasnot yet translated into a belief thatordinary citizens have any power tochange things.

“Corruption actually is gettingworse,” says

Soji Apampa, directorof Integrity Nigeria.“It is the nature of ourextractive political and

economic institutions. Itis about holdingthe cow of state

steady while yourgroup milks it

to death.”

Corruption More serious steps needed at all levels ofsociety to combat institutional graft, says Tolu Ogunlesi

SojiApampa,director ofIntegrity

Almost all the region’stextile factories haveclosed, at the costof hundreds ofthousands of jobs



William WallisAfrica Editor

Xan RiceWest Africa Correspondent

Shawn DonnanWorld News Editor

Ed HammondProperty Correspondent

Tolu OgunlesiFT Contributor

Stephanie GrayCommissioning Editor

Steven BirdDesignerAndy MearsPicture Editor

For advertising contact:Mark Carwardine+44 (0) 207 873 4880;

[email protected], oryour usual FT representative.

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Contributors »

In 2001, when Nigeria wasliberalising its telecomsmarket, many people werescrambling to acquiremobile licences. IssamDarwish, a Lebaneseengineer working in Lagos,had loftier ambitions: 50mhigh, to be precise.

To provide networkcoverage across a large,and in places denselypopulated country, Nigerianeeded many thousands ofmobile towers.

The company MrDarwish cofounded startedby building base stationsfor mobile operators. TodayIHS, which is listed on theNigerian Stock Exchange,is one of the four maintower companies in Africa,with 5,700 sites undermanagement, including3,000 that it owns outright.Turnover for the yearended April 30 was $97.5m.

Mr Darwish, the CEO, isstill looking up. Withinfive years he wants IHS toown 20,000 sites bybuilding more of its ownand, especially, by buyingthem from mobile phoneoperators. The masts areleased back to the mobileoperator and other serviceproviders seeking to shareinfrastructure and costs.

IHS’s story offers lessonsfor other businesseslooking to set up in acountry that offers largerewards, but has a difficultoperating environment.

Crucial to the company’ssuccess, Mr Darwish says,is local knowledge.

“In the US and Europe,you buy a piece of landand erect a tower,” MrDarwish says. “There is apower grid, a cleanenvironment and no bigneed to really secure thesite. In Nigeria, it’s theother extreme. You mayhave to build access roads.The environment can bedirty, and the power gridis unreliable and non-existent in many places.Each tower requires asmall specialised powerplant to keep it running.”

In IHS’s early years,when it was mostly only atower builder, the mobileoperators were responsiblefor the maintenance.

The two generators ateach tower site needed tobe checked twice a month.Diesel had be delivered,and stored safely. Guardsand cameras were, and stillare, essential at most sites.

But around 2006, withthe mobile marketexpanding fast, serviceproviders started realisingthat they should beconcentrating more onselling their products thanrunning a diesel logisticsoperation. So IHS beganshifting from being a sitebuilding company to alsomanaging towers for thelikes of MTN and Airtel.

By expanding its staff –the company now hasnearly 1,000 personnel –IHS was able to covermuch of the country,including areas ofinsecurity, such as theNiger Delta and, morerecently, northeast Nigeria,home to an Islamistinsurgency. Militants there

recently attacked telecomstowers, including twobelonging to IHS.

“The thing with telecomsis that everyone wants totalk; the good guys and thebad guys. Of course we[as non-Nigerians] cannotgo to some places anymore because of theviolence, but you havepeople from that area whowork for you. We alsohave about 100 dedicatedsubcontractors,” MrDarwish says.

With the businessgrowing fast, IHS neededcapital, so it listed on thestock exchange in 2008,raising $65m. It was notlong before the businessmodel shifted again. As

mobile competitionincreased, prices fell, andoperators were seeing adrop in revenues per user,even as their subscribernumbers – and need formore base stations – rose.

A single tower cost up to$250,000, and serviceproviders were becomingcapital constrained. Theidea of operators sharingtowers – and costs – withrival mobile serviceproviders, internetcompanies and banks hadalready caught onelsewhere in the world.

IHS decided that co-location would be crucial

to the company’s strategy.Since then, as its portfolioof towers has expandedwithin Nigeria, as well asin Ghana, Sudan andSouth Sudan, so has theneed for new funding.

The crash at the NSE in2008 had left investorswary, and the pool ofmoney available forcompanies “too shallow”for IHS’s needs, MrDarwish says.

So it looked to the globalmarkets, selling equity tothe International FinanceCorporation, Investec, theDutch development bankFMO, ECP Private Equity,European investment firmWendel and Nigeria’s SkyeBank. In the 12 months toDecember 2012, IHS willhave raised $269m inequity, and $480m in debtto fund its expansion.

In October, IHS paid$284m to MTN for 1,758towers in Cameroon andIvory Coast.

But Nigeria, which hasmore mobile subscribersthan anywhere in Africa,remains the company’sbiggest focus – and offersthe richest prize. Thecountry has 24,000 mobiletowers and 10,000 more willbe built in the next fewyears, IHS reckons.

Setting up a business sosoon after the end ofmilitary rule in 1999, IHShas been able to capitaliseon the years of solidgrowth that ensued. ButMr Darwish says there arestill many prospects.

Asked for one piece ofadvice for potentialinvestors, he says: “Put ina strong management teamand work in the privatesector. Don’t look to relyon government contracts.”

Local knowledge is importantin fulfilling towering ambitionsCompany profileIHS

Xan Rice finds toptips on operating indifficult territory

Even by the standard of Lagos’ubiquitous traffic jams, thequeue into Computer Villageis bad. Cars jerk through thehorn-pierced fug at about five

metres a minute.Fifty feet above, a brash red bill-

board stretched fully across twoidentikit tower blocks bears the mes-sage that the Visafone network is nowavailable on BlackBerry.

Once inside the village, a sprawlingnetwork of electrical retailers, tech-cafés and street-stall workshops, it isobvious why Visafone – the fifth larg-est mobile phone network provider inNigeria, after MTN, Glo, Airtel andEtisalat – required such a prominentadvertisement of its newly sealed tele-phonic tryst: BlackBerry is every-where.

For a generation of image consciousNigerians, the smartphone hasbecome a must-have status symbol; a

material affirmation of having a placein the country’s upward trajectory.

From a standing start in 2006,BlackBerrys now account for 46 percent of Nigeria’s 4m-user smartphonemarket, according to data from GfK,the market research company. Thosenetworks that cannot connect toBlackBerry handsets are at risk.

Even more remarkable is that therapid success of the brand comes asits fortunes in the US and westernEurope appear to be in terminaldecline – Research In Motion (RIM),the maker of BlackBerry, posted a$235m net loss for the latest quarteras it continues to lose ground to rivalsmartphone makers.

“The BlackBerry has become aproduct central in the aspirations of alot of Nigerians, but, crucially, onewhich is affordable,” says WaldiWepener, RIM regional director.

Mr Wepener, who moved to Lagos

this year to set up RIM’s Nigerianoffice, adds that demand in Africa’smost populous country has reallytaken off in the past 18 months.

“The most common misconceptionabout what we do here is that we aremainly selling the cheaper models.The reality is that there is a hierarchyeven within the BlackBerry owningclass and we sell right the waythrough the range from $200 to $500handsets,” Mr Wepener says.

One of the things insulating theBlackBerry pre-eminence in Nigeria isthe absence of global sparring part-ner. Thus far, Apple has not made ameaningful entry into the countryand industry observers suggest theprice of the company’s hardwaremight make it tough to get going.

But the success of the BlackBerry isalso down to one of its own features:BBM. A staggering 95 per cent of theNigeria’s BlackBerry owners use

BBM, the smartphone’s instant mes-saging service which allows free com-muniqué between users. Having a PIN– the identification code for a Black-Berry BBM user – has become moreimportant than having a phonenumber among young Nigerians.

“If you are being asked out and theguy asks for your phone numberrather than your PIN, then you knowhe is old-school,” explains a womanqueueing to have her BlackBerry serv-iced in Computer Village.

Other young Nigerians are harness-

ing the growing number of peoplewith access to the internet via theirphones and laptops to find solutionsto the social, economic and infrastruc-ture problems that besmirch the coun-try’s image overseas.

One such project, the Co-CreationHub, has bought together an onlinecommunity of 1,200 businesses andindividuals who combine to find waysto fix each others, and Nigeria’s prob-lems.

Using £25,000 of seed funding fromone of the Sainsbury Family Charita-ble Trusts, CCH used the skill base ofits network to design and launch“BudgIT”, an online tool that simpli-fies the country’s opaque publicfinance data into graphics and text-bites, including tweets.

“The idea was to make informationthat most people don’t understandaccessible to everyone,” says FemiLonge, co-founder of CCH. He adds:

“A lot of the government data are in aformat that doesn’t make sense to out-siders. Making it clear is a way ofhelping overseas investors understandwhat’s actually going on and, hope-fully, encourage them to invest here.”

Back in Computer Village, Black-Berry has just opened its first licensedstore in Nigeria, teaming up with Slot,a local mobile phone retailer.

As a mark of how important thecountry has become to RIM, the com-pany has slated the Nigeria launch forits new generation of smartphones,BlackBerry 10, to coincide with thosein Europe and the US early next year.

Meanwhile, Nnamdi Ezeigbo, Slot’smanaging director, says the demandfor BlackBerry products is showing nosign of slowing. “BlackBerry havetaken an aggressive approach withadvertising and pushing the fact thatthey have stable internet access. Itdefinitely seems to be working.”

Status symbols that have the upper handTelecoms The BlackBerry has become central to the aspirations of many Nigerians, writes Ed Hammond

Image conscious: BlackBerrys now account for 46 per cent of Nigeria’s 4muser smartphone market Dami OlateruOlagbegi

‘The thing withtelecoms is thateveryone wants totalk; the good guysand the bad guys’

Insulating BlackBerry’spreeminence is theabsence of Apple, itsglobal sparring partner



No one in Nigeria is inmuch doubt about howbadly the oil industry hasbeen managed. But, untilrecently, there has been lit-tle clarity about the extentof the rot or at what stageand how, billions of dollarshave been going missing.

An investigation headedby Nuhu Ribadu, theformer anti-corruption chief,has gone some way to shin-ing a light. The findings ofthe Petroleum Revenue Spe-cial Task Force he wasappointed to head this year,aim an arrow at the systemthat lubricates Nigerian pol-itics and pile pressure onPresident GoodluckJonathan’s administrationto clean it up.

Between 2002 and 2011,the state has been shortchanged at almost everystage of accounting for oilrevenues, the task forcefound. Signature bonusesand royalties amounting tobillions of dollars have goneunpaid.

Discretionary decision-making in awarding oilblocks, and crude liftingcontracts – centrepieces ofthe patronage system –have together caused hugelosses.

