This article is a section from a report “Investing in Nigeria” and shall be viewed in the context of the title. Please view the report for more information on the subject as well as references for this article.
Nigeria is perceived as a great investment opportunity due to its population and the growing middle class. Nigeria is the biggest economy of Africa and one out of every 5 African is a Nigerian. A population of 181 million people is bigger than Russia or any of the EU countries.
One of the biggest drivers for investor interest is unexciting interest rates and small returns from the safe markets such as US and EU. Small returns from the developed markets make investors look abroad for new horizons and new markets.
Nigeria attracts capital from all over the world. Nigeria’s markets are not for everyone, however more people are becoming aware of the investment potential of Nigeria, especially after the 2014 GDP rebasing exercise.
The investment sentiment in Africa is not particularly good, most of the newly intrigued investors are looking at mining natural resources and the domestic market – the African consumer. The issues the country faces, such as Naira devaluation and Boko Haram, are stopping people interested in the country, not the ones already invested in Africa.
The fact that Nigeria has a lot of commodities has driven interest from Asian investors. Asia is already heavily invested in Africa – they need the commodities.
The big international brands are following their demographics to Nigeria. Many of the middle class Nigerians have studied abroad and made a liking of some of the worlds fashion brands. A lot of the big brands are capitalizing on the opportunity right now – huge population, fashionable and a brand loyal middle class with disposable incomes.
Some industries have entered a maturity stage in the developed world, such as pharmaceuticals. The outlook now is at the frontier and developing markets, where Nigeria comes in first. Nigeria is one of the hotspots for pharmaceuticals, the domestic pharma industry is projected to expand and grow rapidly.
In the car manufacturing industry, manufacturers are forced to setup their assemblies in Nigeria and everyone is on the bandwagon, announcing plans for assemblies in Nigeria, not to miss out on the Nigeria’s opportunity.
By 2050, the combined GDP of Africa is projected to be at $29 trillion of today’s money. This has led to the perception of unlimited growth for the next decades, as even if one country slows down, other countries in the continent pick up. This is well witnessed in Asia right now, with the slowdown of China, other Asian countries are picking up in their GDP growth.
It’s not just that Nigeria is Sub-Sahara Africa’s biggest population already, it’s also the fact that it’s quickly growing. There is an opportunity to serve more breakfasts and portions of food generally, regardless of if the economy continues to grow as quickly. This is attracting companies such as Kellogg’s.
Concentrated population and the high urbanization rate in the cities is another interest driver – it’s possible to serve 10 million people by a successful operation in a single city.
Nigeria has seen a lot of endorsement from world leaders, Obama’s visit to Kenya in the summer of 2015 encouraged increased trade between the USA and Africa. Chinas presidents Hu Jintao’s visits to Africa had great success in promoting friendly and cooperative ties between China and Africa.
A big and reputable name that gets involved in Africa usually brings with itself an increased interest and investment sentiment for Africa. This is similar with individual companies that are looking for funding – a partnership with a reputable, continent wide recognized company, can help attract FDI. This is well seen in the companies that partner with telecoms to deliver their products through the GSM networks, such as lottery gaming companies. These partnerships gives credibility to the company.
The low oil prices have driven investors already in the country and the continent to explore other sectors of the economy.
Some of the high returns seen are driven by negative investment sentiment. This was the case in telecoms, where MTN’s $285 million investment returned billions years later. Had Vodafone entered the market in early 2000’s, such a growth rate would not have been possible.
All of these growth potentials are attracting interest from every corner of the world, from many industries and sectors. Nigeria cannot be passed by investors looking at Africa and the developing markets.