Nigeria is Africa’s most populous country, with a population estimated at 148 million in 2008. Aspiring to be a key player in the international system, Nigeria has been a force for regional peace and stability, contributing through mediation efforts and peacekeeping missions, particularly in West Africa. The country is endowed with vast estimated reserves of oil (36.2 billion barrels) and gas (5.29 trillion cubic metres, largest in Africa), making it a potential continental economic powerhouse. But Nigeria is wracked with extreme poverty, marginalization of key regions and ethnic and religious divides. More than 12,000 people have been killed in ethnic, communal, religious and electoral violence since the country returned to democratic rule in 1999. In 2008, Nigeria was ranked 18th out of the 60 most unstable countries on the Failed States Index of the Foreign Policy and Fund for Peace, U.S., and 129th in the ranking of 140 most peaceful countries on the Global Peace Index of the Vision for Humanity, Australia.

Many of the factors generating Nigeria’s conflicts arise from the often conflicting economic and political claims of its over 350 ethno-linguistic groups, dominated by the Hausa/Fulani, Ibo and Yoruba, and fractures between its roughly equal Christian and Muslim populations, each accounting for over 40 per cent of the population. As proceeds from crude oil export represent most of the government’s revenues, disputes over the sharing of political power between the constituent groups, which then guarantees greater access to those revenues, are an ever-present source of friction and conflict.

In the Niger Delta, local anger over environmental pollution by oil companies, widespread poverty, oil-related organised crime, and economic and political marginalization by the federal government has flared into an insurgency. This conflict, exacerbated by heavy-handed and abusive state security response, threatens to spread insecurity across the Gulf of Guinea. Both Cameroon and Equatorial Guinea have been attacked by Niger Delta gangs in the last year. Foreigners – Americans, Europeans and Asians – are at risk of being kidnapped for ransom, particularly in the Niger Delta. Elsewhere, especially in the central states, clashes between “indigenous” and “settler” populations are recurrent. In most northern states, threats of religious violence – Muslim versus Christian, fundamentalist versus mainstream Islam, radical Islam versus the secular state – are ever-present. With the influx of small arms, evolution of organised crime and limited effectiveness of security and judicial services, urban centres are prone to violent crime.

Nigeria was the world’s eighth-largest oil producer in 2006, but the conflict in the Niger Delta has cut production by about 30 per cent since then to about 1.6 million barrels per day. Yet the petroleum sector still dominates the country’s economy, accounting for about 90 per cent of exports by value, 80 per cent of government revenues, and 40 per cent of gross domestic product (GDP). Nigeria’s oil has hardly benefited the country’s population. Instead, Nigeria’s natural resource endowments perversely make it perform worse than less well-endowed countries. Poor financial accountability, widespread corruption, reliance on consumer imports instead of domestic production and low employment in the oil sector are all aspects of this “resource curse”.

Excessive dependence on oil revenues has left Nigeria’s economy highly vulnerable to the volatility of world oil prices. The African Development Bank (ADB) projects the country’s real GDP growth will slide to 4 per cent in 2009, from 5.3 per cent it recorded in 2008, largely due to dwindling oil revenues. Under-investment and corruption have stagnated domestic electricity production for years: the current production of about 2,600 Megawatts is barely adequate for about 10 percent of the populace, leaving vast areas without electricity for days or weeks, and compelling businesses to make highly inefficient arrangements for their own electricity generation. Industrial manufacturing has shrunk over the last two decades, accompanied by mounting youth unemployment. While investment opportunities abound in the oil and gas, agricultural and manufacturing sectors, major challenges to business include physical insecurity, the critical electric power situation, crumbling infrastructure, excessive regulation, a justice system slow in resolving business disputes and corruption in the government sector.

For all its shortcomings, the civilian government of President Umaru Yar’Adua is still viewed as far preferable to military rule, which was badly discredited during its nearly three decades in power. But with very limited opposition to the ruling People’s Democratic Party, which controls 29 of the 36 states as well, and weak legislative and judicial institutions, the country lacks the balance needed for adverse consequences for democratic consolidation and good governance. Economically, Nigeria’s natural resources, labour availability and large market brighten its long-term perspectives. However, its potential depends on how effectively the federal government addresses key challenges, notably the conflict in the Niger Delta, sectarian and ethnic division, the electricity crisis, corruption in the public sector and human capital development. President Yar’Adua unveiled a seven-point agenda for tackling these and other challenges when he assumed office in 2007. But with little or no progress on any of these issues after two years, it is unclear how much his administration will be able to accomplish before the 2011 elections.