Gas – which has beendeveloped as an export injust over a decade – hasalso been sold, the reportargues, at cut price byNigeria Liquefied NaturalGas, the joint ventureowned by the NigerianNational Petroleum Corpo-ration, as well as Shell, Eniand Total.

“The estimated cumula-tive of the deficit betweenvalue obtainable on theinternational market andwhat is currently beingobtained from NLNG, overthe 10-year period, amountsto approximately $29bn,” itsays.

Both NLNG and theNNPC are up in arms andhave printed detailed rebut-tals to the Ribadu findings

in national newspapers.Almost as soon as thereport was out of the bag –leaked to Reuters thismonth after languishing forseveral months – officials inthe presidency were alsosending mixed signals,some rubbishing the report,others suggesting it will bestudied carefully.

Steve Oronsaye, deputyhead of the task force, cameout publicly in opposition,citing procedural flaws inthe investigation which, hetold the Financial Times,undermined the usefulnessof the final report as a legaldocument.

It was quickly noted thathe and another member hadboth recently beenappointed to the board ofthe NNPC at the centre ofmany of the allegations.

Diezani Alison-Ma-duekwe, the oil ministerwho commissioned theinvestigation at the outsethas herself offered onlylukewarm support. “A lot ofthe facts and figures andassumptions were inaccu-rate,” she told the FT.

“Having said that, it doesnot mean that the report isnot usable. As we speak,the government has goneahead to set up white papercommittees,” she says.These will make recommen-dations to the government.

“We took a major risk.We brought in oppositionleaders to head up variouscommittees,” she adds,referring among others toMr Ribadu, who won publicrespect in his former guiseas anti-corruption chief,and stood and lost againstGoodluck Jonathan in lastyear’s presidential polls.

The investigation waslaunched by the govern-ment after protests at anattempt to withdraw thesubsidy on fuel brought

Nigeria to a standstill inJanuary. The bill hadreached N2.1tn ($7.6bn) in2011 and became anothersource of billions of dollarsin ill-gotten gains.

The subsidy has becomeunaffordable. It has also dis-torted the market by pro-viding incentives for smug-gling and fraud while deter-ring investment in theinfrastructure and mainte-nance needed to refineNigeria’s oil at home.

But the protests were notso much against the eco-nomic logic of removing it –which many Nigerians havebegun to accept. It was theineptly-handled decision togo ahead with it before per-suading the public the gov-ernment can deliverimproved services and bet-ter livelihoods.

Nigerians were thus gal-vanised into taking issuewith a far broader range ofwasteful government hab-its. Facing mounting chaos,the government restoredhalf the subsidy andpledged a clean-up, to bepreceded by Mr Ribadu’sinvestigation and othersinto abuse of the subsidy.

It was always likely thesewould expose business peo-ple, officials and politiciansclosely associated with thegovernment, some of themcontributors to the rulingPeople’s Democratic Partyelection campaigns lastyear.

Mr Jonathan now findshimself caught betweenconflicting interests – of hisparty and associates whohave benefited from theopaque way in which the oilindustry has been run, andan increasingly angry pub-lic.

Nigerians are not buyingobjections to the report.Broadly, they know the oilindustry is rotten and areinclined to believe Mr Rib-adu’s numbers are close tothe mark.

Ahmed Makarfi, chair-man of the Senate commit-tee on finance, says: “Weare looking willingly intothe oil industry. In the past,no one dared look at whatis going on. The cat is outof the bag.”

He adds that it would bedifficult now to suppresspublic impatience forreform.

The task force has a hostof recommendations, someof them involving relativelystraightforward ways ofmonitoring the flow of pro-duction.

But a senior western offi-cial following the processclosely concludes: “Withoutwholesale reform of thearchitecture of the NNPC itdoesn’t matter who is incharge. It will still be amess.”

Inquiry shines light on murkymechanics of the oil industryRibadu report

Public is impatientfor reform of thesector, writesWilliam Wallis

Nigerians areinclined to believeMr Ribadu’snumbers are closeto the mark

Nuhu Ribadu: findings put pressure on president Reuters

For years, even decades, Nigeria hasbeen quietly losing revenues to oilthieves who tap into pipelines and evenfill up tankers directly from flowstations and export terminals beforeselling their cargo at home and abroad.

But the criminal industry surroundingthe illegal trade is now so lucrative andextensive that it has become impossiblefor either the international oilcompanies or the federal governmentto ignore.

Because of its illegal nature, thereare no consistent estimates for thescale of “bunkering” – a term usedelsewhere to refer to the supply ofanchored ships but which has beencorrupted in Nigeria to describe thetrade in stolen oil.

But all the evidence suggests it is onthe rise. In 2011, for example, the stateagency regulating pipelines recorded4,468 pipeline breakins compared withan annual average of 1,746 between2001 and 2010.

Ngozi OkonjoIweala, the financeminister, blamed a 17 per cent fall inApril in the sale of crude oil largely totheft, implying that about 400,000barrels a day went missing at a cost tothe state and oil companies of about$1.2bn that month.

A similar, more recent fall, has beenblamed both on theft and floods alongthe Niger river – the worst in 60 years.

In a bid to draw greater attention tothe issue, Patrick Dele Cole, abusinessman, former ambassador andformer international affairs adviser toPresident Olusegun Obasanjo who hailsfrom a town at the centre of the trade,has launched a web campaign(www.stopthetheftng.com).

He estimates the scale of thefttypically at about 180,000 b/d.

At this rate, he points out, thieves inthe Niger delta constitute the12th largest oil producinggroup in Africa,generating revenue thatexceeds the grossdomestic product of 15different Africancountries.

Almostsinglehandedly Mr Colehas begun to force theissue up the agenda.

Bunkering is carriedout in three main ways.

The first involvescargo canoesmannedby gangsthatnavigate

the creeks, puncturing pipelines andsiphoning crude into improvised tanks.

They sell this on to crude refineriesacross the delta to supply paraffin anddiesel to the domestic market at halfprice, or to larger coastal barges forexport.

Where they can, these barges fill updirectly from wellheads.

In turn, they carry the crude totankers waiting offshore to supplyrefineries at a discount as far away asSouth Africa, Ukraine, China and theRotterdam spot market, according tomembers of a task force set up byPresident Goodluck Jonathan toinvestigate.

There is a third form of “whitecollar” bunkering.

This involves tankers filled directly atexport terminals, where meteringsystems are manipulated to concealoutflows – a practice that began whenNigeria was busting its Opec cartelquota in the 1980s.

“The interesting thing is that it’sgetting worse because we now haveinternational bunkerers coming into ourwaters. This has never happenedbefore,” Diezani AlisonMadueke, thepetroleum minister, told the FT.

Nigeria’s intelligence agencies arenow investigating where the oil is beingsold, she says.

“We are addressing it at thediplomatic level. The president himselfwill shortly be taking it to hiscounterparts in various countries.”

On paper at least, it should berelatively straightforward to curb thetrade though a combination of tighterpolicing, patrolling of the high seas andother legal and technical measures.

But although past governments havebought drones from Israel to monitorpipelines, deployed soldiers and sailors

to the creeks, no effectivemeasures have yet been

taken to halt the trade.This may be

because the networksprofiting from stolen

oil have tentacles deepwithin the state,financing politiciansand officials who have

a vested interest in ensureit continues to thrive.

William Wallis

Bunkering Such is the scale of theft that delta thieves‘constitute the 12th largest oil producing group in Africa’

Ngozi OkonjoIweala, financeminister

Ask Elo Umeh to run throughthe difficulties that face hisyoung internet companyand it does not take long forhim to come to electricity.

Terragon employs 25 people, has a cli-ent list that includes internationalbrands such as Google and a wholeraft of local media companies forwhich he is building mobile newssites. He has little access to capitalfrom local banks and struggles toretain staff who are inevitablypoached by competitors once he hastrained them.

But the thing that really drives himcrazy is that each month he spends upto 25 per cent of his cashflow on dieselto run the generator he relies on tosupplement the fickle power supplyhe gets from the grid. “That,” he says,“is capital I should be using toexpand.”

From multinational companies tointernet start-ups, the most commoncomplaint is the lack of a reliable elec-tricity supply.

Nigeria ranked 178th out of 185economies for access to electricity fornew businesses in the World Bank’slatest “Doing Business” report. Morethan half the 160m population liveswithout access to the power grid andabout 70 per cent of the country’spower demand goes unmet, the Bankfound.

Recurrent power outages mean thatmore than 90 per cent of industrialusers have installed their own costlygenerators. So too have any residen-tial consumers who can afford to.

The government of President Good-luck Jonathan has made resolving thepower crisis an important focus andbet on a “big bang” approach to do so.It is in the process of privatising thecountry’s generation and distributionbusinesses and is having some suc-cess in encouraging investments innew greenfield power projects. It hasalso hired Canada’s Manitoba Hydroto manage – and fix – the state-ownedtransmission network that has suf-fered from years of under-investmentand poor maintenance.

The goal, says Atedo Peterside, theinvestment banker who chairs theNational Council on Privatisationcommittee, is to make a “quantumleap” as an economy.

To Mr Peterside, the politically

connected chairman of StanbicNigeria, the local arm of SouthAfrica’s Standard Bank, the case forinvestors is clear. Join in now and bein position to take advantage of theboom to come or sit on the sidelinesand watch others count the profits.“It’s hit or miss. You’re in or you’reout,” he says.

In a messy emerging democracysuch as Nigeria, the process has beenfar from smooth. The selection of pre-ferred bidders for the six generationand 11 distribution businesses for salehas been criticised for awarding con-cessions to local tycoons and likenedto the 1990s privatisations in Russiathat gave birth to a class of oligarchs.

Mr Peterside and others defend theprocess, pointing out that all the localbidders have paired up with foreignpartners who will provide the techni-cal expertise. The realities of doingbusiness in Nigeria – and a record ofcontracts and privatisations that havegone awry – mean few big foreigninvestors are willing to take the riskalone.

The local political landscape alsoremains fraught. Bart Nnaji, the tech-nocratic power minister who oversawthe reform push in the sector in

recent years, was forced to step downin August over allegations of conflictof interest. After being awarded a$23m, three-year contract to managethe Transmission Company of Nigeriaearlier this year, Manitoba founditself caught up in a dispute over thecontract again this month amid alle-gations of “irregularities”.

Eventually, the president stepped inand affirmed the contract. But notbefore investors had spent a weekscratching their heads and wonderingwhat the implications were for thebroader programme.

In part, those fears were aimed atwhat is already an ambitious time-scale. The oft-stated goal is to havecontracts finalised by the middle of2013. Yet industry experts say that islikely to slip and if it slips too far thecontracts could become even further

embroiled in politics in the lead-up to2015 elections.

