Nigeria Is One of the Largest Economies

Nigeria is one of the largest economies in Africa, with a GDP of $414 billion, ranking it 31st in the world (CIA World Factbook, 2012). Nigeria also has tremendous human capital with 170 million people, the 7th-highest in the world. Despite the wealth that comes to the country from its oil reserves, economic growth in Nigeria is hampered by both corruption and a dearth of infrastructure. There are many areas where the infrastructure can be improved. For a business investor, the areas that will make the best investment are those where a return on investment can be realized.

The first such investment would be in power grids. The country's production is 70th in the world, much lower than its GDP, indicating some level of underdevelopment. Adeninkinju (2005) notes that power outages cost Nigerian businesses in 1990 was 1 billion nairas. In addition, many businesses are forced in invest in generators in order to ensure a consistent power supply. This raises the start-up costs for business, a significant barrier in a country where the GDP per capita is only $2,600. Thus, there is significant economic benefit to a limited private power grid serving customers who are willing to pay for more reliable power without the use of generators.

The power system is run by the Power Holding Company of Nigeria and the government controls local distribution companies as well. Given the demand from business, however, if government can be persuaded to privatize or grant concessions for private investment in urban power grids, there could be tremendous opportunities in Nigeria. Private power in economic clusters in particular -- areas where manufacturing is concentrated, in major cities and around ports, would allow for economic development on a scale that the current grid currently constrains.

Another major infrastructure investment in Nigeria is transportation. The country's transportation infrastructure is generally poor. The country has the 32nd-largest land area (CIA World Factbook, 2012) but only has the 49th-most railway distance. There are only 38 airports with paved runways in the entire country. While Nigeria has the 32nd-most roads in the world, better than its land area ranking, only 15% of Nigeria's roads are paved. This makes transportation difficult at all times, but especially in rainy season. By the admission of the Nigerian government, most of the country's roads are in "a dilapidated state" (Business Day, 2011). The country's railway infrastructure is also in need of update.

Although transportation infrastructure of this nature is predominantly a public good, the government is offering incentives to foreign firms that are interested in making such investments. The government of Nigeria is looking for private-public partnerships, share issues, sales of assets and other investments in its transportation infrastructure in exchange for oil drilling rights and other resource-sector concessions. This makes for an intriguing investment possibility if the right partners can be found to work with on such deals.

A third possibility for infrastructure investment in Nigeria is with the country's ports. The country has a coastline of 853 kilometers and there are three major ports -- the Bonny Inshore Terminal in Port Harcourt, Calabar and Lagos. There is room for investment in each of these, but there is also room for a new port in the country, to help facilitate the import/export of non-oil goods. While oil is the natural attraction of Nigeria, a container port would strengthen the ability of Nigerians to get their goods to market, and the ability of foreign companies to bring their goods into Nigeria.

The Nigerian Port Authority is in charge of the country's three major ports. The Nigerian government has made a pitch (2008) to the Chinese -- who are active investors in Nigeria -- to help develop port infrastructure in the country. Among the needs identified by the Nigerians were "safe and navigable channels," "developing, owning and operating ports and harbours," providing "towage and pilotage services" and "cargo handling and offloading." Thus, there is considerable room to become involved in the port business in Nigeria, including at the highest levels of developing new ports to serve the country's growing economy.

Nigeria has tremendous opportunity, given the country's rich natural resources and its extensive human capital. However, poor infrastructure has constrained some of this opportunity, and that creates opportunity for investment in critical infrastructure. It is recommended, that investment in Nigeria is made, and focused on power grids, transportation and ports. The Nigerian government controls these sectors but actively seeks foreign partners for a role in infrastructure development, and in some cases offers oil drilling rights in exchange. Thus, there is tremendous incentive to invest in Nigeria, and strong opportunity for return on investment.