INVESTING IN NIGERIA
Nigeria Still Attractive For Investment’
Nigeria’s status as a key emerging market has remained intact, despite the negative impacts of a volatile global oil market, making the country an attractive prospect for investment, according to the Standard Bank.
The continent’s most populous nation and leading producer of crude oil had weathered the global oil price storm through the introduction of strong structural and fiscal controls. These had acted to protect the Nigerian economy when prices rose and dropped dramatically during 2008, said Michael Hugman, Emerging Market Strategist for Standard Bank, West Africa, while addressing a South Africa-Nigeria Chamber of Commerce event in Sandton, Johannesburg .
“In the past, higher oil revenues spurred international borrowing by Nigeria, leaving substantial debt as oil booms faded. This time, however, fiscal surpluses funded a ground-breaking debt buy-back leaving minimal external debt. As oil prices fell, Nigeria stayed away from international capital markets,” Hugman said.
The result of this action was that the country was also in a strong foreign exchange position, having assets of more than USD 45bn, which would enable the country to cover an estimated 16 months of goods and services imports. In addition, fundamental changes in the last eight years have allowed non-oil growth to outperform, and protect against oil prices returning to previous low levels.
“Harnessing oil windfall savings, Nigeria has transformed its sovereign balance sheet. It has significantly outperformed its peer group and exceeded their investment grade oil credits. Nigeria remains one of the world’s most exciting hydrocarbons prospects with 70bn barrels equivalent of known reserves and a further potential of 38bn barrels equivalent. The potential for this asset wealth to combine with strong population growth remains enormous.
This strong balance sheet, continued hydrocarbon potential and policy reforms have placed the country in a solid position to take advantage of economic growth opportunities. Inflation, previously a major concern, has also been brought under control to a great extent,” Hugman said.
Growth was being supported by the public sector where the focus was on critical fiscal policy reforms to increase stability through increased privatisation within the state sector and deregulation of key sectors such as the telecommunications sector. On other fronts, financing development was taking place through an aggressive approach to key areas such as pension reforms, consolidation within the banking sector and reforms in debt and equity capital markets. Reforms aimed at addressing infrastructure investment were now also beginning to deliver, Hugman said.
“Underlying growth potential can be harnessed over a multi-decade period to drive sustained out-performance in GDP growth, while the end of easy global credit offers the opportunity to access significantly higher yields for those committed to financing Nigeria’s future. Infrastructure investment will be critical to the long-term growth potential of Nigeria,” Hugman concluded.
Dianna Games, CEO of the South Africa-Nigeria Chamber of Commerce, said the number of South African companies investing in Nigeria has grown sharply over the past four to five years. The growth is driven by the success and procurement practices of pioneer companies such as MTN and more recently by the economic reform of key sectors, notably banking and insurance.
” Nigeria is Africa’s biggest market and the improved political and business climates have been attracting some of South Africa’s biggest companies despite the challenges of operating there. It is becoming common cause in South Africa’s boardrooms that no Africa strategy is complete without the inclusion of Nigeria,” she says.
The South Africa-Nigeria Binational Commission celebrates its 10th year of existence in 2009 and the export figures from South Africa into the West African country have shown significant growth since trade began in earnest a decade ago. In the first three months of 2009, Nigeria was South Africa’s 20th destination globally for exports, up from 23rd for the whole of 2008, and it’s biggest in West Africa .
In 2008, the governments of the two countries established a five-a-side Joint Presidential Advisory Council on Investment to increase trade and investment ties.
BOB
Nigeria’s status as a key emerging market has remained intact, despite the negative impacts of a volatile global oil market, making the country an attractive prospect for investment, according to the Standard Bank.
The continent’s most populous nation and leading producer of crude oil had weathered the global oil price storm through the introduction of strong structural and fiscal controls. These had acted to protect the Nigerian economy when prices rose and dropped dramatically during 2008, said Michael Hugman, Emerging Market Strategist for Standard Bank, West Africa, while addressing a South Africa-Nigeria Chamber of Commerce event in Sandton, Johannesburg .
“In the past, higher oil revenues spurred international borrowing by Nigeria, leaving substantial debt as oil booms faded. This time, however, fiscal surpluses funded a ground-breaking debt buy-back leaving minimal external debt. As oil prices fell, Nigeria stayed away from international capital markets,” Hugman said.
The result of this action was that the country was also in a strong foreign exchange position, having assets of more than USD 45bn, which would enable the country to cover an estimated 16 months of goods and services imports. In addition, fundamental changes in the last eight years have allowed non-oil growth to outperform, and protect against oil prices returning to previous low levels.
“Harnessing oil windfall savings, Nigeria has transformed its sovereign balance sheet. It has significantly outperformed its peer group and exceeded their investment grade oil credits. Nigeria remains one of the world’s most exciting hydrocarbons prospects with 70bn barrels equivalent of known reserves and a further potential of 38bn barrels equivalent. The potential for this asset wealth to combine with strong population growth remains enormous.
This strong balance sheet, continued hydrocarbon potential and policy reforms have placed the country in a solid position to take advantage of economic growth opportunities. Inflation, previously a major concern, has also been brought under control to a great extent,” Hugman said.
Growth was being supported by the public sector where the focus was on critical fiscal policy reforms to increase stability through increased privatisation within the state sector and deregulation of key sectors such as the telecommunications sector. On other fronts, financing development was taking place through an aggressive approach to key areas such as pension reforms, consolidation within the banking sector and reforms in debt and equity capital markets. Reforms aimed at addressing infrastructure investment were now also beginning to deliver, Hugman said.
“Underlying growth potential can be harnessed over a multi-decade period to drive sustained out-performance in GDP growth, while the end of easy global credit offers the opportunity to access significantly higher yields for those committed to financing Nigeria’s future. Infrastructure investment will be critical to the long-term growth potential of Nigeria,” Hugman concluded.
Dianna Games, CEO of the South Africa-Nigeria Chamber of Commerce, said the number of South African companies investing in Nigeria has grown sharply over the past four to five years. The growth is driven by the success and procurement practices of pioneer companies such as MTN and more recently by the economic reform of key sectors, notably banking and insurance.
” Nigeria is Africa’s biggest market and the improved political and business climates have been attracting some of South Africa’s biggest companies despite the challenges of operating there. It is becoming common cause in South Africa’s boardrooms that no Africa strategy is complete without the inclusion of Nigeria,” she says.
The South Africa-Nigeria Binational Commission celebrates its 10th year of existence in 2009 and the export figures from South Africa into the West African country have shown significant growth since trade began in earnest a decade ago. In the first three months of 2009, Nigeria was South Africa’s 20th destination globally for exports, up from 23rd for the whole of 2008, and it’s biggest in West Africa .
In 2008, the governments of the two countries established a five-a-side Joint Presidential Advisory Council on Investment to increase trade and investment ties.
BOB
Replies to This Discussion
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Permalink Reply by Nascent Dynamics ( ) on -
Quite an interesting article. I have always had a personal interest in investment banking, and my attention has lately turned to international investment.
The potential industrial growth and business profitability in some countries is often overshadowed by a lack of stability, security from corruption, and sound long-term policy making. It appears that Nigeria is a country taking proactive steps to remedy their position, and the 10 year profile alludes to some prospective investment opportunities.
It is interesting to learn of the infrastructure coming into play. I wonder, if those are the pro's, what are the con's. I also wonder, coming to the determination Nigeria has some emerging investment opportunities, what are the specific avenues serious investors need to approach some of these opportunities?
Best,
Anthony Reardon
Nascent Dynamics ( ) Modern Business for the Modern Environment
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