There are also longer-term prob-lems. Industry experts fret that thegovernment still needs to secure areliable supply of natural gas to fuelnew gas-fired power plants and theexpansion of the sector.

The World Bank has offered a pro-gramme of guarantees for gas pay-ments to help encourage investmentin the domestic market. But the oilmajors that operate the bulk of oiland gasfields appear to remain moreinterested in exporting gas as LNGthan selling it locally.

The transmission network alsoneeds huge investment if it is to carrythe doubling of the current 4500MWsupply that is envisioned. Accordingto one industry expert, that couldrequire as much as $10bn. It alsomeans playing catch-up on an invest-ment programme that should havebeen launched a decade ago.

But Nigeria has few alternatives. IfPresident Goodluck Jonathan and hissuccessors are to deliver long-termeconomic promise, they have nochoice but to make sure the countrycan keep its lights on. It is the govern-ment’s biggest test.

Big bang approach to power testElectricity More than half the 160m population has no access to the grid, says Shawn Donnan

In the dark: erratic electricity supply means that those who cannot afford generators have to rely on candlelight AP

More than 90 per cent ofindustrial users haveinstalled their owncostly generators



About 20 years ago, Nigeriabegan trying to promotelocal companies in the oilsector. Though the idea wassound, the practice was not.The military still ruled, andthe allocation of oil licenceswas mostly about patronage.“It was essentially land

grabs,” says Labi Ogunbiyi,chief executive of FirstHydrocarbon, a Nigerian oilcompany. “These peoplethen went looking for com-panies that could providetechnical capacity and thesignature bonus. ForNigeria it was a terriblemodel.”It has been a slow process

but today the country has arespected homegrown sec-tor. Local companies suchas First Hydrocarbon,Oando and Seplat accountfor about 100,000 b/d, only 4per cent of the country’stotal output, and some ofthat in �elds operated bylarger partners.But Mr Ogunbiyi reckons

that may quickly change,particularly if the long-awaited Petroleum Industry

bill is passed, and new�scal terms are introduced.That could prompt themultinationals to sell moreof their mature marginal�elds onshore to concen-trate on more lucrativedeepwater projects.Up to 8bn barrels of oil –

nearly a quarter of reserves– are on land, or in shallowwaters. “I think local pro-duction could double withintwo years,” he says.Other companies, such as

Seplat, are even more opti-mistic, with Austin Avuru,chief executive, suggestingthis year there could be afourfold rise in local outputby 2014.History suggests some

caution may be required. Inthe early 2000s, 24 licencesfor marginal �elds wereauctioned to indigenouscompanies. But many ofthem failed to raise the nec-essary capital and only ahandful ever made it intoproduction. Mr Ogunbiyireckons that circumstanceshave changed – both forlocal companies and theirpotential �nanciers.“The most interesting

shift from �ve years ago isthat we have a class of realindigenous companies withboth technical expertise

and �nancial allure,” MrOgunbiyi says. “The bankshave got wise to the factthat oil and gas can belucrative. They also havethe capital.”First Hydrocarbon pur-

chased a 45 per cent stakein block OML 26 from Shellin October 2010. Productionwas already under way;today the block’s output isabout 10,000b/d, though theintention is to expand to50,000b/d within �ve years.But when First Hydrocar-

bon looked to raise between$200m and $300m to fundthe purchase, internationalbanks were lukewarm, andproposed complicated andcostly �nancial structures.So, the company looked

to local banks, which wererecovering after the bank-ing crisis in Nigeria a yearor two earlier. A consor-tium led by First City Mon-ument and Stanbic IBTCagreed to provide �nancing“on world-class terms”against the OML 26 block.Other local oil companies

have done similar dealssince. This has persuadedinternational banks to offerbetter terms for deals in theNiger delta. Mr Ogunbiyisays Nigeria was fortunateto have a banking system

that is “on track to supportthe emerging indigenoussector and even participatein the biggest deals”.Over the past two years,

Shell has sold onshoreblocks to local consortiumsNeconde Energy and Shore-line Natural Resources,which is supported byHeritage Oil, of the UK.The US independent,

ConocoPhillips, is also try-ing to sell its onshoreleases, which account forabout 45,000b/d from OML60, 61, 62 and 63. Oando andSeplat are reported to beamong four local biddersfor the assets, expected tofetch more than $1bn.Diezani Alison-Madueke,

the oil minister, plans tohold an auction of marginal�elds before the end of theyear. Afren, an independentproducer that focuses onAfrica, and owns 45 percent of First Hydrocarbon,believes it will take thePetroleum Industry Bill,which it expects will passnext year, to properly “reac-tivate the industry”.Adebayo Ayorinde, the

company’s Nigeria manag-ing director, says while 38per cent of oil licences areheld by indigenous compa-nies, only 4 per cent havebeen developed. Under theproposed legislation, compa-nies with oil blocks will betold to use them or losethem, Mr Ayorinde says.“From our point of view,

there are a lot of opportuni-ties because we can provide�nancing and technicalknowhow to local compa-nies. There are also greatprospects for those indige-nous companies that havedeveloped the right knowl-edge and have banksbehind them. If the divestedassets are already produc-ing oil, it will help keep theball rolling.”

Hopesrise forlocal oilgroupsNational operators

Xan Rice reportsthat new legislationis expected to‘reactivate industry’

Controversy was alwayslikely to follow DiezaniAlison-Madueke. First,there was her gender:before her appointment in

2010, no woman had run the oilministry in Nigeria, or in any Opeccountry for that matter. “Let’sface it, this is a completelymale-dominated environment,” shesays.Second, there was the job itself. Oil

accounts for about 80 per cent ofNigeria’s revenues. It also lubricatesthe political patronage machine. MrsAlison-Madueke, who is a close allyof President Goodluck Jonathan, canmake or destroy fortunes with thestroke of her pen.“I don’t think I’m controversial, I

think the position is,” she says. “Youcan never win with this thing. If youtake a hands-off approach, they sayyou are not doing your job. If youtry to move for transformation andreform, you get the highest kind ofpushback in any sector.”Yet Mrs Alison-Madueke has a

genuine chance to deliver. ThePetroleum Industry Bill is designedto reform the industry and attractmuch-needed investment in oil andgas exploration and production.It recommends unbundling the

state-owned Nigerian NationalPetroleum Corporation and runningsuccessor companies alongcommercial lines. Transparency andaccountability will be improved,production by local companiespromoted, and new onshore andoffshore �scal terms put in place toincrease the government’s total takeby 7 to 8 per cent, she says.The 223-page bill has been stalled

for several years, thanks to lobbyingby multinationals and oppositionfrom politicians and businessmenwhose interests are threatened by amore open system. But now, havingpassed two readings by legislators,the bill is set to pass in “two tothree months”, says Mrs Alison-Madueke. Promises of swift passagehave been made before – includingby her in an FT interview in 2010 –but this time is different, she insists.“The polity alone, and mood of the

polity, will probably not allow it [anyfurther delay] to happen,” she says.The pressure is enormous. Various

investigations ordered after thebungled attempt to remove the fuelsubsidy in January have highlightedhow tens of billions of dollars havebeen lost to fraud or mismanagementover the past decade.The government also knows that,

while Nigeria is Africa’s largest oilproducer, and has vast gas reserves,other countries on the continent havediscovered petroleum in recent years.

Lack of clarity over the proposedlaws has forced the big oilcompanies, including Shell,ExxonMobil, Chevron, Eni and Total,to put investment on hold. Whilethey welcome many of the PetroleumInvestment bill’s aims, theirprincipal concern is the bottom line.The multinationals have made clearthey are unhappy with new terms,especially those relating to offshoreproduction sharing contracts.In a presentation to diplomats and

government of�cials in Abuja in mid-November, the oil companies warned470,000 jobs and $100bn in investmentcould be lost by 2020.Mrs Alison-Madueke describes the

new �scal regime as “relativelyequitable” and more favourable tocompanies than those in Angola orIndonesia. But she says there is

room for compromise, and that shewill chair a meeting with oilcompany representatives in Londonat the end of November to hear theirconcerns. “I hope that we will cometo a fairly middle landing,” she says.If the PIB passes, the break-up of

the opaque and dysfunctional stateoil corporation will have lastingimpacts. Two new bodies willoversee upstream and downstreamregulation. Three new companies willbe spun off, with the aim of runningthem like proper businesses.The National Asset Management

Corporation will house thegovernment interests from jointventure agreements, which accountfor 82 per cent of all petroleum

revenue. A new, commercial-stylenational oil company will beestablished, with 30 per o� ts sharessold to the public. It will take overthe assets of the Nigerian PetroleumDevelopment Company, whichproduces 130,000b/d, up from30,000b/d a few years ago. The newgas company will divest 49 per cento� ts equity to the public.The country’s four re�neries,

which operate at less than 50 percent capacity due to poormaintenance, will also eventually beprivatised, she says. The fuel subsidywill probably have to be removedbefore that takes place, somethingthat will not be easy due to publicopposition as well as resistance frombusiness people who have madefortunes from importing petrol – andin some cases scamming the system.Mrs Alison-Madueke says she

received death threats after takingaway import licences in November2011 from 90 fuel marketers who hadno infrastructure in Nigeria.No one believes the proposed

legislation is perfect. Pedro vanMeurs, a consultant on earlier draftsof the bill, wrote in a recentcommentary that allowing thepresident to keep granting licencesand leases without process “leavesthe door wide open to politicalfavouritism and corruption”, andthat the oil minister would retain“draconian powers to determinerentals and royalties by regulation”.Details on a new 10 per cent tax

on onshore and shallow waterpro�ts, which is meant to bene�thost communities “could result inpolitical interference and non-transparency”, Mr van Meurs says.But Mrs Alison-Madueke insists the

bill is good enough as it stands, anassertion that some in the industryagree with, even if only becausehaving clarity over legislation isbetter than the uncertainty of recentyears. “We have taken the bull bythe horns.”

Minister has chance todeliver genuine changeInterviewDiezani Alison-MaduekeMinister of oil

Xan Rice andWilliamWallis meet the womanbehind the divisive bill

Mrs Alison-Madueke: ‘I don’t think I’m controversial, the position is’ Getty

‘If you take a hands-o�approach, they say youare not doing your job.If you move for reform,you get the pushback’

The homegrown sector accounts for 4 per cent of output AFP







Pay the N120 ($0.75) toll andpass through the gates andthe Lekki-Epe expresswaytoll road is a brief vision ofwhat Nigeria could be. Cars

accelerate on to smooth tarmac free ofpotholes. The verges are clear, thefuelling stops oddly serene – one iseven home to a restaurant named“Relish de Buddha”.

