Nigeria’s abundant resources and recent demographic expansion make it an attractive prospect for international business leaders as the next frontier of financial growth and opportunity. But there are some cultural aspects that organisations must consider when entering the Nigerian market, ethnic tensions being one of the most intricate.

In terms of its impact on businesses, this issue is often overlooked and not well understood, particularly by foreign companies. This is a mistake that may jeopardise projects and corporate strategies, increasing costs and damaging the firm’s reputation irreparably in the country if not adequately assessed.

There are at least 250 ethnic groups in Nigeria, dispersed over a large geographical area. Each has its own dialects and distinct cultural traditions, inspiring a strong sense of loyalty in its members. The multitude of different ethnicities within a single nation is the product of Nigeria’s colonial background, with the British drawing the current borders in 1960 and leaving the country with unsolved religious and cultural divisions.

Foreign companies need to develop a deeper understanding of this phenomenon if they are to communicate effectively with Nigerian partners, consumers, and Federal or State entities in the market. Specific strategies should be tailored to target customers in various parts of the country.

Unfortunately for international business, in recent years, Nigeria has faced severe economic and political challenges caused by ethnic and tribal antagonisms, aggravated by the financial fallout of the Covid pandemic.

Instability and internal conflicts have prevented the country from reaching a state of unity and peace and fostered a false perception of risk that has shaped potential investors’ biases, fuelled by media reporting and sensational headlines.

Incidents of open hostility have been triggered by religious divisions and political zoning, the practice of political parties agreeing to split their candidates between the north and south of the country so that no party is seen as only representing one zone. Zoning is one of the most significant obstacles to the country’s ability to select the best suitable candidates for office.

Reducing the frequency of such conflicts may improve the sense of common nationhood among the population, promoting economic harmony, and national security, and therefore the possibility of attracting international businesses by improving Nigeria’s access to foreign direct investment. This is unlikely to occur in the short term, as several factors are undermining the possibility of attracting more worthwhile investments.

It is possible to assume three main issues that make it harder to attract funds, business, and human capital to the country, creating more challenges for international companies already operating in Nigeria.

First, the economy is still highly dependent on foreigners’ expertise and capital, fuelling divisions between rich and poor in Nigerian society. The provision of foreign assistance has cultivated an expected dependency which has prevented the creation of a nationwide ecosystem that will build prosperity through local economic engagement.

Second, elites are not unified and, in some critical situations, use the tensions to promote personal or group self-interest. Informal norms and practices inherited from past cultural ties associated with a natural resistance to abandoning elite privileges, make reforms more difficult to approve and share.

Third, the introduction of Western democratic ex-ante models of governance has created a discrepancy between the country’s geography, cultural knowledge, and the natural composition of the population. In particular, entire regions or ethnic groups were separated or merged during the colonial period, with little knowledge or no regard for their common features or unique attributes.

The lack of formal authority and centralised institutions has accelerated ethnic and tribal hostilities. This imported model of government did not take into account Nigeria’s importance of a collective system in which families, clans, tribes, old kingdoms, and ethnicities are the main ingredients of social, economic, and political relations.

All these issues continue to produce political and economic instability. Business leaders see Nigeria as perpetually involved in this challenging scenario, threatening the possibility of deploying more valuable investments. This lack of national unity affects peace and the country’s political stability, generating growing inequalities that increase rivalry and risks of conflict while intimidating productive economic developments.

Without a sense of nationhood among the Nigerian population, these tensions cannot be quickly resolved and will be detrimental to a country that is in desperate need of growth if it is to cope with a demographic explosion in the coming decades – analysts forecast the urgency of economic growth around 6-7% to provide for this expansion.

Introducing a diverse process that is capable of building a new approach to governing the country, one which understands the challenges posed by its various ethnic divisions, could significantly reduce tensions and boost economic development with international cooperation.

It is time for Nigeria to set apart tribal and religious loyalties that overcome national economic interests, making it challenging to create stability and growth. When Nigeria finds a compromise to supersede internal tribalism and the interests of local elites, it will have a greater chance of forming a new business environment and attracting foreign investment instead of undiserved negative financial attention from the international community.

Lorenzo Coronati is a lawyer, consultant, and Global Executive PhD candidate at ESCP Business School.