LAGOS, Nigeria—To understand why Africa's top economy is faltering after five years of Islamist attacks, take a look at Tochukwu Odidigwe's car-parts dealership.
In June, an explosion tore through a traffic jam near his storefront near the port of Lagos, the country's commercial hub. The deadly blast left his street covered in ash and his customers scared to come back. "They are afraid they may be killed," said Mr. Odidigwe.
It is a growing sentiment. After brutalizing Nigeria's impoverished northeast for years, Boko Haram is threatening to bring its insurgency to Lagos and the oil fields of the Niger Delta, the southern regions that drive Africa's biggest economy.
Finance Minister Ngozi Okonjo-Iweala says lost agricultural output and soured loans in the northeastern states where Boko Haram operates will trim Nigeria's growth rate by half a percentage point this year.
Growth could suffer even more if militants bring that mayhem to Lagos, economists fear. "This sect will stop at nothing to destabilize our country and retard the developmental progress we have made," Mrs. Okonjo-Iweala said in a speech at Britain's Parliament in July.
Nigeria's economy has grown more vulnerable because of a shift away from oil into growth led by services and small businesses such as Mr. Odidigwe's car-parts dealership.
In April, the government measured its economy for the first time in 24 years, estimating that Nigeria's gross domestic product has surpassed South Africa's, largely on the back of such companies. Services and retail now account for 51% of the economy, surpassing oil, whose share has fallen to 14% from 45%.
The trouble is that these businesses are proving among the most vulnerable to Boko Haram's onslaught. While big oil corporations can afford the security to withstand unrest, smaller outfits lack the capital to protect themselves in the same way.
More companies faced with the cost of doing business in an expanding war zone are playing it safe.
South African consumer-goods maker Tiger Brands Ltd. says turmoil in the northeast prompted it to close two of its four Nigerian flour mills and write down its unit's value by $70 million. Nielsen Holdings NV has held off surveying businesses in the northeast of Nigeria because it can't send workers there.
South African consumer-goods maker Tiger Brands Ltd. says turmoil in the northeast prompted it to close two of its four Nigerian flour mills and write down its unit's value by $70 million. Nielsen Holdings NV has held off surveying businesses in the northeast of Nigeria because it can't send workers there.
In the northeastern city of Maiduguri, tens of millions of dollars of irrigation and harvesting equipment the Borno State government purchased sits in warehouses. The gear is meant for farms that have fallen into the expanding grip of Boko Haram.
Such setbacks mark a reversal from just a few years ago, when many investors in Nigeria regarded its sprawling economy as resilient enough to absorb constant militant attacks. As recently as 2012—when the insurgency escalated—Nigeria's naira was one of Africa's strongest currencies. The stock index climbed 47% that year. The economy grew 7%.
This year, the naira is down 2.5% against the dollar. The foreign share of transactions on Nigeria's stock exchange has also fallen, to 45% from 75% at the start of 2014. Nigeria's foreign currency reserves have dropped to $31 billion, from $44 billion in 2013.
Despite the current security challenges, many investors remain optimistic that this country of 174 million can outgrow its troubles. Nigeria's population is swelling by 11,000 people daily, and is set to exceed the U.S.'s by 2045.
Providers of infrastructure, fast food, and consumer goods are racing to keep up. Last year, APM Terminals, a subsidiary of shipping giant Maersk Group, dispatched its first freight train to Nigeria's north in 15 years.
"We believe Nigeria can solve its problems, as it has many times in the past," says Andrew Dawes, a managing director at APM Terminals.
But fighting Boko Haram commands a big share of government resources. A fifth of the federal budget goes to an army and security forces whose soldiers say they don't have enough bullets, food, gas, night-vision goggles or body armor to pursue the terrorists.
A July petition on behalf of 3,950 soldiers claims their generals had pocketed $43 million meant to pay salaries, a charge the army denies. Nigeria's congress is likely to soon approve an additional $1-billion loan for the military.
Nigeria's government hasn't been able to rescue the more than 200 teenagers kidnapped from a school in April, not to mention the hundreds more thought to have been kidnapped before and since.
"People are throwing in the towel, saying this is just too bloody difficult," said Richard Ketley, director of the Johannesburg-based consultancy Genesis Analytics.
"People are throwing in the towel, saying this is just too bloody difficult," said Richard Ketley, director of the Johannesburg-based consultancy Genesis Analytics.
Nigeria's two dominant political parties blame each other for doing too little to stop Boko Haram. In a video in July, the insurgency's leader took credit for the Lagos bombing and threatened to destroy the core of Nigeria's economy: oil infrastructure.
"May God's wrath befall the name Nigeria," Abubakar Shekau said. "I'm Shekau, the trouble child!"
"May God's wrath befall the name Nigeria," Abubakar Shekau said. "I'm Shekau, the trouble child!"
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