But then, after just 15 minutes, youpass through a toll plaza where theattendants take no money and arepaid simply to open the gates and itall ends. Near a clutch of banana sell-ers, with a bump and a burst of dust,you are back in Nigeria’s everydayreality.

Traffic crawls over scarred roads,motorcycles dart in and out betweenthe cars together with street vendorsselling mobile phone cards, nuts and“tummy trimmers”, portable exercisemachines. An every-man-for-himselflaw of the road returns.

Ask anyone doing business inNigeria what the main obstacles areand, very quickly after they tell youabout their difficulties with electric-ity, the subject will turn to theirtransport woes.

Years of poor maintenance andwidespread corruption and misman-agement have made roads a vividsymbol of the country’s infrastructuredifficulties.

Workers spend up to five hourseach day commuting to and fromwork. Trucks laden with valuableloads spend days at a time away frombase making deliveries that wouldtake a fraction of the time anywhereelse.

When it was awarded in 2006, theLekki-Epe toll road concession – a50km public-private partnershipproject that would see private inves-tors foot the bill for its constructionand operate it for 30 years before

handing it back to the government –stood as an example of how Nigeriawas moving to solve its infrastructureproblems.

These days, however, with construc-tion stalled by a dispute betweenthe government and the concession-aire, it is cited most often as anawkward example of why more pub-lic-private partnerships are not hap-pening. The simple introduction oftolls last December prompted violentprotests.

Still, those involved in constructingdeals insist that Nigeria stands at acrucial moment in time when itcomes to building the infrastructure itneeds to sustain – and build on – the6.5 per cent annual economic growthit is enjoying.

Martin McCann, London-based headof infrastructure, mining and com-modities for Norton Rose, the US lawfirm, says there is a “clear pipeline”of airports, ports and other projects inNigeria being offered to investors. Hesays: “It is too important a countryfor bidders not to look at.”

The investment landscape canindeed be messy and “the reality isthat, if you look at the projects, weare in that transitional stage”, MrMcCann says. But it is also clear thatthe landscape is poised for changeover the next decade and that inves-tors may be facing an importantopportunity.

“It would be a pretty brave investorthat, on the basis of disputes, the factthat there are disputes, says ‘I amgoing to stay away’ because of thescale of the economy,” he says.

For the time being, however, thereality for anyone doing business inNigeria often means providing yourown infrastructure, or finding ways toadapt.

For DHL, the courier and logisticscompany, the solution has been to do

both. In 2009, after years of struggling-with the public cargo facilities, notori-ous for their pilferage and corruption,it opened a new cargo operation atLagos’ Murtala Muhammed Airport.

The investment in the west Africanhub has been worth it – across theregion, DHL’s business is growing at arate of 15 per cent a year.

These days, the facility is an oddoasis of calm just yards away fromthe chaos of the public terminal and awelcome respite for the oil companiesand others bringing goods into thecountry.

Six days a week, a DHL 767 flies infrom Leipzig via Brussels bringingpackages destined for countries acrosswest Africa.

They are quickly sorted and trans-ferred and, thanks to the new three-year-old terminal, can often clear cus-toms and be delivered to customers onthe same day.

“We’ve got a big competitive advan-tage,” says Randy Buday, DHL’sLagos-based managing director foranglophone Africa.

That sort of approach has broughtother business opportunities for DHLas well.

After losing 12 employees in thespace of a year to armed robberies onthe road between Lagos and Abuja,the capital, Mr Buday decided to sus-pend the road runs and take to the airinstead.

It took 18 months for him to gainapproval, but DHL now runs a dailyair freight service between Lagos andAbuja on a Boeing 737. He no longerfaces the headaches he used to havewith vans on a perpetual loop onNigeria’s dangerous roads.

He also created a new line of busi-ness for DHL. “There used to be noovernight courier service to Abuja.Now there is. And we own it.”

Big businessfaces bumps onroad to progressInfrastructure Logistical challenges bringcost and opportunity, says Shawn Donnan

Transport woes:some workersspend five hours aday commuting toand from workGetty

It was the end of a tiringday for the crew of DanaAir Flight 992 when thetwin-engined jet began itsfinal approach to MurtalaMuhammed Airport onJune 3 this year.

At 3.18pm, the captainand first officer realised theengines were losing somepower. The condition wasnot serious, however, andthey concluded it would notaffect the descent intoLagos – the last leg of agruelling double round tripbetween the city and Abuja,the capital.

Twenty minutes later,with the runway in sight,the plane slammed into anindustrial park.

During the seconds beforethe impact, the in-flightrecorder captured the twomen battling to restart theengines.

Six months after Nigeria’sworst air disaster in 40years – and one that shookthe rapidly emerging soci-ety to its core – the coun-try’s aviation sector isfighting to rise from thewreckage.

“It was one of the worstperiods of life for me, ablow you cannot imagine,”recalls Harold Demuren,director-general of the Nige-rian Civil Aviation Author-ity (NCAA).

Mr Demuren, who wasdrafted in to clean up thecountry’s air safety recordin the wake of two planecrashes in 2005, adds: “Butaviation is the engine foreconomic growth in Nigeriaand we have to be resoluteand stick to our task ofimproving the sector here –it is the best way of show-ing the world what we areabout.”

The tragedy of the crash,which claimed the lives ofall 153 on board and 10more on the ground, isamplified by the fact thatit has obscured to the out-side world much of theprogress made by the sector

over the past seven years.After taking the job in

2005, Mr Demuren set towork on cleaning up a sec-tor that was “drifting into avery dangerous place”.

Airlines, many of whichwere using stock that hadbeen in operation for morethan 30 years, were forcedto modernise their fleets.

The NCAA conducted a

full audit of the sector, fromground servicing crewsupwards, and pushedthrough reforms to improvetransparency and accounta-bility.

Security was tackled, too,with the west Africancountry among the first inthe world to introduce full-body scanners at its air-ports.

The approach paid divi-

dends. In 2010, after fiveyears of rigorously improv-ing air-safety procedures,the NCAA was granted acertificate from its US coun-terpart allowing Nigerianairlines to fly direct to thecountry.

Paul Hayes, director of airsafety at Ascend, the avia-tion advisory group, says areduction in the number ofsmall airlines operatingshort-haul domestic flightsin Nigeria could be one fac-tor in improving its safetyrecord.

“It is much harder to reg-ulate when you have a highnumber of small companieseach trying to survive in acompetitive industry,” hesays.

And, yet, there are stilldeep-set problems with avi-ation.

No traveller arriving atMurtala Muhammed Air-port in Lagos is likelyto forget the ordeal; thehumid gloam of the low-slung terminal buildingreminiscent more of anovercrowded hospital wait-ing room than the portalto an economy that is aspir-

ing to be among the world’s20 largest by 2020.

The country’s infrastruc-ture is another hitch. Theparlous state of Nigeria’sroads, coupled with a lackof railways, complicate theprocess of transportingfreight to and from the air-port.

“There has always been ahigh demand for air travelto Africa and Nigeria butthe continent and countryhave, to date, been signifi-cantly under-serviced,” saysDr Michael Arumemi-Ikhide, chief executive ofArik Air, Nigeria’s largestairline by value.

“The industry has beentypified by inefficient andunreliable operations.”

Dr Arumemi-Ikhide says,however, that the situationis improving.

Most of this is beingdriven by the government’srecognition of the pivotalrole the aviation industry islikely to play in economicgrowth.

The government hasmade commitments toimprove and expandNigeria’s airports, while

President GoodluckJonathan said in the daysafter the Dana crash that“every possible effort”would be made to boost thenation’s aviation safety.

The improvements willneed to be deliveredquickly.

The International AirTransport Association haspredicted that the west Afri-can region will experienceannual growth in passengerfigures of 6 per cent until2025.

Moreover, time-poor inter-national investors will bedismayed if Nigeria’s trans-port infrastructure does notkeep step with its economictrajectory.

Mr Demuren warns,though, that rushing to fixthe industry would riskanother accident.

“You cannot cut cornersin this game, the risks aresimply too high.

“We have worked hardand patiently to get into thepremier league of interna-tional air safety. Now, theinfrastructure that servesthe industry needs to stepup and do the same.”

Airlines struggle to shake off their poor imageAviation

More improvementsare needed quickly,says Ed Hammond

Haresh Keswani is unequiv-ocal about the biggest prob-lem he faces.

“The infrastructure hereis a nightmare,” says themanaging director of ArteeGroup, the Nigerian retailchain that operates Sparand Park ’n’ Shop through-out the country. “If I wantto do anything, I have toorganise and build theentire supply chain, fromthe shop, right down thewatering hole at our truckgarage,” he adds.

The gripe is a familiarone among Nigeria’s retail-ers; the low quality of thecountry’s infrastructure animpediment to the modularconstruction upon which

the economics of retailexpansion depend.

From poor quality roadsstifling the passage ofgoods, to complex land buy-ing regulations that havekept a lid on the building ofshopping malls, Nigeria hasnot been fruitful ground forbig-brand retailers.

Conservative estimatesput the scale of the formalretail market in Africa’smost populous country at10 per cent. For wealthyNigerians, those luxurygoods they cannot buy inmarkets have traditionallybeen bought during shop-ping trips in Europe, the USor South Africa.

All that, though, may beabout to change. As well asArtee, which Mr Keswanifounded 24 years ago, theworld’s largest retailers areplanning to step up theirgame in Nigeria. Massmart,the Walmart-controlledsupermarket chain hasannounced plans to grow its

presence in the countryfrom two to 20 stores. Mean-while, Whitey Basson, chiefexecutive of Shoprite, theSouth African retailer, saidthis year the companywould roll out 700 storesacross Nigeria.

According to Bill Russo,

director of retail and con-sumer goods for McKinseyin sub-Saharan Africa, thehigh demand among Nige-rian consumers for the for-mal shopping experience ofa mall is ready to be tapped.

“I don’t know if there is amarket of higher interest

for retailers wanting togrow their operations inAfrica. There is an enor-mous first mover advantageas Nigerian shoppers arevery brand conscious andthose companies which getestablished quickly willbenefit,” Mr Russo adds.

He concurs, however, thatthe country’s infrastructuremust be improved to accom-modate the establishmentof a modern retail sector.

Wandering through thesprawling mess of Balogunmarket, it is apparent howgreat the transition is forNigeria to move to moreinstitutionalised shopping.

The chaotic patchwork ofstalls in central Lagos, saidto be west Africa’s largestmarket, sell everything frompinstripe suits to jars ofcashew nuts and car parts.

Hawkers stroll the nar-row streets, head-mountedbaskets overflowing withpolythene-wrapped briocheand oranges. A man carry-

ing two puppies proudlyassures passersby theywere “born only last week”.

