By Nse Anthony-Uko, Business & Economy Editor
Nigeria has been ranked 18th highest in terms of business and operational risk in a new Operational Risk Index Report released by BMI Research, a member of the Fitch Group.
The was ranking based on a country-comparative evaluation of the labour, logistics, trade & investment and crime and security risk in the region.
The report noted that Nigeria offers investors one of the most difficult and dangerous operating environments in sub-Saharan Africa with the major risks to businesses stemming from the deteriorating domestic security situation. It noted, however, that businesses benefit from the country’s low labour costs and a large pool of labour with increasingly diverse skills sets, thus making it a preferred investment destination within the continent.
However, an analyst, Mr Sewa Wusu, Head of Research, SCM Capital Limited, responding to the country’s assessment by BMI, noted that as challenging as the operational risk and business environment are concerned, Nigeria still has a significant and compelling investment case to attract investors in sub Saharan Africa.
According to him, the operational risks as identified by BMI are not peculiar to Nigeria but are also faced by certain countries across the globe, particularly Africa.
“Despite the challenges of security and unrest in certain parts of the country, the overall assessment in terms of available mineral resources, cheap labour and large market among others are compelling investment case and demographics that Foreign Direct Investors cannot ignore.
“I think the Nigerian market in terms of population cannot be ignored in Africa. I will not be surprised that despite all these challenges most multinational companies may have begun to factor in Nigeria in their growth and expansion strategy. The fact is that you cannot ignore Nigeria in your plan.
They might have also incorporated the risk premium of the current operational challenges into their growth or expansion model, he said.
Wusu maintained that all the government needs to do is to provide conducive environment and ensure the removal of operational bottlenecks that affects businesses, adding that most of the challenges mentioned in the report can be fixed.
“The fact is that some of these operational challenges can also be fix. This explains why the call for the development of our infrastructure in terms of roads, railways, housing and other critical infrastructural needs to support businesses and aid logistics for the distributions of goods and services,” he said.
Giving an item by item analysis, the report noted that operational risks, which are characterised by rampant criminal activity and frequent terrorist attacks, along with the country’s severe fuel shortages, pose dangers to the safety of foreign workers and business interests, and also cause disruption to the country’s utilities infrastructure and transport network, both of which are struggling to meet the needs of an expanding economy and population. Nigeria scores 37. 9 in BMI’s Operational Risk Index, placing it 14th out of 48 countries in SSA , behind Kenya , Ghana and South Africa .
BMI, in the report, which noted that security threats remain the biggest concern to investors, scored Nigeria 27.8 out of 100 for Crime and Security Risk, lowest score across BMI’s Operational Risk Index, indicating that the threat from terrorism and violent crime is a serious impediment to doing business in the country, placing the country 33rd out of 48 countries regionally.
It noted that crime and security risks in Nigeria are driven by the severe and rising threat of terrorist attacks, high levels of violent crime throughout the country and endemic corruption. Organised criminal groups are highly active in the country, and businesses are exposed to the threat of piracy attacks, financial fraud and cybercrime. Nigeria’s military remains the largest in the region but has only been able to reduce Boko Haram’s territorial hold within Nigeria’s borders with international assistance. While President Muhammadu Buhari is on an anti-corruption drive in terms of fighting state and private sector corruption, these efforts have yet to significantly improve the capability of Nigeria’s army and police for fighting terrorism and crime.
According to the report, as the next lowest score in Nigeria’s Operational Risk Index, businesses in Nigeria face a high level of risk from the country’s logistics network. Strong economic growth over the medium term is indicative of the opportunities for investment in Nigeria’s huge hydrocarbons sector, and the expanding manufacturing and telecommunications industries. However, the global fall in oil prices has led many oil producers to cut production – hurting government revenues and leading to severe fuel shortages. Pipeline infrastructure is also poor and oil theft is common, further threatening to disrupt business operations. In addition, rapid economic and population growth is pushing the country’s logistics network to a breaking point. Nigeria’s roads provide the dominant mode of overland freight transport, but supply chains face severe disruption due to poor quality and chronic congestion.
On Trade and Investment Nigeria got a much higher score of 37.0/100 due to the country’s openness to trade and investment which it said it is however severely constrained by significant fiscal barriers, widespread corruption, limited intellectual property right protection, low government revenues and an underdeveloped and under-enforced legal system.
“Under the Buhari government there have been recent efforts to address the issue of corruption (efforts which BMI believes will continue to gain further momentum in the future); however, it will take time for the results of this anti-corruption drive to filter down to all levels of Nigerian businesses and society. We also highlight a particular risk in the form of the government’s tendency towards protectionism with its Backward Integration Policy, which encourages the local production of goods for which the country has comparative advantage.”
The group in its report however said lack of properly trained legal professionals, especially in the area of business law. This exposes businesses to long delays in the settlement of disputes and weak enforcement of court rulings and contracts.
The country’s best score of 52.6/100 was on its labour market, where BMI noted that it has a large pool of skilled and unskilled labour relative to other countries in Sub-Saharan Africa owing to its vast population, favourable demographics and the sheer number people completing various levels of education. It however insisted that corruption, poor infrastructure and frequent strike action affect the quality of offerings at the country’s educational institutions, especially at the tertiary level, leading businesses to retrain graduate employees or recruit foreign-trained graduates at an extra cost. Significantly high security risks, particularly in the northern regions of the country, limit labour mobility, as urban-based and foreign workers are likely to require additional compensation in order to work in insecure and poorly serviced areas.