Nigeria: Counting Economic Cost of Terrorism
Terrorist activities have been on the upswing in Nigeria, a country that has been in the throes of daring suicide bombers masquerading as Islamic adherents. By the day, the Nigerian economy wobbles under the attendant weight of terrorism, which has punctured investors’ confidence and left the economy on the downward slope. Correspondent, EMEKA UMEJEI, takes a critical look at the recent wave of terrorist activities in the country and what the trend holds for its economy.
Boko Haram attacks in the country reached threatening dimensions with adoption of suicide bombing by the group. Though the group is said to have carried out over 50 attacks in various parts of the North, it soon gained national prominence when it deployed one of its members on a suicide mission to the country’s Police Force headquarters. If the attack on the Police headquarters was daring, the attack on the United Nations house in Abuja was international by operation standard and successful in every sense of the word. The August 26 attack on the world body’s office, which saw over 23 people dead and more than 78 others injured, left an indelible dent on the security situation in Nigeria. As the security situation in the country continues to dwindle, investors’ confidence became a willing casualty and risk factor appears to have reached its crescendo.
These two factors are believed to have helped in no small measure in complicating the Nigerian business climate and made it investor-unfriendly. Though investors have always found the Nigerian business environment suffocating, rising wave of terrorism may have sounded the death knell. According to analysts, this development would in no small measure dampen the economic outlook of the country. The economic cost of terrorism remains legion because there are both direct costs and immediate effect on productivity. While the direct cost would include declining investor confidence and Foreign Direct Investment (FDI), the immediate effects are loss of man-hour of productivity to bureaucracy and security checks at both airports and offices across the country. No doubt, these issues would have telling effects on the economy on various fronts.
Some analysts agree that terrorism does not forebode anything good for the economy. According to them, terrorism has never done any good in any part of the world it has reared its ugly head. Principal Consultant of BIC Consulting, Dr. Boniface Chizea, stressed that terrorism would complicate the already unattractive Nigerian economy. “There is no doubt that terrorism has a definitive cost on any economy, including the Nigerian economy. These costs for an economy such as Nigeria’s, which had suffered from lack of attractiveness to foreign investments, is to particularly worsen the unattractiveness of the economy to direct foreign investments. But it is going to be difficult to quantify the extent and quantum of this cost,” Chizea stresses. “The direct effect of terrorism is to increase the risk factor on doing business in Nigeria and would imply that the cost of risk management, including insurance, would to that extent increase. There are also costs which would arise from the need to increase spending on security in terms of the diversion of scarce capital for the procurement of hi-tech equipment for the purpose of combating this menace.” Stating further, Chizea noted that as a result of the heightened awareness of this risk factor, the amount of capital that will be expended in providing security at various locations across the length and breadth of the country cannot be underestimated.
Corroborating Chizea, Chief Executive Officer (CEO) of Lionstone group, Amaechi Ndili, sees terrorism as evil to the economy. “Terrorism is bad for the economy of Nigeria, as it is bad for the global economy. It certainly leads to economic, political and regional instability,” says Amaechi. “Accordingly, we will begin to see a slowdown in macro and micro economic activity in the affected areas. Fortunately, in the case of Nigeria at this point, the thought is that it is a fairly localised problem that can be dealt with by a determined government.” Toeing the same path with others, Opeyemi Agbaje, CEO of Resources and Trust company Limited, says terrorism is already a potential threat to investors’ confidence in the economy. “Terrorism strikes at the confidence on the economy. Though it is not yet something you can generalise that an investor will worry about, the prospects for it to escalate to rock national security is what the investors will look out for,” Agbaje notes. On his part, Percy Raditladi, Managing Director of Global Security Firm, G4S, says the risk assessment for external travellers confirms that foreigners are scared of coming into the country.
“Risk assessment for external travellers show that foreigners are afraid to come to Nigeria, but in Lagos life goes on. The truth is that Nigeria is a very secure place to live and work; it still remains one of the best places to do business on the African continent,” he says. However, if there is one area of the economy that appears to bear the brunt, it is FDI, which has been on the decline in recent times. The 2011 world investment report prepared by United Nations Conference on Trade and Development confirms the decline in FDI.
