Economist claim that terrorist attacks can be viewed as another type of trade barrier. Do you agree? Why?
After reading The African Business Journal article about Boko Haram in, "Boko Haram and its impact on the Nigerian Economy." Do you think this terrorist organization and it's action in Nigeria is having an impact on Nigeria's import/export industry (trade)?
If so, what type of affect do you think the terror group has on Nigeria's import/export business?
Boko Haram and its Impact on the Nigerian
Economy
By Angus Gillespie
Despite emerging from the murky shadows within Nigeria just a dozen years ago,
Boko Haram has quickly earned itself an infamous reputation for being one of the
most callous and violent radical Islamist groups in African history. In fact, it’s
already been tagged a terrorist group by western countries such as the United
States. Over the past 12 to 15 months, Boko Haram has unleashed a massive
wave of violence, fear and chaos throughout the northern African country – so
much so, that it’s know seen by many as having a noticeable impact on the way
the country operates, and by extension, is hindering its economic well being to a
widening degree.
Founded in 2002, Boko Haram is an ultra extremist Islamic cult focusing primarily
on the edict that Western education is forbidden. Military operations were
launched in 2009 to support their cause in creating an independent Islamic state.
It also has roots that can be traced to the northern part of Cameroon and parts of
Niger. The Boko Haram leadership has international connections to Al-Qaeda.
Suspected Boko Haram militants have killed dozens of Nigerians in recent weeks
and there is no sign of the violence abating. In one attack, gunmen disguised as
soldiers fired on a crowd in a church compound. The radical sect is known for
attacking churches, schools, and police stations. Tourists are also considered fair
game. Violence linked to the Boko Haram insurgency has resulted in an
estimated 12,000 killings since 2002, although that figure has gone up
considerably since 2009 when the group began to heavily arm itself as a militia.
Making matters worse for the Nigerian government of Goodluck Jonathan is that
some of the attacks come amidst reports some army generals have been aiding
the rebel militants, on the belief that a national coup is going to take place.
Nigerian media sources have reported that as many as 10 generals and five
other senior military officers have already been tried before the courts for
supplying arms and information to Boko Haram. However, at least one Nigerian
military spokesman called the reports “falsehoods”.
This contradicted Interior Minister Abba Moro said it was “good news” that the
army had identified soldiers who were undermining the fight against the
insurgents, and that it sent a strong message to other serving officers.
Boko Haram has waged an increasingly bloody insurgency since 2009 in an
attempt to create an Islamic state in Nigeria.
One small town that has been hard hit by the violence is Attagara, where the
village church came under attack leaving at least 20 people dead.
Nigeria’s government has been facing mounting pressure both at home and
abroad to do more to tackle the group and bring about the release of more than
300 schoolgirls kidnapped by the group on April 15.
President Jonathan originally declared a state of emergency in May of last year in
the three northern states where Boko Haram is, and has been, most active –
Borno, Adamawa and Yobe.
Boko Haram retaliated by stepping up its bombing campaign in cities and
launching mass attacks on small towns and villages.
Media correspondents in those regions say that since the infamous kidnapping of
more than 300 schoolgirls, the attacks have become an almost daily occurrence.
The campaign to free the girls that began in their home village has now gone
global, with the U.S., Canadian and British governments offering support to help
with the rescue. It’s believed about 55 girls have managed to escape their
captors since being taken hostage in April. The government has ruled out
swapping the girls for detained insurgents associated with Boko Haram.
President Jonathan has promised to address the poverty that helps fuel the
uprising — but only once the insurgency is put down. The World Bank says twothirds
of 170 million Nigerians struggle in poverty in Africa’s biggest oil producer.
Despite the fact there is so much poverty and lack of widespread education,
Nigeria remains Africa’s largest economy – thanks in large part to the massive oil
reserves that are often exploited by international corporations. That said, to put
things into perspective, only about 3% of the world’s oil supply is found in the
country. More recent successful business sectors have included the likes of
banking, telecommunications and a burgeoning film industry. Agriculture and
services have also been two traditional economic staples for the country,
although neither has shown much in the way of expansion over the past 10 to 20
years. To its credit, the country has also been diversifying the core economic
drivers away from energy and agriculture. The nation’s GDP is now $490 billion,
just shy of the economies of countries like Norway and Sweden.
