Recently, a smart and articulate Nigerian, Rolake Akinkugbe-Filani, chief commercial officer at Mixta Africa, was interviewed by CNN’s Zain Asher on her new One World show. The topic was the escalating insurgency in Mozambique, which has taken over 2,000 lives and displaced more than 700,000 people. In addition, the oil company Total declared force majeure on a $20bn LNG project and other energy companies have delayed investment decisions. The project was expected to generate over $100bn in revenues for Mozambique over 25 years, not to mention benefits to local firms from about $2.5bn in contracts.
Asher then asked Akinkugbe-Filani: “What hangs in the balance for Mozambique economically?” With impressive oracy, she gave an insightful analysis of the situation. “Mozambique’s entire economic future hangs in the balance”, she said. But what struck a chord with me was the comment she posted on LinkedIn with the video. The situation in Mozambique, she said, “reminds me that political stability and economic prosperity are inextricably linked.”
Of course, Akinkugbe-Filani should know. She started her career as a political and country risk analyst, advising companies investing in sub-Saharan Africa on their market-entry strategy, and how political, economic and regulatory risks could affect their investments.
For me, this is a subject of both intellectual and practical interest. From an academic point of view, I remember fondly a course I took in my LLM programme several years ago, titled “Law of Finance and Foreign Investment in Emerging Economies.” Central to the course was the idea that anyone considering investing or funding projects in a foreign country must, among other things, thoroughly assess and consider political risks in their decisions.
If political instability and insecurity can damage the reputation of a country and make it unattractive to foreign investors, Nigeria is a perfect case
Later, in my professional life, I have seen how political risks shape the investment decisions of companies across Europe and have experienced how discussions about political risks in foreign countries take place at the EU level and within the UK government.
Of course, this is understandable, or should be. Risks of a political nature, such as political instability, civil disorder, insecurity as well as direct, indirect and incidental interferences, pose particularly challenges for foreign investors. This is because political risks cover things that a country, rather than a foreign investor, has a greater ability to control or influence. Of course, an investor can try to insure against such risks, but it’s far better if they didn’t exist.
Truth is, in a competitive world, foreign investors would simply avoid a politically sensitive country unless the reward is so high that they are prepared to accept the political risks, as sometimes is the case with investments in the lucrative oil industry. But, even so, it’s hardly true that foreign investors would regard political risks, such as insurgency, militancy and sabotage, as low risk or low cost as to be ignored. For instance, in one study, the United Nations Conference on Trade and Development (UNCTAD) pointed to heightened insecurity in the Niger Delta as a major reason foreign investment in Nigeria’s oil industry had fallen.
As I wrote last week, global rankings or league tables play a major role in shaping the perceptions of foreign investors about a country’s attractiveness as an investment destination. Foreign investors take a country’s position on the global rankings into account in their investment decision-making processes.
For Nigeria, which is at the bottom of all major international rankings, that’s certainly a bad thing. I have been in international investment conferences where there were constant references to Nigeria’s abysmal position on the Transparency International Corruption Perception Index or to massive corruption in the Nigerian oil sector. Surely, those conference discussions feed into boardroom decision-making on investments.
Recently, the Nigerian government was angry that Twitter located its Africa headquarters in Ghana, not in Nigeria. But Twitter said it chose Ghana because it “is a champion of democracy” and because of its “support for free speech and online freedoms.” That was, of course, a dig at the Nigeria for its handling of the #EndSARS protests. Indeed, the minister of information, Lai Mohammed, conceded that the #EndSARS protests played a major role in Twitter’s choice of Ghana over Nigeria, but blamed journalists for “painting Nigeria as a hell where nobody should live.” What this case confirms, however, is that political risks are a predominant factor in investment decisions.
All of which brings us to the current political and security situations in Nigeria. If political instability and insecurity can damage the reputation of a country and make it unattractive to foreign investors, Nigeria is a perfect case. Reading Nigerian newspapers and, indeed, foreign newspapers, one easily gets the impression that Nigeria is falling apart, with headlines such as “Nigeria is on fire”, “Nigeria under siege” and “Nigeria is at war”!
Indeed, on more than one occasion, the Senate has asked President Muhammadu Buhari to declare a state of emergency in response to the escalating insecurity in Nigeria. A few weeks ago, a controversial lawyer, Chief Robert Clarke, SAN, outlandishly said that “Nigeria will collapse in six months’ time.” He called for a state of emergency that “will make the 1999 Constitution ungovernable” and under which “all governors must go; all legislators must go.” Under Chief Clarke’s plan, the military would dissolve the current 36 states and replace them with six states; and military administrators would run the new six states!
Put simply, Chief Clarke was calling for a return to military rule. That’s beyond the pale, of course. But the fact that somebody regarded as a respected lawyer, who is a senior advocate of Nigeria, SAN, could call for the military to, in his view, sort out Nigeria’s problems shows how political instability and insecurity have made Nigeria, more or less, ungovernable, and thus a high-risk, high-cost place for foreign, even local, investors.
As if the political tension and insecurity are not bad enough, the constant allegations by the security agencies and the presidency of coup plots add to the impression that Nigeria is a politically unstable. In a statement on May 4, President Buhari’s senior spokesman, Femi Adesina, said that “some disgruntled religious and past political leaders” were intending to convene “some sort of conference where a vote of no confidence would be passed on President Buhari”, presaging a coup to overthrow him. He threatened that the government would “ruffle unruly feathers.”
Like in previous allegations of coup plots, it was not known who the alleged coup plotters were and no arrests were made, which prompted some commentators to say that the allegations were mere propagandas, intended to blackmail and intimidate critics of the Buhari government, especially given recent calls for President Buhari’s resignation or impeachment for his utter failure to tackle the debilitating insecurity in the country. Indeed, the president was pleading with terrorists in a tweet, widely mocked on social media, in which he said, “I again appeal for the release of the students of Greenfield University & all other citizens held in captivity”
But both the coup allegations and the president’s incompetence on the security situation have fuelled perceptions of instability in Nigeria, as frequently captured on the pages of the Financial Times, with headlines such as “Nigeria is at risk of becoming a failed state.”Surely, country and political risk analysts around the world would be advising foreign investors that Nigeria is a high-risk country. This is partly why Nigeria is losing foreign investment in droves. Of course, without significant FDI, a country can’t attract foreign exchange, can’t create jobs and can’t generate economic prosperity.
So, Akinkugbe-Filani is right. Political stability and economic prosperity are inextricably linked. That’s not just true for Mozambique; it’s true for Nigeria. Yet, the Nigeria’s political leaders can control the situation through dialogue and a political settlement. Sadly, they’ve chosen to allow the situation to degenerate, dragging economic prosperity down with it!
