Nigeria: Still an investor’s delight in Africa

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Barr. Osita Oparaugo.

Nigeria’s recent offering of $1bn bond at the London Stock Exchange (LSE) was about eight times oversubscribed, according to the London Stock Exchange. The 15 year bond, offering 7.875% in yield is already trading on the London Stock Exchange.

In a statement, the Exchange stated that the over-subscription is a strong statement of international investor interest in building exposure to Nigeria’s economy’

In addition, analysts at the Abuja-based Institute for Fiscal Studies, Nigeria (NIFS) believe that the issuance, over subscription and listing of Nigeria Eurobond at the London Stock Exchange clearly ‘underscored the confidence and appetite foreign investors have on Nigerian market’

Mr. Rislanudeen Muhammad, the Senior Fellow and Monetary Policy Lead of the Institute said the investor confidence is “despite initial pessimism that the bond issuance will have challenges due in large part to three consecutive quarters of negative GDP growth rate and rising inflation rate.”

“The success also shows that with right policy direction, Nigeria can attract the requisite capital to plug its huge infrastructure gap and budget deficit especially as it relates to capital expenditure where multiplier effects of reflecting the economy that is in recession, job creation and improving our GDP growth rate abound” observed Mr. Muhammad, who is also an economist and former acting Managing Director, at the Unity Bank, Nigeria.  

As the Managing Director of Footprint to Africa, I can comfortably say that investor confidence in Nigeria and other markets in Africa is on the rise. Investors have shown great interest in the Nigerian economy, especially in three sectors. Indicated interests in Agriculture and Power generation are substantial. The massive inquires and mandates we have received in the mining sector shows greatly that there will be light at the end of the tunnel for Nigeria.

If our reports and findings remain as they are, Nigeria’s economic recovery would begin in 2017. Little wonder the IMF had, in a report titled: ‘World Economic Outlook October 2016: Subdued Demand, Symptoms and Remedies’, projected Nigeria’s GDP to grow by 0.6 percent in 2017 even as global growth averages at 3.4 percent in 2017.

The Eurobond may not be the only international borrowing programme by the Mohammadu Buhari-led Nigerian government, as a proposal is currently before the National Assembly to approve yet another $30bn, three-year borrowing plan, to finance Nigeria’s budgets up to 2019.

The IMF had fixed Nigeria’s GDP at about $415.08bn in 2016 from its 2015 position of $493.831bn. South Africa came a distant second with a GDP of about $280.367bn, representing a drop from the $314.732bn in 2015. This clearly shows that Nigeria is still an economic powerhouse on the African continent. Several factors give Nigeria an edge. Some include:

A Young Population

With a huge population projected at 182m, of which about 91m are under 30 years, according to data from Nigeria’s National Population Commission (NPC), Nigeria is a ready market. The NPC also estimates that Nigeria’s population grows at 3.5 percent annually. This population means huge demands for goods and services. Nigeria also sits in vantage position in West Africa thus can also take a significant slice of the entire West African market.

Agriculture and value chain

Nigeria has massive arable land for agriculture with over 84 million hectares of arable land, of which only 40% is cultivated, according to statistics from Nigeria’s Federal Ministry of Agriculture and Rural Development. Official figures also show that Nigeria has over 230 billion cubic meters of water and abundant and reliable rainfall in over two thirds of its territory, the country has some of the richest natural resources for agricultural production in the world.

Just about anything grows relatively well in Nigeria – maize, rice, wheat, cereals, vegetables, palm trees, gum arabic, rubber, cocoa, groundnut, sesame seeds, and so on.  Prior to the oil boom era in 1960s, Nigeria dominated the rest of the world in the production of many commodities, accounting for 42 percent of the world’s production of groundnut, 27 percent of oil palm, 18 percent of cocoa, 38 percent of cassava and 1.4 percent of cotton according to data from Nigeria’s Nigeria Export Import Bank (NEXIM). The agric value chains are yet another untapped goldmine.  Nigeria lost her leading position owing to dearth of investment in agriculture and its value chains over the years to match the pace of population growth. As recent as 2014, Nigeria spent N1.3trillion on 4 products alone (Wheat, Rice, Sugar & Fish), NEXIM Bank data show. The Federal Ministry of Agriculture observed that Nigeria lost about US$10bn (N1.6trillion) annual export opportunities in crops like oil palm, cocoa, groundnut and cotton.

