New Developments in Nigeria
by Doug Stinemetz
|Haynes and Boone, LLP
|Monday, July 14, 2003
President Bush met this week in Nigeria with the President of Nigeria, Olusegun Obasanjo. Obasanjo is the first democratically elected President in Nigeria since a military regime lost power several years ago. This meeting marks part of a historic shift in US policy underway in Africa.
Why is the US now so interested in Africa? A strong US national interest in Africa, especially West Africa, has been growing in the last few years. Economically, well over two-thirds of the oil produced in West Africa flows to the US, with African imports of oil projected to reach 30% of US imports in the next few years. West African oil production is growing, thanks in part to large new offshore oil prospects starting to produce, many of them in Nigeria. The production is geographically close to US Gulf of Mexico refineries, easily transportable and relatively "sweet", so that it is ideal for US refineries subject to rigorous US environmental regulations. Moreover, the production is not encumbered by the political baggage that Middle Eastern oil carries.
The US is also interested in Africa for a wide range of political reasons. A new generation of governments is emerging there, the first generation not shaped by colonial struggles for independence. That struggle lead the new African governments down many strange political byways, which often resulted in dictatorships under one political guise or another. As nations there gradually convert to more stable political systems, they become better candidates for democratic reforms. In the end, the US has an interest in promoting democracy internationally, and has a significant chance to influence that development in Africa now.
Finally, the US now has a clear military security concern with Africa because of the war against terrorism. A substantial minority of the population of Sub-Saharan Africa is Moslem. Nigeria’s population for example is about a third Moslem. The Moslem population of Sub-Saharan Africa is largely poor and relatively uneducated. It is clearly a potential recruiting grounds for terrorist groups. Terrorism has already reared its head in Africa, and the US needs to ensure that terrorism spreads no farther there – and the best way to do that is to ensure that people get jobs, are educated and generally see life improving.
There are many obstacles to pursuing the new US national interest in Africa. In Nigeria, for example, whose 120 million people constitute about a fifth of the population of Sub-Saharan Africa, the government is trying to overcome a decade of military government which had become one of the most corrupt regimes in the region. Nigeria also suffers not only from a religious division between Christians, Moslems and animists, but more importantly tribal animosities which sometime erupt into outright tribal fighting.
But the root problem in Nigeria is lack of economic development. While there is thriving local economy, there has been a near total lack of foreign investment outside the oil sector. Prior projects to develop the country for the most part have been statist, i.e. these projects have often been designed with state control in mind and just as often failed because the state is fundamentally ill-equipped to administer such projects. One consequence of this failed approach is that such international funds as were available to Nigeria were diverted away from the private sector for questionable purposes and growth in the private sector continues to be stunted for lack of capital.
One good example of this statist approach is the Ajaokuta steel plant. Russian companies under the former military government constructed a steel production plant in central Nigeria near the town of Ajaokuta. The idea originally was a very Soviet, central-planning concept, that the steel plant under state control would turn into a driver for the entire economy. In fact, the Russians did well in the construction of the plant, and anyone who see the Ajaokuta steel plant now marvels at this great Pittsburgh-like facility that rises out of the scrub forest of central Nigeria. Economically, however, the project foundered and remained unfinished for ten years, with the iron forge only recently having been lit and the steel foundry still not producing steel.
President Obasanjo in a turnaround from prior economic policy in Nigeria has been trying to cultivate the private sector. In a recent new development, President Obasanjo has also signaled a willingness to use investor-friendly concession agreements rather than joint ventures or other forms of investment formerly required in Nigeria. President Obasanjo approved a concession agreement with Solgas Energy for the rehabilitation of the Ajaokuta Steel Plant. Under the agreement, Solgas will rehabilitate, modernize, commission, and operate the Ajaokuta steel plant as a private enterprise, in a transaction valued at about $3 billion. Obasanjo has pointed to this agreement as a model for the rehabilitation of other national economic projects in the future. This new turn to the private sector in Nigeria, as well as the new US interest in the region, bodes well for the future of Nigeria.