In the gap between theinformal and a more struc-tured market, some retail-ers have turned to anotherkind of outlet: the internet.

Online retailing inNigeria has a chequeredhistory. A handful of webstart-ups has tried in themarket but they have comeunstuck. One of the mainproblems is getting Nige-rian buyers – weary ofinternet-based scams – topart with their credit carddetails.

Jumia, an online retailstart up, is trying to cir-cumvent the problem byrunning a cash on deliveryservice. Tunde Kehinde, oneof Jumia’s co-founders,explains that the businessaims to bridge the discon-nect between Nigerians’desire for good quality, rec-ognised brands, and thelack of places to buy them.

Consumer demand draws in more retailersShopping

Ed Hammond saysmarket is ripe butsupply chain is not

Transition: most shopping is done in informal markets Getty

‘You just cannot cutcorners in thisgame because therisks are too high’



Just as it was across much ofthe world, the collapse ofNigeria’s banking system wasbrutal and swift.

From the mid-2000s the coun-try’s banks, bloated by oil revenuedeposits, began lending aggressively,pouring billions of dollars of unse-cured credit into real estate, thedownstream oil sector and buttressingthe personal fortunes of the politicalelite.

A lax regulatory regime, and the“good-time” malaise engendered by astock market boom that increased themarket capitalisation of listed banksninefold between 2004 and 2007,ensured that the lending went largelyunchecked.

When the global economy started towobble in 2008, sending the price ofoil spiralling downwards, the Nigerianstock market went into freefall, losing70 per cent of its value in 2008-09.

Ten of the country’s lenders,between them accounting for 40 percent of the banking system by value,failed. A subsequent investigation bythe central bank found that manywere giving a misleading impressionof the quality of their assets.

A bailout followed. As well as banksbeing shunted into mergers, the gov-ernment created a so-called “badbank” to assume $11bn of non-per-forming loans from the books of thecommercial banks.

The total price tag for the clean-upis estimated at $21.5bn.

Godwin Emefiele, chief executive ofZenith Bank, Nigeria’s second largestby market value, is confident that the

bailout has set the sector on a positivetrajectory.

In the wake of the financial melt-down, regulators imposed strict capi-tal and operational conditions onNigeria’s banks.

Today, lenders are required toinvest 20 per cent of deposits in liquidassets and a further 10 per cent mustbe parked with the treasury. In addi-tion, banks are required to adhere to astandard reporting calendar with aDecember year end.

“The bailout was a worldwide phe-nomenon and affected Nigeria asmuch as anywhere else. But enoughhas been done and Nigerian banks arenow better regulated than those inEurope or the US,” says Mr Emefiele.

External analysis of the financialstability of the sector has beenimproved gradually.

In a report in July, Fitch, the ratingagency, warned that many of thebanks had levels of core capital thatwere “lower than is appropriate forNigeria’s difficult operating environ-ment”.

However, in a November update, itpraised the slowdown in new lendingundertaken by Nigerian banks.

“The stabilisation in credit growthreduces a build-up of risk so soonafter the balance sheet clean-ups in2010 and 2011 . . . Credit booms inNigeria have historically involved arelaxation of underwriting standardsand an accumulation in portfolioconcentration for the banks. Webelieve a slower pace of loan growthlowers the risk of a relapse in non-performing loans.”

The improved view on the sectorwas echoed by Standard & Poor’s, theratings agency. The group says that,during the next 18 months, it expectsthe capital position of the banks toremain broadly stable.

In spite of the improving capitalpositions, it is unlikely the countrywill address the issue most pressingto average Nigerians: the dearth ofavailable banking facilities.

Recent research by the Economistshowed that more than one in 10 Afri-cans has access to a personal bankaccount. In Nigeria, there are an esti-mated 22m personal bank accounts – astaggeringly low number in a countrywith a population of 160m.

Some lenders, including Zenith, willprovide short-term finance to employ-ees of multinational corporations withwhich they already have lending rela-tionships. “We would like to do con-sumer credit to a much broader rangeof people, but there is not enoughdata available yet,” explains Mr Eme-fiele.

The lack of retail credit hasattracted specialist funds to look atproviding high-interest loans toNigeria’s growing consumer class.

On a clammy November evening,Renaissance Group, the Russia-based emerging markets investmentgroup, gathered senior figures in theLagosian investment community in apenthouse bar on the city’s beach-front. The company used the cocktailparty to herald the launch of a con-sumer finance business.

The company will provide three- tonine-month point-of-sale loans, up toabout $1,200 and typically yieldingabout 8 per cent, to help buyers ofelectrical goods. Renaissance hasalready signed agreements with LGand Samsung.

“All the economic indicators arepointing in the right direction inNigeria,” says George Taylor, chair-man of Renaissance Credit Nigeria.

“You can get a much better returnon capital than you can in Europe oreven eastern Europe, which is start-ing to look more like a mature mar-ket,” he says.

“To begin with, we are expectingquite a lot of people to try and cheatthe system and not repay the loan.But we have a big dog and are notafraid to go door-knocking,” Mr Tay-lor adds.

For decades, the flow ofNigeria’s best technologytalent to overseas destina-tions has followed a predict-able and usually one-waypattern.

Common was the story ofthe engineer who, havinggraduated from the Univer-sity of Ibadan, had fled tograduate school in the USand ended up working on acorporate campus and rais-ing a family in the suburbsof Boston, New York or SanFrancisco.

But these days, the talentis turning around and com-ing back.

Lured by the promise ofan economy in vibrant tran-sition, a growing number ofeducated Nigerians areleaving high-flying careers– or even just the promiseof one – in the developedworld to come home andstart their own technologybusinesses.

The result is a technologysector that is undergoing arapid transformation.

Funke Opeke, who grewup in Nigeria and, aftergraduating from a local uni-versity, went on to Colum-bia University for graduateschool, left her job as anexecutive director of thewholesale division of Veri-zon Communications inNew York to return homein 2005.

After stints with othercompanies, she founded herown, Main One, two yearslater.

Five years on, the com-pany has laid and runs a7,000km submarine cablefrom Portugal to Lagos thathas brought much-neededbroadband bandwidth towest Africa and stands as arare infrastructure successstory.

The attraction of return-ing to Nigeria was obvious,says Ms Opeke. “There’sonly so much value you canadd in the US. You can addincremental value there.You can add fundamental

value in Africa,” she says.Tunde Kehinde and Rap-

hael Afaedor, the co-found-ers of Jumia, a six-month-old online retailer thataspires to be Nigeria’s Ama-zon and has won backingfrom Germany’s RocketInternet and JPMorgan, tella similar story.

Both are graduates ofHarvard Business Schooland both flirted withcareers abroad before com-ing home to Africa.

Mr Kehinde, who is 28and grew up in Lagos, hasworked as a banker forWachovia in the US and asa business analyst for Dia-geo, the drinks giant.

Mr Afaedor, a 36-year-oldGhanaian, has worked inbusiness development forNotore, a chemical and agri-business company, spenttime at the jobs websiteMonster.com in Europe, andonce passed a summer atGoldman Sachs and “didn’tlike it”.

Both are evangelists for abusiness they see as a wayto transform how Nigeriansshop, in the same way thatonline retailers have in theUS and Europe.

And both believe that,after numerous false starts,Nigeria and its technology

sector have reached animportant moment.

“You get a sense thatsomething is happening,”says Mr Kehinde. “Thechance to build an amazingbusiness happens once in alifetime. You don’t get thatopportunity twice.”

Nigeria’s tech sector haslong struggled with its owninfrastructure problems.

Internet penetration – atroughly 26 per cent of thepopulation, according to the

International Telecommuni-cations Union, the UNagency – remains low.

Moreover, few of thecountry’s roughly 40minternet users have accessto the internet at home andeven fewer – just 6 per centof the population – haveaccess to broadband inter-net.

Ms Opeke, whose busi-ness, Main One, sells whole-sale internet access to local

providers, likens the prob-lem to having built a high-way before all the feederroads – the “last mile”cables that bring broadbandinto homes – have beenbuilt.

The result, she says, isthat Main One is “findingthat we have to developmore infrastructure thanwe expected”.

Eventually, she hopes,that investment will payoff. To her chagrin, Nigeriais for now using just 5 percent of the bandwidth thatMain One has broughtonshore.

But increasingly powerfulwireless options such asWiMax are providing thesolution, she says.

And Ms Opeke is notalone in believing thatNigerians are hungry forthe internet and the won-ders it can bring.

As Ms Opeke and othersbuild and wait for theneeded infrastructure, oth-ers see a different solution.

More than 100m Nigeriansnow have mobile phones,and smart phones withinternet access are a grow-ing – and increasinglyaffordable presence – in themarket.

Like many internet entre-preneurs, Mr Kehinde andMr Afaedor guard theirnumbers closely.

But they do say that halfof the traffic to Jumia’swebsite in search of thephones, books, householdappliances and even polkadot cravats that the retailersells come from mobiledevices.

Retailers such as Jumiaare also finding a way toget around Nigerians’ reluc-tance to pay online and partwith credit card details,rational behaviour in acountry renowned for itscredit card fraud.

The 25 motorcycle driversJumia uses to deliver goodsin Lagos accept cash ondelivery, for example. Thereis also hope that a push bythe central bank to developcashless payment systemswill help.

All of which means thatfor entrepreneurs like MsOpeke, Mr Kehinde and MrAfaedor, Nigeria’s technol-ogy sector remains an allur-ing proposition.

Technology business prospectslure entrepreneurs back homeEcommerce

The brain drain isreversing as talentreturns, writesShawn Donnan

‘The chance tobuild an amazingbusiness happensonce in a lifetime’

Funke Opeke set up Main One, which sells internet access

Improvementsapplauded butlack of lendingcauses concernBanking Imposition of strict capital andoperational conditions has won the approvalof rating agencies, says Ed Hammond

As he sits in his highrise office onLagos Island, the city’s old financialdistrict, Oscar Onyema can afford tosmile now.

Hired as chief executive of thebeleaguered Nigerian Stock Exchange inApril 2011, he saw the market fallfurther as investors offloaded shares.

By the end of last year, the AllShareIndex had tumbled 16 per cent, nearingthe lows of the 2008 crash that sawabout twothirds of the exchange’smarket capitalisation wiped out.

This year is different, with the indexup by 27 per cent. “Investors arecoming back,” Mr Onyema says. “Theyare seeing returns, and what is beingdone to improve regulation.”

It may be premature to suggest thisis the start of a sustained rally. But fewdispute that reforms implemented byMr Onyema, and by the Securities andExchange Commission, have helpedrestore some investor confidence,especially domestically.

While foreign investors still dominatetrading volumes, local investors arenow responsible for about 33 per centof transactions, up from 30 per cent ayear ago, Mr Onyema says.

