How rising insecurity impacts Nigeria’s economy

Nigeria, a country plagued by a renewed spate of abductions orchestrated by armed bandits, is facing a pressing issue that has put the nation in the spotlight for all the wrong reasons. In a bid to delve deeper into the implications of this rising insecurity on the economy, CNBC Africa sought the expertise of Pelumi Osode, a Senior Economist at FDC, who shed light on the far-reaching impacts of the prevailing security challenges. With security issues permeating all sectors of the economy, stakeholders are grappling with the consequences on the country's economic growth trajectory. Osode highlighted how insecurity has hampered Nigeria's quest for an investment-led recovery and sustainable growth, citing concerns about infrastructure deficits, asset insecurity, and the reluctance of investors to commit capital in an uncertain environment. The economist emphasized how security threats have derailed Nigeria's ambition to achieve a robust seven to ten percent growth in its economy, emphasizing that rational investors weigh risk against returns before deploying funds. Osode pointed out that recent incidents of vandalism and theft, such as the reported 509 pipelines vandalized between 2019 and 2020, have eroded investor confidence, leading to significant financial losses across various sectors. The escalating insecurity in Nigeria has manifested in diverse forms, from attacks on installations in the Niger Delta to the prevalent banditry in the northwestern region, with schools becoming vulnerable targets for abductions. Osode underscored the impact of insecurity on the food belt region, a critical agricultural area responsible for supplying produce to other parts of the country. The economist warned that disruptions in farming activities due to security challenges could trigger food scarcity and inflation, exacerbating the existing food supply shortage in the country. Current food inflation rates, hovering around 20 percent, may surge further if security threats persist, leading to higher food prices and potential shortages of essential commodities like onions. Amidst the ethnic tensions stemming from the herder-farmer conflicts, Nigeria's political stability faces a precarious situation. The ongoing National Security Council meeting aims to address the intricate web of security concerns, including reports of food diversion from specific regions. Osode expressed hope that strategic interventions and swift actions would mitigate the adverse economic effects of insecurity, fostering investor confidence and bolstering the nation's attractiveness for foreign direct investment (FDI). The economist stressed the pivotal role of political stability in attracting FDI, as investors prioritize safety and security considerations in their decision-making process. Failure to address the security challenges could deter potential investors, diverting capital to safer investment destinations within Nigeria. While some northern states have made efforts to attract FDI, the cloud of insecurity looms large, prompting investors to reassess the risk-return dynamics of investing in the region. Osode reiterated that investors prioritize cost-effective and secure environments for their investments, and any perception of heightened risk can lead to increased operational costs and heightened security measures, deterring capital inflows. The economist urged stakeholders to proactively address the security concerns and instill confidence in potential investors, aligning Nigeria with the global economic recovery trajectory and positioning the nation as a favorable investment destination in the long run.