Nigeria – ripe for growth

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.

Africa missed out on the industrialization that has happened all around the world in the last 200 years, it is happening to Africa right now and is the main growth driver for the economy and the continents development. The growth will reach a peak in 2050 and Nigeria is due a lot of growth till then.

Nigeria is picking up just now due to the human capital now being way better educated than ever before and the lack of opportunities in other frontier markets, such as South America.

Some government policies have proven to drive the growth of Nigeria, such as the pension funds. Pension funds are creating domestic funds available to be invested in domestic deals.

A UN report listed 9 countries that will have the most population growth by 2050, five out of nine were in Sub-Saharan Africa. In 2050, 50% of people in the world under the age of 25 will be in Sub-Saharan Africa. The preparation for the growing population and this new population itself, is expected to grow the economy and the continent.

People have to eat no matter what, products such as butter are driven by this population growth and there is going to be a lot of economic activity regardless of if the country achieves its economic potential.

Big portion of educated Nigerians have studied abroad, they’re bringing back knowledge to run businesses and also the lifestyle expectations. A lot of the growth in the country is simply due to Nigerians expecting and demanding better quality. People are getting used to good and comfortable lifestyles. Middle class Nigerians have disposable incomes, yet there is little emphasis on savings.

The big multi-nationals that are manufacturing locally are creating demand for commodities, such as sweeteners for bottled drinks companies.

Generally, there is a very strong entrepreneurial spirit in Nigeria, it’s creating Nigeria into a dynamic growth place of Africa.

Investor concerns in Nigeria

While many of the worlds developing frontier markets are similar in their economical appeal, they differ in their operations and if the opportunities are realizable by the companies looking at these opportunities. One of the biggest concerns foreigners have is the business culture and the operational know how.

Enron put blame on their Nigerian power plant when they faced their corporate problems. There have been other examples of huge corporate failures in Nigeria due to lack of governance or other systematic failures. These cases gets associated with Nigeria and create negative investment sentiment.

Rwanda is known of finding out how the criteria for World Bank ratings work and adjusting their policies accordingly. Tactics such as these are employed by countries that have been under a lot of pressure and bad publicity. Rwanda for instance, had to take a lot of aid in the past. This is not a general trend in Africa, but business people should be doing due-diligence on countries themselves, rather than purely relaying on world’s organizations ratings.

Risks can be minimized by understanding the Nigerian market terrain. All of the consultants, documents and reports produced are creating more understanding of the market and generating an investment friendly terrain. Business people shall take advantage of these things to address their concerns.

Another major concern is political stability. There is a risk of emergency elections in case the APC party splits and a lot of the countries potential depends on good governance of the country and passing the necessary policies.

The lack of infrastructure remains a big concern – you cannot run a business without electricity.

The high interest rate government bonds remains an issue. It’s hard to attract investors when the government offers 13% interest rate bonds. The big interest rates are also not sustainable for local manufacturers – it’s hard to stay competitive with a two digit interest rate. By the time a manufacturer receives their money on a 2 year loan period, it’s time to ask the bank to re-finance it.