Menu

Based on the numbers, Nigeria is a natural market for U.S. investment. Even leaving aside oil, and indeed all extractive industries, the Nigerian economy offers a vast number of sectors that are wide open for development by U.S. enterprises, including in transport, agriculture, health care, energy, manufacturing, consumer goods and professional services. A large and growing middle-class promises expanding demand for goods and services offered by businesses run or backed by U.S. investors. Economic growth will lead to entirely new product markets. In short, from a statistical perspective, a vibrant and growing U.S.-Nigerian economic relationship would seem to be a given, especially since U.S. has invested eagerly and even aggressively in once-comparable markets such as China.

American investors face a paradox in Nigeria, however, as they do in other parts of Sub-Saharan Africa. On the one hand, they hear credible reports that large rewards await them there. On the other hand, news stories about Africa are almost uniformly negative. These conflicting narratives, respectively representing hope and fear, are presented to investors in a near-complete vacuum of American ignorance about Nigeria and Africa. While it might be expected that Americans in such circumstances would venture out to seek opportunities in the spirit of their pioneer ancestors, most Americans today are actually quite cautious about their business affairs. Long accustomed to developed markets and unfamiliar with international risk-management, U.S. businesspeople are often stymied by the challenges of an emerging market like Nigeria. Thus, even during the Great Recession, many have found it preferable to struggle in the familiar U.S. market than to consider exploration of Africa’s uncharted investment terrain.

Like the mapmakers of old, U.S. investors often lazily draw monsters in the vast blank areas of their African charts, rather than go exploring to discover the facts. In the case of Nigeria, for example, Internet spam campaigns have fostered a U.S. folk belief that Nigeria is populated by frauds looking to prey on the unwary. This skewed view, which quietly drives off hordes of potential U.S. investors who otherwise would make a great match for Nigeria, could not have formed had the two countries already had a mature economic relationship. Indeed, if U.S. and Nigerian officials had simply moved quickly and visibly to suppress the “419” phenomenon, it would be viewed today in the U.S. as just a small irritant. Instead, official inaction has allowed a small group of scammers to set the tone for the U.S.-Nigerian economic relationship. This easily avoidable public-relations debacle overshadows the many compelling reasons for economic engagement, and threatens the otherwise solid prospect of U.S. investment in new growth sectors, such as call centers and manufacturing. It also illustrates how today even small and simple problems can, if left unaddressed by a passive officialdom, expand mistrust between the two countries and undermine opportunities for strategic partnership.

Beyond the Bromides – What U.S. Investors Need to Hear

For U.S. investment into Nigeria to be increased by the orders of magnitude justified by the underlying economic indicators, safe pathways for U.S. private investment have to be identified, publicized and smoothed. This will take serious and ongoing efforts by the private and public sectors on both sides of the Atlantic. The first step in this process is to retire the bromides one hears ad nauseam at official conferences in lieu of useful technical information. The most obvious of these bromides is that “Africa is open for business.” This well-meaning statement manages to pack much of what is wrong with U.S. policy toward Africa into a mere five words. It lumps all African countries into one unit, implies that their interest in foreign direct investment is quite recent, treats their differences as marginal at best, and falsely equates a mere interest in doing business with actual, concrete measures taken to facilitate investment. Such patronizing and gauzy universalism demeans the efforts of African reformers and turns off investors who properly distrust content-free happy talk as indicating a lack of seriousness.

If economic relations between the U.S. and individual African countries like Nigeria were mature, one would find U.S. officials talking in terms of countries, not continents. By way of comparison, imagine a U.S. official announcing that “South America is open for business!” U.S. investors would wonder why the U.S. Government would lump market-friendly Chile in with expropriatory governments in Argentina and Venezuela. It is long past time that U.S. investors should be able to make such distinctions in respect of Africa, and specifically Sub-Saharan Africa. No one confuses Tunisia with Algeria, after all. Ideally, the U.S. Government would take the lead in this discernment process through high-visibility engagement, and by publicly rewarding investor-friendly countries with closer partnership. In the absence of such a proactive U.S. strategy, however, it lies with African governments to do their own research, to craft and implement their own reforms, to market their markets, and to welcome U.S. investors themselves. This is just what successful countries like Malaysia have done.