The 2008 crash was caused by abubble in share prices and irresponsiblelending by banks, sharp practices bybrokers, malfeasance and lax regulation.

Mr Onyema quickly set aboutshaking things up, starting with thequoted companies themselves. Lastyear, he briefly suspended 48companies on the exchange for failingto file accounts on time. Eight are dueto be delisted for noncompliance. Finesfor breaching regulations have beenincreased by up to 10 times.

Mr Onyema says that surveillance oftraders and brokers has also beenimproved to prevent marketmanipulation. In the past, enforcementwas selective, he says. “I think peoplerealise it’s a much fairer playing field.”

This year’s share rally has been ledby banking, industrial and consumergoods stocks. Sven Richter, head offrontier markets at Renaissance Capital,the Moscowbased investment bank,says that, while the consumer goodscompanies may be overpriced,stocks in general remain cheapin global terms. Despite thestrong performance in 2012,the AllShare Index is still lessthan half of its 2008 peak.

“There has been a lot ofcatch up, but there are stillhuge prospects. Most investorsbelieve that the governmentreforms [of the power andoil sectors

in particular] will succeed, and this willdrive growth,” Mr Richter says.

Difficulties remain. Liquidity on theexchange is still too low, and brokeragefees too high, Mr Richter says. One ofthe biggest complaints from investorsis that there are more brokers – about235 – than there are stocks.

Mr Onyema says this number shouldcome down once new minimumstandards for capital, training andtechnology at brokerdealer firms areintroduced. He is reluctant to say howmany brokers will disappear, butKayode Akindele, partner at 46Parallels, an investment firm, says itshould be the majority of them.

“The market should not supportmore than 30 or 40 brokers,” he says.

Mr Onyema has also introducedexchange traded funds, and a fixedincome trading platform for retailinvestors is planned. His goal is tobring more companies to the market.While listings boomed before the crash,there have been only a few each yearsince. And quoted companies looking toraise cash have generally not seenrights issues as a viable option.

The stock exchange is talking toabout 500 unquoted companies,judging that the improved market willtempt dozens of them to list eventually.Mr Onyema says he is especially keento attract companies from sectors thatare crucial to the economy but arecurrently poorly represented. Theseinclude mobile service providers, bothlocal ones and foreignowned operatorssuch as South Africa’s MTN, which hasmore than 40m subscribers out of atotal market of 100m.

“People understand what mobileoperators do. If MTN’s Nigeria operationwere to list, it would be oversubscribed,no doubt about it,” Mr Onyema says.

The power sector, which isundergoing privatisation, presentsanother opportunity. The 15 companiesrecently named as preferred bidders forthe state generation and distributionassets will be encouraged to list withina few years of taking over the assets.

Though analysts such as BismarckRewane, of the Lagos consultancy

Financial Derivatives, says thatthe NSE’s listing targets are

unrealistic, Mr Onyemahopes that up to 20companies may come tomarket in 2013.

Xan Rice

Stock exchange Reforms restore confidence

Loans: Zenith says it needs more data before it can extend consumer credit

Oscar Onyemahas shaken thingsup at the NSE



Only seven years ago,Ahmadu Bello Way, thecoastal highway that runsalong Lagos’ Bar Beach, layat the mercy of the vicious

tides of the Atlantic Ocean.Consistently hounded by the surg-

ing waters, many residents fled.Today, a wall of giant interlockingstones stands sentry against theocean, and the once-desolate beach-front is bustling again. Behind thatwall, far out in the ocean, another,even more imposing wall is rising.

Known as the Great Wall of Lagos,it will form the outer boundary of anew city, touted in publicity materialas “the Manhattan of west Africa”.When completed at the end of thedecade, it will offer luxury residentialand office accommodation to about400,000 people.

The cars hurtling along AhmaduBello Way will notice something elseapart from the stones keeping theocean out. A few months ago, thestate government rolled out a new setof traffic rules banning okadas – thecity’s ubiquitous motorcycle-taxisfamous for their menacing horns andtheir frequent accidents – from mainhighways.

The business district on the marinawill be unrecognisable to anyone whoknew it 10 years ago. The urchins whoonce laid claim to the area have sincebeen reformed into uniformed trafficagents and tax collectors.

A new emergency number helped ataxi union speedily recover one of itsvehicles, stolen at gunpoint, says Sub-omi, a taxi driver in Ikoyi.

In the old Lagos, that would havebeen unthinkable, as would the trafficlights and street markings that havebecome normal features on thestreets.

The state has an office for public-private partnerships overseeing con-cessions for everything from publicmortuaries to six-lane tolled high-ways. Two-thirds of its revenues comefrom taxes, bucking a national trendthat sees states desperate for “alloca-tions” from monthly federal oilreceipts.

Across the city, work is in progresson a light rail project that promises tomake a dent on Lagos’ trademark traf-fic jams. On the Lekki Peninsula, thecity’s fastest developing corridor, an

international airport is being builtthat will rival the federal govern-ment’s Murtala Mohammed Interna-tional Airport.

The man pushing the reset buttonin this teeming metropolis of 15m peo-ple is Babatunde Fashola, the stategovernor, handpicked from relativeobscurity by Bola Tinubu, the formerpro-democracy activist who returnedfrom exile to rule the state from 1999to 2007, and who today leads theAction Congress of Nigeria (ACN)party, the country’s biggest oppositionparty.

Lagos is the model for the rest ofsouthwest Nigeria, where six of sevenstates are controlled by the ACN.

The ambitious road construction

projects that have been a familiarsight in Lagos are now springing upin state capitals across the region.

Even the authorities in Abujaappear to be borrowing a leaf from theLagos handbook, with their often ill-fated attempts at public-private part-nerships.

But several difficulties remain. Onecriticism thrown Mr Fashola’s way isthat he runs a shamelessly elitist gov-ernment. As evidence, critics point to:the tolled, six-lane Lekki-Epe Express-way; $6m Eko Atlantic City project,where the cheapest land prices will be$850 per sq m; the restriction on oka-das, a provider of employment fortens of thousands of jobless men; thesustained demolition of shanties with-

How to make a chaotic city work betterLagos Transformation of the teeming metropolis has not been to the advantage of everyone, writes Tolu Ogunlesi

Luxury: the $6mresidential and officeproject underconstruction off Lagos istouted as the ‘Manhattanof west Africa’ Eko Atlantic

‘Are we using the elitistargument to argue againstcompliance with laws. . . forpublic interest and safety?’

out making alternative arrangements.Before Mr Fashola’s reforms, taxi

driver Subomi would have been ableto get a commercial licence for hiscar, which he would then havepainted in the city’s trademark yel-low-and-black colours.

“Now you can only register a brandnew vehicle as taxi. How many of uscan afford that?” he laments.

The cabs that once defined the cityare being phased out and replaced bybrand new cabs that cost more to ownand, as a result, charge significantlyhigher fares. To circumvent the newsystem, Subomi, who prefers not toprovide his surname, keeps his cabunmarked.

To evade uniformed officials out to

nab cabs without commerciallicences, he cannot attempt to pickcustomers off the streets. Instead, hedepends on a network of clients whosummon him via mobile phone.

Across the city, the poorer classesgenerally feel short-changed – theirmarkets and shanties and okadas bearthe bulk of the brunt of Mr Fashola’spolicies. The government insists thesereforms are necessary.

Moji Rhodes, deputy chief of staff toMr Fashola, queries the “correlation”between efforts to make the city work,and the “elitism” critics like to talkabout. “Are we using the elitist argu-ment to argue against compliancewith laws that are established for pub-lic interest and safety?”



When Heineken set out toplan this year’s annual con-fab for the analysts andinvestors who track its for-tunes around the world itdid not take long to decideon a venue.With its dusty streetspocked with occasionallyepic potholes, 1970s vintageairport, and notorious pro-pensity for “go-slows”, ortraffic jams, malarial Lagosoffered the perfect place fora conference earlier thismonth.

The brewer does 60 percent of its business inemerging markets and sellsmore beer in Nigeria than itdoes anywhere in the worldbar Mexico. It is also animportant component in along-term bet Heineken ismaking on Africa.

The bet is not a new one.Nigerian Breweries, the big-ger of its two local subsidi-aries, was incorporated in1946 (Heineken took major-ity ownership in 2000). It isalso not alone among multi-nationals chasing the risingpurchasing power of Nigeri-ans.

Unilever boasts that itslocal subsidiary, incorpo-rated in 1923, is one of theoldest manufacturers in thecountry. Cadbury andNestlé have had thrivinglocal operations for yearsand listed local operatorssuch as Flour Mills Nigeriaare attracting the interestof foreign investors.

But while the long-termpicture remains compelling,2012 has offered an exampleof the pitfalls. The Januarydecision by the governmentto reduce fuel subsidies,epic floods, and growingsecurity problems in thenorth all hit companies thatsell to consumers.

The result is, this year,“consumer goods compa-nies will probably have hadtheir worst year since 1998”,says Keith Richards, man-aging director of Promasi-dor Nigeria, a group thatsells powdered milk andother goods targeting thelow end of the market.

Outside a growing middleclass, most Nigeriansremain incredibly sensitiveto price rises. By Mr Rich-ards’ estimates, the averagefactory worker in Lagosspends 30 to 40 per cent ofhis or her take-home pay ongetting to and from work.

Still, the promise of theNigerian market is alluringfor many. Binta Drave, whowatches the Nigerian con-sumer market for London-based broker Exotix, sayswhile companies such asUnilever and Cadbury haveseen flat growth in reve-nues this year it will not belong before they see areturn to the longer termtrend of 15 to 20 per centtop line growth. “Beyond2012, we think there shouldbe an improvement” in theperformance of consumercompanies, she says.

If anything. Ms Dravesays, the problem now isthat, even after a difficultyear, for many investorsthe stocks of many locallisted subsidiaries have val-uations that look high.Nestlé and Unilever’s locallistings trade at price toearnings ratios of 25-26 percent.

The Nigerian StockExchange’s benchmarkindex is also up almost 30per cent on the year,prompting many to fear acorrection is just aroundthe corner.

Heineken now claims thatits brands have a 70 percent share of the Nigerianbeer market which sawalmost 20m hectolitres soldin 2011. It expects that mar-ket to grow at an annualrate of almost 6 per cent forthe foreseeable future.

Its sales have taken a hitthis year. But any short-term problems have donelittle to reduce the allure ofNigeria and its beer market.

“The dynamics don’tchange,” says Siep Hiem-stra, the brewer’s regionalpresident for Africa and theMiddle East. “The bottomline is [Nigeria is] anemerging market.” Andemerging markets “arewhat they are. Theyemerge!”

