Nigeria is Africa’s largest market – but also the hardest to crack. So what do investors really think about putting their money into the West African powerhouse? SIMON ALLISON finds out.
Recent headlines paint a gloomy picture of the Nigerian economy. “The fall in oil price could be a turning point for Nigeria’s economy,” said The Guardian in early March, while Bloomberg went with, “As World’s Hottest Economy Unravels, Nigerians Feel the Squeeze.” Both stories mentioned Nigeria’s ongoing security troubles with Boko Haram, but assigned most of the blame to the collapse of global oil prices.
For an economy that depends on oil for 70%-80% of its national income, this could be catastrophic. Already the government is dipping into its foreign reserves to cover the shortfall, withdrawing over $3 billion in the last month – a little under 10% of the total. At this rate, Nigeria only has another 10 months of foreign reserves left.
The bleak forecast is a far cry from April last year, when Nigeria overtook South Africa as the continent’s largest economy, thanks to an updated GDP calculation, and analysts and investors alike were celebrating what felt like a coming of age moment for a country that has long punched below its weight.
So what do the investors think now? The Daily Maverick surveyed a few key players attending a conference on Nigeria’s economy, organised by risk analysis firm Frontier Advisory. Their verdict? No matter what else is going on, size matters.
Niezaam Davids, business development executive, Tiger Brands
Nigeria has its own peculiarities. From a fast moving consumer goods point of view, Nigeria is still very attractive, just for the demographics… Nigeria is a long-term play. It is one that requires a change in our business model. Simply replicating what we do here doesn’t work. We need to be more responsive, more entrepreneurial. There are security challenges in the north, and we have to think on our feet to get around these challenges… [but] the long term prospects are good.
Chris Hart, chief strategist, Investment Solutions
Nigeria’s comparative advantage is its size and population. Any Africa strategy must include Nigeria. But if you’re going into Africa for the first time, it might not be the best place. You’ll burn your fingers… you may have to do some serious research into the market. You have to be able to stay the distance. In Africa, credibility is important. If you’ve just arrived and you’re just a sunshine business, you won’t last.
Nigeria is politically a federation of 36 states. This alone creates complexity. Operating in each state can be like operating in a different country. People look at Nigeria in terms of its 190-million population, but the market is a lot more fragmented than we think.
John Olufemi Okanlawon, general manager and chief representative officer in South Africa, Union Bank of Nigeria
Bankers are rolling out new products. The future is bright. The population is there. We have strong financial institutions… Anything you do in Nigeria, you can be sure you’ll talk about profit, profit, profit. Forget Boko Haram, forget elections. You have similar challenges elsewhere… There’s a risk, but the returns compensate for the risk.
Alex Okosi, senior vice president and managing director, MTV Networks Africa
You have to have an adaptable business model. You can’t think that what worked elsewhere will work here. I don’t think that Nigeria is a mature market… everything is an opportunity. Companies that can provide innovative technology and drive down prices have a huge market ahead of them.
It’s not that I’m trying to paint a rosy picture of Nigeria because I’m Nigerian, but it’s a market – with between a quarter and a fifth of Africa’s population – and it makes sense for companies to figure out how to make it work there.
Martyn Davies, CEO, Frontier Advisory
The brand of the country is one thing. The perceptions of South African companies can be quite conservative and negative, and this has been reinforced by the recent oil price collapse, among other things. Ultimately the informal economy is such that it’s difficult to measure, but how do you ignore the potential of the informal economy, when predominantly it’s a consumer play – most companies entering Nigeria are consumer-facing enterprises, fast moving consumer goods companies, and that’s where the opportunity lies, despite the macroeconomics.
From a governance perspective, a financial perspective, yes of course there are problems, but ultimately it’s about capturing consumers, consolidating markets, driving revenue and shareholder return. And in Nigeria, demographics is its comparative advantage. Ultimately we’d hope that true economic sustainability can only come from beyond resources, beyond demographics, to enhance governance and effective government. DM
Photo: Motorists drive on a side street in downtown Lagos, Nigeria, 10 February 2015. Nigeria is Africa’s most populous country in Africa, and the continents fast growing economy. EPA/AHMED JALLANZO.