When an organization managed to get the president of the country to declare a
state of emergency, it stands to reason it has the ability to unwieldy a
tremendous amount of damage on the country, be it through violence or
economic crippling.
Economic Impact
Since Boko Haram emerged from the shadows about four years ago, once armed
militarily, one of the first obvious economic concerns was the almost immediate
drop in foreign direct investment (FDI), with the concern being whether the
government had the wherewithal to deal with the serious insurrection and stave
off the many decades of political instability the country has faced. According to
the World Investment Report (WIR) 2013, FDI flows into Nigeria dropped by 21%
in just one year — from $8.9 billion in 2011 to $7 billion in 2012. The loss of $1.9
billion for a country in desperate need of money – such as Nigeria – was a
staggering blow.
The monumental decline in FDI over such a short period of time sent ripple
effects throughout the international community, creating a negative domino
effect. It’s a rock heading downhill that continues to gain momentum, and it will
be up to Jonathan and his government not only to slow it down, but to stop it
altogether, or it will begin all over again.
FDI into Nigeria has a direct impact on trade, while also ensuring progression of
economic development to the south. FDI inflow also supplements the available
domestic capital by stimulating the productivity of domestic investments.
Someone troublesome is the high codependency ratio between the inflow of FDI,
the Nigerian oil sector, and the country’s GDP.
A scientific study found that a unit increase in FDI into the Nigerian oil sector will
increase the country’s GDP by approximately 16 units. This shows that the
Nigerian oil and gas sector, which is the mainstay of the economy, has a high
rate of exposure to foreign direct investment.
Between the lack of jobs, and the increasing violence with the likes of terrorist
groups such as Boko Harm, there has been a mass movement of Nigerian
citizens looking to settle in areas not impacted by the violence. The trouble is
this: the areas not affected by the violence are most often areas that have
nothing in terms of sustainable economic activity that would allow a person or a
family to survive. Living in the dangerous regions is where there’s hope for
employment.
The rush to escape from the northern part of the country that has been hard hit is
already affecting the profitability of businesses in the region. It’s no reached the
point where accredited banks have begun closing down some branches due to a
huge decrease of economic activity. On top of that, a number of employees at
these businesses are demanding to be reassigned to areas that are less volatile.
As noted many times before, a lot of the current problems with terrorist uprisings
can easily be pinpointed to a lack of government leadership due to the constant
political insecurity, and especially so in the northern region.
Once the banks and other businesses decide to pack up and move elsewhere, it
leaves the region in a state of economic depletion, and one that won’t easily be
regained. It’s always quicker destroying something than it is building it up. The
people of Nigeria are hoping President Jonathan’s government takes drastic
action to bring about more stability in the country and soon. Or, it will be a long
road to recovery for a nation that can already ill afford this type of economic
setback.
More than $21 billion of foreign direct investment poured into Nigeria in 2013, up
28% from the year before. The country does not want to see that slide backwards
due to political instability and the onset of widespread violence. The country has
attracted the most foreign direct investment in sub-Saharan Africa since 2007,
according to Ernst & Young. But all of that could be quickly eroded if the violence
is not snuffed out.
Many financial analysts seem to be of the opinion that the impact on foreign
investment will largely be determined by geography. As example, investors may
pull out funding from manufacturing and infrastructure investments in northern
Nigeria, which has been ravaged by violence. But the resource rich southern
region has been spared from violence to this point. This could be one of the
factors as to why Nigeria’s stock market has been seemingly unaffected by all the
recent turmoil. The benchmark equity index has only declined about 1% since the
kidnappings in mid April; so for all intents and purposes, it has been business as
usual.
So just how bad is it in Nigeria? It is perhaps best summed up in a balanced
report by an analyst with Ernst & Young.
“Nigeria epitomizes this almost bipolar view of Africa,” says Henry Egbiki, West
Africa regional leader at Ernst & Young. “For many of us already doing business
on the continent it is an exciting, dynamic, high octane growth market; for some
others, often on the outside looking in, it seems chaotic, unstable, and uncertain.
The reality is obviously less cut and dried than either of these extremes.”
The next 12 to 18 months will be critical for the government and how it responds
to the upswing in violent outbreaks by radical groups such as Boko
Haram. Humanitarian groups and countries will be looking on from a human
rights point of view, but you can also bet that the international investment
community will be keeping a close watch as well.