According to the report, FDI capital to Nigeria declined to $6.1 billion in 2010 from $8.28 billion in 2009. Executive Secretary of Nigeria Investment Promotion (NIP), Mustapha Bello, laments the decline when he notes that the country is not insulated from global recession. “The Foreign Direct Investment capital to Nigeria declined to $6.1 billion in 2010 as against $8.28 billion in 2009,” Bello states. “So the profile that we recorded $8 billion last year and $6 billion this year shows a decline of two, which shows we are not unaffected by the global recess.”
Lamenting further, Bello agrees that it is a major challenge to the Nigerian economy because it has to rely on FDI, which terrorism is fast eroding. His words: “Nigeria has to rely on FDI capital from outside the country as well as what it can harness internally to be able to drive the Gross Domestic Product (GDP) growth. It is a major challenge. “That means we still need to talk to a lot more transnational companies. We need to bring the CEOs to come and see what Nigeria is, appreciate the kind of market that we have and the larger market of about 150 million people that will support them.” While Bello’s anticipation is not out of place, terrorism has made it difficult for foreign investors to be enthralled to invest in the economy. For instance, the FG projects a net capital inflow of $33 billion; but, going from the rising terrorist activities in the country, there is very slim chance it will be realised.
To complicate the situation, most of the foreign missions have advised their citizenry to be wary of doing business in the country because of what they termed high security risk. It is a known trend that investors often seek advice of their missions in any country before investing in such economy. Hence, with travel advisory by most of the foreign missions warning their citizenry of the risk of doing business in Nigeria, it remains to be seen how government can muster $33 billion as projected. Chizea agrees with this position, even as he acknowledges that the Nigerian economy has not been attractive as a destination for FDI, save for the energy sector.
“The fact remains that the Nigerian economy has not been attractive as a destination for Foreign Direct Investment. The FDI found in the country are mostly in the extractive sector of oil and gas, and the mining sector,” Chizea says. “And investments in this sector are locked in investment which cannot easily be affected by the current deterioration due to the increased incidents of bomb blasts. Although in the long run, even for locked-in investment as is now being discussed, it is conceivable that the willingness to undertake new investments could be undermined if this development is not nipped in the bud but allowed to fester.” Amaechi toes the same path with Chizea, saying that terrorism discourages FDI into any country. “Terrorism always affects FDI into any country.
The happenings in the Niger Delta are a good example of this. Many multinational oil companies threatened to physically pull out of the Niger Delta as a result of the kidnappings going on there,” Amaechi says. “There is not, and has never been, anything beneficial that comes out of terrorism, either to the terrorised or to the people doing the terrorising. As a means of elevating a cause, terrorism simply does not work.” Analysts, however, are of the view that poverty, lack of education and high rate of unemployment are at the root of terrorism in the country. They argue that there is a correlation between poverty and terrorism.
A recent report presented by Professor Mohammed Ladan at a public lecture on criminal justice system and the new security challenges in Nigeria in Abuja appears to shed more light on this. The report had acknowledged that the North East, North West and North Central have retained the poorest geo-political zones in Nigeria since 1985. The index highlight states like those the North East (Borno, Bauchi, Taraba, Adamawa) with the highest incidence of poverty ranging between 54.9 per cent to 72.2 per cent followed by North West which consist of Katsina, Kano, Kaduna, Jigawa and the North Central consisting of Plateau, Benue, Nasarawa, Niger and Kwara. “By the index of 50.6 per cent, Nigeria is the third among 20 countries in the world with a wide gulf between the rich and the poor, poverty in Nigeria is undoubtedly the face of the North,” Ladan states.
“This is the fault of bad governance which is one of the key issues, because if we fail to address social economic, political injustices, unemployment and issues relating to education, you create a time bomb and you allow the youth to become hopeless, frustrated and their energies are driven towards something else.” Also, president of Chemical and Non-Metallic Senior Staff Association (CANMPSSA), Abdul Gafar Mohammed, at the association’s National Executive Council (NEC) meeting, laments that high rate of poverty elicit social ills. “Today, we have a lot of social ills, anarchy, and disorder by youths roaming the streets. We have universities in every corner, polytechnics as well as colleges of education and other tertiary institutions, all of them producing graduates in great numbers,” Mohammed says. “These graduates are being pumped into the river of unemployment. When such are not gainfully employed, they take into criminal activities. It is not by their making.”