Heinekenshows itis in forlong haul

Consumer goods

Conference choicehighlights the bet onAfrica’s future, saysShawn Donnan

After Nigeria’s return tocivilian rule 13 years ago,its leaders made a show ofglobetrotting in search offoreign direct investment(FDI). In 2002 one critic saidOlusegun Obasanjo, thethen-president, had alreadyspent a third of his threeyears in office out of thecountry. The trips abroadhave since slowed, as it nowtakes less effort to convincepotential investors thatNigeria is worth looking at.

According to the Ministryof Trade and Investment,FDI into Nigeria rose to$8.9bn in 2011, up from $2bna decade ago. This com-pares strongly with otherAfrican countries, repre-senting 55 per cent of theforeign investment intowest Africa, and a sixth ofthe continent’s total.

It also came despite stag-nation in the oil and gasindustry, which is responsi-ble for nearly 80 per cent ofthe country earnings.

Those ploughing inmoney include investorsacross a range of sectors,from food and clothes retail-ers to hoteliers and con-struction, logistics, powerand agricultural companies.Some were proceeding withunderstandable cautiongiven the challenges thecountry can present.

On the one hand there isthe obvious potential – ahuge population, a growingmiddle class, and an ambi-tious privatisation agenda.On the other hand are long-standing issues such as cor-ruption, poor infrastruc-ture, and an Islamist insur-gency in the northeast.

The investment story eve-ryone aspires to replicate isthat of MTN. In 2001, whenthe world was still wary ofinvesting in Nigeria, theSouth African mobile phonecompany made a bid for oneof three mobile licences onoffer. In its first year ofoperations it racked up300,000 subscribers. Today,

it has more than 40m sub-scribers, and a large chunkof the company’s total reve-nues come from Nigeria.

Telecoms infrastructureis still an FDI hotspot, saysAfolabi Williams, a Lagos-based private equity inves-tor. Retailing and consumergoods is another. Since itopened its first store inNigeria in 2005, Shoprite,the South African super-market chain, has addedfive more.

This year Tiger Brands,the South African consumergoods firm, acquired 63 percent of Dangote Flour Mills,

adding to the 2011 acquisi-tion of Deli Foods and 49per cent of UAC Foods.

In August SABMilleropened a $100m greenfieldbrewery in the southeast,after initially makinginroads in to the countryvia acquisition of plants inPort Harcourt and Ibadan.

Economic reforms from2003-06 set the stage for thesurge in Nigeria’s attrac-tiveness to investors. Thegovernment ramped up itsprivatisation strategy, anddemonstrated greater com-mitment to the battleagainst corruption by estab-lishing an Economic andFinancial Crimes Commis-sion, and a Nigerian arm of

the Extractive IndustriesTransparency Initiative.

The Central Bank’s con-solidation plan compelledthe country’s 80-plus banksinto a series of mergers andacquisitions that left 25much larger institutions.

Pension reforms tookshape, and, to cap it all,Nigeria’s $30bn foreign debtwas wiped out in an unprec-edented deal with the Lon-don and Paris Clubs.

During the first decade ofthe 21st century Nigeriamaintained annual GDPgrowth rates often above 7per cent, before dipping to6.5 per cent this year.

Foreign investment willsurge further if the govern-ment fixes the oil and gassector. A bill to reform theindustry has languished inparliament for years, withthe resultant uncertaintyforcing oil companies to puton hold plans for freshexploration and production.

The struggles of the oilindustry highlight the diffi-culties that can accompanydealing with the Nigeriangovernment. Signed con-tracts are regularly can-celled. In 2007 PresidentUmaru Yar’Adua revoked anumber of “oil-for-infra-structure” deals his prede-cessor had signed withAsian oil companies.

This month, the presi-dency announced that acrucial $24m contract forCanadian firm, ManitobaHydro, to manage one ofthe privatised assets of thestate-owned power com-pany, had been cancelled,only to reverse its positiona few days later.

With privatisation ongo-ing, the power sector isexpected to be a big recipi-ent of foreign investment.So too are newer areas,such as e-commerce. Thisyear, Iroko TV, a moviestreaming service that tar-gets the African diasporawith Nollywood films,received $8m from Ameri-can hedge fund Tiger Glo-bal, and another $2m Swed-ish company Kinnevik.

Despite the market’spotential, Mr Williams saysinvestors should not rushin. “Choose the right part-ners, and take a medium tolong-term view. It takestime and is expensive.”

Market reforms bringfresh flows of fundingForeign investment

Tolu Ogunlesi saysthe days of going capin hand are over asmoney pours in

GDP growth dipped to 6.5%

‘Choose the rightpartners, and takea longterm view.[FDI] takes timeand is expensive’

Had he been a child of thesixties, Adeniyi Adewusiwould have seen Nigeria’sglory days as a world lead-ing food producer: the big-

gest exporter of peanuts and palm oil,and an important operator in thecocoa and cotton markets.

Instead, as a farmer’s son born inthe 1970s, Mr Adewusi witnessed thecountry’s steady agricultural decline.The oil boom was starting, and farm-ing was neglected as the petrodollarsflowed. “Agriculture pretty much dieda death,” he says.

After school, he studied electricalengineering in England and thenworked in IT. But when he returnedto Nigeria a few years ago he feltagriculture was ripe for resurrection.

The population had soared to 160m,and so had the food import bill.Though Nigeria has the climate andland to grow rice – only about half the75m hectares of arable land is used –this year it will import 2.45m tonnesof it, more than any other country inthe world.

Billions of dollars will also be spenton buying sugar, wheat and fish fromabroad; in 2010 the food import billwas $10bn. “We should not be import-ing a single grain of rice,” says MrAdewusi, describing the agriculturalpotential as “ridiculous, just ridicu-lous”.

Together with two partners in thefinancial sector, he explored the possi-bility of starting a commercial farmfrom scratch, growing crops such asrice, maize and soya. But poor infra-structure and high interest ratesmeant it was not feasible.

Instead, they decided to move upthe value chain, forming a companycalled Food Pro and taking over acashew nut factory owned by MrAdewusi’s father in Ilorin, the capitalof Kwara state. The hand processingmethod was mechanised, and outputand quality quickly improved. Most ofthe nuts are exported to the UK, andsales will reach $750,000 this year. Thetarget for 2013 is $4m.

Since much of the produce the coun-try does export – including cashews –is usually not the finished product, MrAdewusi has the satisfaction of know-ing that value addition is possible inNigeria.

Yet he still wants to get into pri-

mary production. “It’s a question ofthe government having the will tomake this possible,” he says. “Look atShonga Farms – it shows what can bedone if resources are put in.”

Shonga was set up in 2005, when 13white Zimbabwean farmers who hadlost their farms under a land reformprogramme were invited to startafresh by Bukola Saraki, the then-gov-ernor of Kwara state. They were eachgiven 1,000 hectares of land on a 25-year lease, access roads, machinery toclear the terrain, and start-up capital.

The early years were hard, however.The promised irrigation system was

never delivered, and maize and ricecrops failed. Five of the farmers left.Of those who remain, the four poultryfarmers are doing the best. Thosefocusing on dairy and crops havefound it more difficult, especially tofind reliable buyers.

Recent moves by the government toforce dairy companies and millers touse local ingredients – part of a strat-egy by Akinwumi Adesina, the minis-ter of agriculture, to encouragedomestic production – have, however,provided a lifeline.

Obtaining funding has also been abig problem. The Shonga farmers say

banks are not interested in agricul-ture. The central bank is trying tochange this with loan guarantees tocommercial banks that lend to farm-ers.

Graham Hatty, a Zimbabwean whogrows cassava, one of Nigeria’s sta-ples, says that large-scale commercialagriculture can work “if things keepchanging”.

Kola Masha agrees. Previously chiefof staff to the agriculture minister,and a former executive at Notore, theagricultural conglomerate, Mr Mashais managing director of Doreo Part-ners, an investment company.

The solution does not necessarily liein sprawling commercial farms, MrMasha says, but rather in improvingsmallholder ones. He says up to 70 percent of the country’s workforce isinvolved in agriculture directly orindirectly. The sector contributesabout 40 per cent of gross domesticproduct.

“Farming is Nigeria’s job creationengine,” he says. “The problem is theyields are low. They are good farmers,but they can barely access agricul-tural inputs, working capital and gov-ernment services.”

Doreo’s solution was to create an“agricultural franchise” called Bab-ban Gona, which means “greatfarmer” in Hausa.

Those who sign up receive trainingin business and agronomy, access tocredit, and inputs, including soil anal-ysis, seeds, fertilisers and crop protec-tion products. At harvest time, theyget the use of a thresher, and aregiven bags and thread to pack theirproduce, some of which Doreo storesand sells for them.

Doreo has raised $1m, and is work-ing with 107 farmers in Kaduna, innorthern Nigeria. Each has about 1.1hectares of land. Early results arepromising, with yields more than dou-bling, Mr Masha says. Doreo wants tohave 1,500 hectares in the programmenext year, and 1m hectares by 2020.

Mr Masha believes his model canreduce food imports but equallyimportantly create much-needed jobs.

“Unless we employ everyone asdesk people, there are going to be alot of people trying to make a livingoff small pieces of land. We have gotto get serious about agriculture veryquickly.”

Farming revolution has yet to take offAgriculture The nation imports a huge bulk of its rice each year, such has been the decline in rural areas, explains Xan Rice

Soaring costs:food purchasesfrom abroad haveadded up to$10bn a yearReuters ‘Up to 70%

of thecountry’sworkforce isinvolved inagriculture’



When Arthouse, the Lagosgallery and auctioneer, heldits first sale in 2008, KavitaChellaram, the managingdirector, had a simple goal.

A long-time collector ofNigerian modern and con-temporary art – the walls ather Lagos home hang heavywith works by some of thelions – she was eager toestablish a market.

“There was no transpar-ency of price,” she says ofthe days before that firstauction, which saw a paint-ing by Bruce Onobrakpeya,one of Nigeria’s famed“Zaria rebels”, fetch morethan $80,000.

Just four years on, themarket Mrs Chellaramhelped establish is boomingand prices are soaring forthe best works by Nigeriancontemporary artists, thefinest of which are now cel-ebrated around the world.

In May, Bonhams, theLondon auction house,achieved a world recordprice for El Anatsui, theGhanaian-born artist, whenit sold his “New WorldMap”, a vast tapestry madeout of flattened aluminiumbottle caps and copper wire,for more than £540,000.

The price in part reflectedthe rise of Mr Anatsui, whosince 1975 has lived andworked in Nigeria andheads the sculpture depart-ment at the University ofNigeria in Nsukka in thesoutheast of the country.

Now in his late 60s andone of Africa’s most cele-brated contemporary art-ists, he has seen a surge inpopularity (and prices)since he began making hismonumental tapestries outof bottle caps in 1999.

