Boko Haram and its Economic Consequences


September 25, 2013 05:00 EDT

Boko Haram could have a disastrous impact on Nigeria’s economy.

In May, President Goodluck Ebele Jonathan suspended the constitution and declared a state of emergency in three states at the northeastern tip of Nigeria. On August 10-11, an attack on a mosque in the state of Maiduguri left 56 people dead — Boko Haram is largely believed to have been responsible.

Boko Haram, the militant Islamist group, has made a mockery of peace and security in Nigeria, and its threat to regional security is well-known. So far, a lot has been written about the political consequences of the group. In fact, almost all that has been written on Boko Haram both in popular media and academic journals, address its deleterious consequences from a political perspective.

More often than not, these reports fail to highlight that apart from the tragic loss of lives and property, the terrorist activities of Boko Haram constitute a major threat to the Nigerian economy. How these ongoing threats will affect the economy is worth analyzing.  

Boko Haram and Foreign Direct Investment

Since Boko Haram resumed its operations in 2010, foreign direct investment (FDI) into Nigeria has plummeted, owing to the political instability the country has faced. According to the World Investment Report (WIR) 2013, FDI flows into Nigeria dropped by 21.3 percent in just one year — from $8.9 billion in 2011 to $7 billion in 2012.

This substantial loss in FDI over a short period of time will have many further consequences for the country. First, FDI into Nigeria has a direct impact on trade, assuring progression of economic growth. Second, FDI inflow supplements the available domestic capital by stimulating the productivity of domestic investments. And lastly — but most worrisome — 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.

Abandoned North

The mass emigration of Nigerian citizens, who are non-indigeneous to the northern region of the major conflict-affected cities, is the second formidable threat posed by Boko Haram to the Nigerian economy.

The rush to escape from the north is already affecting the profitability of business establishments in that region. For example, blogger Okoronkwo notes that banks have begun closing down their business outlets due to a decrease of economic activities in the area. Also, employees of these institutions are increasingly demanding that they be posted to less volatile branches.

The consequences of this can be imagined. A massive departure from the northern region will not only constitute a depletion of economic affairs in the north, as happened in the Basque country of Spain. It will also throw those who are departing from the north into financial and psychological pressures.

Moreover, the political insecurity in northern Nigeria is already affecting the services industry, especially those that have a bulk of their operation in the region. The financial services sector is the most affected; banks are closing down their branches and insurance premiums are rising.

This situation has become worse by the lack of insurance policies covering terrorist attacks in the country. At present, the Nigerian insurance industry is still trying to decide upon how to provide terrorism insurance policies that will meet the needs of the population.

A study of the impact of Boko Haram is relevant for various reasons:

  1. The economy of Nigeria, a country teeming with a population of 170 million, is of strategic importance to peace, order and regional security in sub-Saharan Africa;
  2. The wellbeing of the region's economies in countries like Cameroon, Chad, Niger, and Benin amongst others, are interlinked and dependent on the the Nigerian economy;
  3. Within sub-Saharan Africa, Nigeria is too big to fail, as its failure will mean hardship for millions of people and revert whatever developmental progress has been made in that region over the past few decades.

At present, however, we can only hope that the efforts of President Jonathan in northeastern Nigeria will bear some fruits. 

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.

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