Lamenting further, Mohammed noted that rising wave of terrorist activities and infrastructure challenge have forced many players in his sector to close shop. “If there is any sector that is most hit by this misappropriation, maladministration and misrule over the years, it is the chemical and non-metallic products sector. Companies are closing down, redundancy everywhere, outsourcing, casualisation,” Mohammed emphasises. “Companies are operating today on skeletal basis, below installed capacity utilisation. We have companies struggling to survive while some are about to be submerged. If nothing is done and done quickly, those companies would go underground.” However, analysts say that all hope is not lost.
According to them, the Nigerian economy can be insulated from the impact of terrorism, but with a proviso that government has to fine-tune security measures to boost investors’ confidence and tackle poverty. Amaechi concurs, stressing that governments, both at state and national levels, should focus on education and job creation. “The governments, federal and state, have to focus on education and job creation opportunities, equalising society, and allowing for economic growth in the country.
Without this, the youth will remain disenfranchised, outside of mainstream economic development and susceptible to being manipulated,” Amaechi says. “It is very difficult (except in extreme cases) to get an educated, balanced and economically-relevant young person to engage in an act of terrorism. To eradicate it, we simply have to deal with these issues at the grassroots.” Agbaje agrees with others, even as he acknowledges that the economy has grown by 7.8 per cent, but notes that the economic structure of the country has made difficult for the masses to feel it. “The economy has grown by 7.8 per cent, but certainly people are not feeling the growth. The structure of the Nigerian economy and politics denies the effect of economic growth. We are dependent on the oil sector that is based only on crude export.
The political system is tuned towards the elite,” Agbaje states. On his part, Chizea says the Nigerian economy can be prevented from the impact of terrorist activities by reducing incidence of bomb blasts in the country. “Measures that would insulate the economy from the impact of terrorist activities would include such and any measures that would reduce the incidence of bomb blasts in the economy. One of the measures crying for implementation is the punishment of those found culpable. It is certainly not reassuring that since the incidents of bomb blasts commenced, that no culprit has been caught and sanctioned as a deterrent to others so inclined. It has been a case of endless setting up of various panels without any one caught or sanctioned in an exemplary manner,” Chizea says.
“Therefore, as a first step, there is the need to muster the necessary political will for the imposition of exemplary sanctions and punishments on culprits. The recent efforts at collaboration with the international community must be intensified. The declared intention to instal Closed Circuit Television (CCTV) cameras at strategic locations in the country is well thought out and recommended, and must be pursued without much delay.” Stating further, Chizea advocates state police and further training for security operatives in intelligence gathering skills. His words: “There will also be the need to sharpen our skills at gathering intelligence. In this respect, the much-discussed state police force might be an idea whose time has at least come, and therefore it should be experimented with. “And no effort must be spared in the attempt to educate the generality of our citizens that the efforts at stemming the rising tide of terrorism must now be a collective one.
Campaign to heighten security consciousness among the population must therefore be intensified.” President Goodluck Jonathan also appears to have agreed that terrorism has impacted negatively on the economy when, in a recent interview to mark his 100 days in office, he assured Nigerians that his administration was committed to improving the security situation in the country “We are working on changing the security architecture of the country. We know we have challenges, but I can assure Nigerians that the security challenges will be brought under control,” President Jonathan had promised Nigerians.
On the way out of the woods of insecurity, analysts task government to consciously embark on improving the security situation in the country, job creation, reduce poverty, and prosecute offenders without sentiments. “The way forward would entail the single-minded and purposeful pursuit of the measures I highlighted earlier. We cannot over-emphasise the need to impose exemplary sanctions on culprits to act as a deterrent to those so minded,” Chizea notes. Amaechi says government should not enter into any form of dialogue with perceived terrorists, as it would only give legitimacy to terrorism. “Dialogue is not necessarily the answer, as dialogue legitimises these causes and the means that are sought to achieve them,” Amaechi adds.