The key to winning U.S. investment is investment. The Nigerian government must be willing to spend the necessary money, and to develop a collective will and direction, to develop and conduct an effective campaign to woo U.S. investors. The lack of such factors to date has been the largest stumbling-block in Nigeria’s effort to attract U.S. business. While general welcomes may occasionally be issued, there has not been any appearance of a coordinated and serious effort to develop and market Nigeria as a good place for Americans to invest. The task of welcoming U.S. entrepreneurs is thus left to individual civil servants, to private go-betweens and agents, and to individual U.S. investors who get leads or do their own market research.  It would be far better if the U.S. and Nigerian governments together cut a highway for investment, rather than have lone investors hack their way through the bush.

What exactly would a savvy Nigerian campaign to win U.S. investors look like? It would certainly not lazily claim that Nigeria is “open for business,” or vapidly state that investors stand to make massive profits. Any worthwhile U.S. investor will instantly disregard such pie-in-the-sky nonsense. A marketing campaign for an emerging market like Nigeria needs to emphasize protections and safety. Skilled Nigerian officials would therefore begin by commissioning serious market research about U.S. investors, including through surveys and focus groups. This would help the officials with their second step, which would be to craft, adopt and implement legal reforms sought by investors. The third step would be for Nigeria to establish an efficient and friendly system for processing investment proposals and inquiries. This system would include a state-of-the-art Web portal and a highly trained and responsive staff who preferably have extensive experience in the U.S. as well as the ability to navigate Nigeria’s bureaucracies and markets. The fourth step would be for Nigeria to hire top public-relations firms with experience in sovereign representation, carefully hone an attractive message, and roll out an extended campaign across multiple media.

A program like the one described need not be expensive. An investment of perhaps ten million U.S. dollars would likely cover the direct costs and added staff during the launch period. If carried out properly, such a program would be likely to pay massive dividends in terms of increased U.S. investment, added Nigerian jobs, and boosted Nigerian economic growth. The issue, however, is one often encountered in Africa – why should an African government spend its own money on a project? Such a frustrating question reflects a mindset that should have disappeared at independence. After a half-century of “development aid,” many African governments now reflexively rely on the Western “aid” industry to handle their economic planning and capacity-building. With massive oil revenues, the Nigerian government has far more than enough money to conduct a smart campaign. Thus, in American eyes, the ball is in Nigeria’s court to get its act together and make a concerted and credible pitch to investors. That pitch, more than anything else, is what U.S. investors want to hear.

What U.S. Investors Need to Succeed in Nigeria

The central factor in all U.S. investment abroad is funding. Every enterprise aims to get funding, and every project uses its funding to get profits. The availability and price of funds is thus the basic test of a project’s worth. If an enterprise has solid prospects, with carefully managed and mitigated risks, then funding in a normal market will tend to be available at reasonable rates that give the project a good chance to operate profitably.

Nigeria is not a normal market, however. It is an emerging market, and thus presents risks and challenges which many U.S. enterprises, and most U.S. funders, are ill-equipped to handle given their familiarity only with developed markets. Many of these added problems are often grouped together under the rubric of “political risk,” but they are in reality much wider in scope. Such risks include expropriation, double-taxation, labour issues, blind failures in public-relations, misjudgment of social factors, local regulations, ports and customs, and so on. A U.S. investor, like a funder, needs to be able to make a reliable evaluation of reward and risk in the face of these factors, and to obtain as many protections as possible for the capital sought. In African markets like Nigeria, however, there is a critical lack of data and treaty protections. Few U.S. enterprises already operate in the market, especially outside the extractive industries, so only occasional anecdotes are available. The lack of investment and tax treaties with the U.S. is more discoverable, and quietly turns off many U.S. investors.

As part of a campaign to woo investors, Nigeria would do well to engage the U.S. to sign a bilateral investment treaty (BIT) as well as a double-tax treaty (DTT or DTA), which are basic ways to reassure U.S. investors and funders. Nigeria should also streamline its regulations and procedures to smooth investment paths, such as at the ports, agencies and embassies. This will help investors, reduce fears of corruption, and make business plans more reliable for funders. The many further steps that Nigeria could take are part of one unending task – to do whatever is needed to make funding affordable for U.S. investors. Whether through reforms, marketing or other measures, this is how Nigeria can best help bring U.S. investment home.

Peter C. Hansen, a Financial Nigeria Guest Writer, is a Washington, D.C. attorney who specializes in African investment law. As Principal Counsel of the Law Offices of Peter C. Hansen, LLC, he assists both private and public-sector clients with matters concerning direct investments in Africa. An active lecturer and writer on African investment issues and U.S. policy toward Africa, Mr. Hansen served as Chair of the Working Group for U.S. Investment in Africa, which advised the Romney presidential campaign.