One of those workswowed visitors to the 2007Venice Biennale and hisname features in the collec-tions of the BritishMuseum, the MetropolitanMuseum of Art and theSmithsonian.

But beneath that head-line-grabbing success was abigger trend. African con-temporary art is hot andnone is hotter than that

coming out of Nigeria thesedays.

When five years ago Bon-hams ran its first “AfricaNow” auction it had toassemble a list of potentialbuyers from scratch, saysGiles Peppiatt, the auction-eer’s director of contempo-rary African art.

“The first two sales were– to use the euphemism –quite challenging,” he says.

This year, however, Bon-hams sent out more than3,500 copies of the cataloguefor the sale to a clientelethat included serious collec-tors in the UK, continentalEurope and Africa, and pri-vate buyers and institutionsin the US.

The growing interest hasdriven up prices and madestars out of some artistssuch as Mr Anatsui. Butmuch of what is offered forsale remains affordable byinternational standards.

The May sale at Bonhams

included many works bycelebrated Nigerian artists,such as Mr Onobrakpeya,with estimates of less than£2,000.

Prices rose substantiallyfor better works by Mr Ono-brakpeya and other ZariaArt Society “rebels” such as

Yusuf Grillo.Many of the works offered

in a November 26 sale atArthouse in Lagos carriedestimates of less than$10,000.

The cover image for thecatalogue, a minimalist

black graphite depiction ofan “Adorable Maiden” witha teary vivid yellow pasteleye by Victor Ekpuk, wasexpected to sell for up to$7,500.

Even large canvases suchas “Talking”, a vivid blueoil and acrylic paintingdepicting two etherealheads facing each other bycontemporary artist ChidiKwubiri was offered withthe expectation that itwould draw bids up to$12,500.

All of which leads expertssuch as Mr Peppiatt toargue that the marketfor Nigerian art is a long,long way from bubble terri-tory.

Prices, he says, have notseen “one of those lunaticrises that you see in somemarkets where you know itis going to collapse at somepoint”.

Part of the reason is thata growing affluent class ofNigerians is becoming inter-ested in art and starting toconstitute a significantpresence at auctions,whether they are held inLondon or Lagos.

“We keep getting newNigerians coming in,” saysMrs Chellaram. “They’vegot their cars. They’ve builttheir houses. Now theywant to fill their walls.”

Accompanying that is agrowing consciousness inNigeria about the value ofart and the need to nurtureyoung artists.

Arthouse, for example, isestablishing a foundationto help fund the bestyoung contemporary artistsemerging from Nigeria’s artschools and Mrs Chellaramspeaks of setting up a cen-tre in Lagos that will drawinternational artists for res-idencies.

“We have young contem-porary artists who aredoing abstract and figura-tive art that can competearound the world,” shesays.

But, she adds: “We’re justat the tip of the iceberg in[terms of] tapping into peo-ple.”

Trend for African art drivessurge in sales and pricesCulture Interest grows but work is still affordable, says Shawn Donnan

‘We have youngcontemporaryartists who cancompete aroundthe world’

El Anatsui’s ‘New World Map’ fetched a record £540,000

During the oil boom of theearly 1970s, Yakubu Gowon,head of state, famouslydeclared that Nigeria’sproblem was not making

money but finding ways of spendingit. Purchases of luxury goods fromabroad, it turned out, were one way toempty wallets.

By 1977, with Gen Gowon chasedout of power, spending on luxury wasso excessive that Olusegun Obasanjo,another military ruler before his laterdemocratic election, banned importsof lace and Champagne.

What has proved impossible to cur-tail in the decades since, is the desire.Today, the giant billboard overlookingthe bridge between Lagos’ financialdistrict and its smartest suburb adver-tises Moët Champagne. Just a fewhundred metres on is a Porsche deal-ership that opened in March.

“Nigerians are very partial to lux-ury brands,” says Michael Wagner,brand manager for Porsche in Nigeria.Its prices for the Panamera brandstart at N24m. This in a city wherefew roads are good enough – or emptyenough – to drive fast.

Today’s civilian governments aremore likely to fawn over foreignbrands.

And, with its super-rich elite and agrowing middle class that places apremium on status, Nigeria is anincreasingly lucrative market for lux-ury goods companies

Bobo Omotayo runs a Lagos-basedpublic relations company that hasMoët Hennessy as one of its clients.As evidence of the size of the market,

he says Cyrille Gautier Auriol, Hen-nessy’s global ambassador, visits thecountry about twice a year.

It is not all fizz, but sparklers too. InNovember 2011, Chris Aire, the Nigeri-an-born, California-based jeweller andwatchmaker, opened a store at theHilton in Abuja, at an event attendedby politicians, music stars and diplo-mats.

The self-styled “King of Bling”, MrAire is known for selling diamondjewellery to celebrities such as Ange-lina Jolie, Celine Dion, 50 Cent, OprahWinfrey and Jay-Z.

The focus on Nigeria by luxurybrands may seem odd given that two-thirds of people live in poverty. Yetthe huge population means that the “1per cent” elite class represents about1.6m people.

Among these are jet-setters whoseinsistence on stylish travel has madeBritish Airways first-class ticketsfrom Lagos to London almost twicethe price of those from neighbouringGhana. Louis Vuitton luggage is not arare sight at check-in counters.

For local air travel there is alwaysthe private jet. In September, RobertHabjanic, Bombardier’s sales directorfor Africa visited Lagos to showcasethe $60m Global 6000 business jet.

He says there are more than 30Bombardier jets in private ownershipin Nigeria. Their owners includeAliko Dangote, Africa’s richest man,David Oyedepo, Nigeria’s richest Pen-tecostal preacher, and Rotimi Amae-chi, the governor of one of its richeststates.

One of the newest owners of an air-

craft is a 27-year-old university stu-dent who won a Cessna 182T in acompetition run by MTN, the coun-try’s biggest mobile operator.

Mr Wagner at Porsche admits thatluxury brands constantly fight accu-sations of peddling unattainable lux-ury amid widespread poverty, butsays the company is creating much-needed employment, and top-classtraining for staff.

“This [showroom] is built to thestandard of any Porsche Centre any-where in the world,” he says.

“Customers can expect the samelevels of service as they would over-seas.”

For all the money sloshing around,there is an element of show to thespending, which may not always be inline with the customer’s earnings.“Even if we can’t afford [Moët], westill love to serve it at our parties,”says Mr Omotayo.

Wealth andattention tostyle draw inbig brandsLuxury A superrich elite and growing middleclass that places a premium on status, makesfor a lucrative market, says Tolu Ogunlesi

House-hunters driving thebeach road on BananaIsland are afforded a goodview of the two faces of theLagos property market.Properties sell for an aver-age of N300m ($1.9m). Theluxury enclave is a dreamfor local estate agents; theequal of Mayfair in Londonor the Seventh Arrondisse-ment in Paris.

Residents range fromformer state governors toretail millionaires andretired football players.Total, the French oil com-pany, rents apartmentshere for its Nigeria-basedexecutives.

But walled plots thatpunctuate the long marchof cream and apricot-washed villas bear the samered-paint warning over andover: “Caveat Emptor. Thisland is NOT for sale.”

Land and property toutedby individuals or companiesthat neither own, nor havea mandate to sell, is rife inbetter-heeled neighbour-hoods.

Peter Welborn, head ofAfrica at Knight Frank, theproperty consultancy, says:“Perceptions, perhaps morethan reality, of corruptionand difficulty of doing busi-ness are deterring foreignbuyers from investing inthe country’s real estate.”

As well as a restrictiveland ownership structure,that allows leasehold for amaximum of 99 years beforethe plot must be returned tothe government, there areprohibitive costs. Stampduty land tax (SDLT) isclose to 20 per cent – morethan double the top SDLT

rate in the UK – whileagency fees, the responsibil-ity of the buyer, typicallyrack up to 10 per cent of theprice.

However, Mr Welbornargues that a population of160m with aspirations tohome ownership twinnedwith demand for betterquality commercial prop-erty means there are goodopportunities for thoseinvestors willing to takerisk.

“There are opportunitiesacross the sub-sectors ofreal estate,” he says, add-ing: “Take retail, for exam-ple. It is ridiculous thatthere are more shoppingcentres in Nairobi thanthere are in Lagos whenyou look at population anddisposable income demo-graphics. Someone needs tobuild more malls.”

Rents in the commercialproperty market mirror therising house prices onBanana Island. CentralLagos, “Grade A” commer-cial property rents topped$950 per square metre in2010, up from $750 psm in2008, and are expected totop $1,000 this year.

In spite of the demanddevelopers are being stifledby a lack of bank financing.As in Europe, the US andJapan, the subsidence ofNigeria’s banking sectorand subsequent bailout in2010 has provoked a retreatof lending in real estate.The banks, hamstrung byhigher capital requirements

and tighter regulation, areloath to write loans securedagainst fixed, and oftenilliquid, assets.

From his eighth-flooroffice, Godwin Emefiele,chief executive of ZenithBank, Nigeria’s second larg-est by market value, looksout over the scores of unoc-cupied office blocks thatpunctuate Lagos’ low-slungskyline.

“Commercial real estateis doing badly because a lotof people lost money on thesector during the crash,” hesays. “In the pre-2009period, banks would lend 70to 80 per cent of the valueof the property. That is notsustainable now and wewouldn’t want to do loansabove 30 per of the value.”

In spite of this, there areopportunities. Niche prop-erty markets such as stu-dent housing, are up forgrabs. The November issueof the Lagos-focused realestate publication, PremiumProperty Index, estimatedpurpose-built housing cancater for fewer than 30 percent of its students.

The market for studenthousing is the fastest grow-ing real estate sector inEurope, with more than£2bn invested in the UKalone during the first ninemonths of 2012, accordingto research from propertygroup CBRE. The establish-ment of an institutionalinvestment model for thesector in Nigeria would belikely to attract interestfrom overseas.

Deepak Jain, head of con-sultancy for Jones LangLaSalle in Africa, says:“The real estate market iscurrently in a transitionphase leading to a morestructured environment forinvestors and end-users.

“But macro level risksrelated to the political land-scape, corporate governanceand security are foremost inthe minds of internationalinvestors looking at Nigeriaat the moment.”

Real estate groups areready to take a riskProperty

Ed Hammond findsa big potentialmarket forcommercial spaceand home ownership

Status symbol:Porsche has openeda dealership in Lagos

Reuters

Banana Island

The hugepopulation meansthe ‘1%’ elite classrepresents about1.6m people


Investing in Nigeria

Documents

unwieldy resource trap

gross domestic product

murtala muhammed airport

general muhammadu buhari

regions textile factories

human rights watch

international monetary fund

young contemporary artists