Solid minerals and the value chain

Solid minerals remain largely untapped with illegal mining taking the centrestage across the country. According to NEITI/CBN report, total revenue from the solid minerals sector amounted to a pathetic N31.449 billion in 2012 and accounting for just 0.02 percent export earnings.

The President of Miners’ Empowerment Association of Nigeria, Mr. Sunny Ekosin, also recently gave chilling statistics of how much Nigeria is losing not only through mining but through its natural resources as well. He had said Nigeria is losing about N50 trillion annually from untapped resources that abound in the nation’s soil.

The Nigeria Extractive Industries Transparency Initiative (NEITI) audit report of 2012 shows that there are about 40 different types of solid minerals and precious metals in Nigeria’s’ soils waiting to be tapped. About 70 per cent of these resources are buried in the bowel of North Central (Middle Belt) Nigeria. States like Benue, Nasarawa, Kogi, Niger and Plateau are rich in mineral deposits. Considering gold alone, Mr. Ekosin said Nigeria is losing N8 trillion (about $50 billion) annually not exploiting gold. 

In addition, liquid steel resource is wasting away in Abeokuta, Kogi State, while, Zamfara, Bauchi, Benue, Enugu, Ogun, Zamfara states, etc have large deposits of various solid minerals numbering over 25. Based on all of these and more, Footprint to Africa would strongly advice that Nigeria should diversify her economy with a focus on agriculture and solid minerals.

Aviation

The Nigerian government has evolved a programme that would see private sector participation in Nigeria’s aviation industry which has capacity of outperforming any African market.

Nigerian aviation contributes a meager $0.7 billion or 0.4 percent to the GDP even though it has potential to contribute in excess of 5 percent to the GDP and support in excess of one million jobs, former Minister of Aviation, Mr. Osita Chidoka said.

For Nigeria to really tap significantly its potentials in aviation business, it must, at least, be the West African regional hub, connecting more destinations across the globe. This will attract huge traffic and investments into the industry. Nigeria has capacity of being a regional hub because of its strategic location. Nigeria connects to Europe, Americas and Asia in relatively short time – in an average of eight hours. In some of the countries, Nigeria connects them in just six hours.

The Nigerian government hopes to attract in excess $10 billion to Nigeria’s aviation industry from the concession of the airport terminals, licensing a private sector driven national carrier, establishing a private sector driven MRO, building of perishable cargo terminals and the development of airport cities (aerotropolis) among others as Nigeria air traffic is projected to hit 25 million annually in 2020.

Power sector

Nigeria projects to generate 40,000mw and more of electricity between now and 2020 in an investment worth over $35bn. The power generation is largely inadequate in Nigeria, currently at less than 4,000mw.  Discerning investors are actively seeking ways to invest in the power sector of Nigeria. Nigeria can produce about 40,000 MW of electricity from all of its proven gas reserves, for approximately 60 years, according to greendealnigeria.org. Nigeria’s power sector is out of government total control and is already witnessing significant investments from the private sector.

Infrastructure

The Integrated Infrastructure Master Plan (NIIMP) developed a 30-year roadmap infrastructure development plan for Nigeria and had projected that Nigeria required at least $2 trillion (N398.1 trillion) for infrastructure development over the next three decades. This plan would be largely in roads, rail, bridges, housing etc

CEO, IA&CE, Engr. Otis Anyaeji, in a paper entitled, “Engineering Valuation, Cost Engineering and Engineering Economy Perspectives in the Implementation of the National Integrated Infrastructure Master Plan” had said Nigeria needs investments valued over $500 billion for roads, $25 billion for the aviation sector, $30 billion for the maritime sector, $75 billion for ICT infrastructure and over $900 billion for electricity generation in the next 30 years.

Nigeria is in excess of 10 million housing deficit. To bridge this gap, Footprint to Africa maintains that Nigeria must build at least 1 million housing units annually consistently for 10 years through investments worth over N40trn.

Conclusion

Nigeria’s economy is looking up. The government’s commitment to improving infrastructure gap and fight corruption is already yielding results. Already, about 30 percent (N1.765 trillion) of the about N6.88trn 2017 budget estimate is dedicated to capital projects with a commitment to increasing the percentage going forward.

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