The Money Arrives Nigeria

Nigeria’s economic activities have continued to show positive indicators in the last decade.  Today, Nigeria’s average growth rate is ranked the third fastest among the ten emerging market economies after China and India.

Within the last decade, Nigeria’s economy has expanded at an average rate of 7.5% per annum; this is well above the Sub-Saharan Africa’s average of 5.6%, as well as the global growth rate of 2.8%. This growth, coupled with the immeasurable dynamic possibilities, makes the country a very attractive prospect for investment. Foreign Direct Investment (FDI) in Africa is forecast to attain an all time high of $150 billion by 2015, out of which, Nigeria is envisaged to attract over 50%.According to the Economist Intelligence Unit (EIU) estimates, the stock of FDI inflows into Nigeria has been on a steady rise, reaching a peak of $84.4 billion in 2012. Captivated by the high rates of return, investors from all over the world are pouring into Nigeria.

As Africa’s most populous nation and largest oil producer, Nigeria is poised to eclipse South Africa’s economy by 2015.

Nigeria is becoming a worthy recipient of foreign capital. With an average of $10-$12 billion per year in the last decade, Nigeria has received over $116 billion (₦18.5 trillion) FDIs during the last 10 years; making the country the largest recipient of FDI  in Africa. It is projected that by 2016, FDIs in Nigeria may hit an average of about $23 billion (₦3.6 trillion) yearly.

Nigeria’s major sources of FDIs have been the home countries of the oil majors. The United States of America, present in Nigeria’s oil sector through Chevron Texaco and Exxon Mobil, has investment over $3.4 billion. The United Kingdom, one of the host countries of Shell, is another key FDI partner. The UK FDIs into Nigeria is about 20% of Nigeria’s total foreign investment. China is also becoming one of Nigeria’s most important sources of FDI. Nigeria is China’s second largest trading partner in Africa, after South Africa. China’s direct investment in Nigeria is reportedly worth over $6 billion. The oil and gas sector receives 75% total FDI in Nigeria.

The Flow of FDIs to Nigeria in 2011-2012
According to the Central Bank of Nigeria, the total foreign capital inflows into Nigeria was $9.1billion in the fourth quarter (Q4) 2012, compared with $6.6billion and $3.4billion or increases of 6.53% and 116.84% from the levels recorded in the third quarter (Q3) 2012 and Q4 2011, respectively. Further analysis showed that both Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) increased in Q3 2012 and Q4 2011.

FPI inflows amounted to $3.06billion in Q4 2012 from $1.45billion in Q3 2012.  This is an increase from $2.13billion recorded during Q4 2011. FDI inflows amounted to $6.02billion in Q4 2012 from $5.18billion in Q3 2012, and this also increased from $1.36billion as at Q4 2011. The foreign capital outflows increased from $0.91billion in Q3 2012 to $1.08billion in Q4 2012 due to the activities of the subsidiaries of domestic banks in the West African sub-region.

The Percentage of FDI in NSE
The Nigerian Stock Exchange (NSE) recently indicated that the FPI investments in the local bourse amounted to ₦217.56billion as at March 2013.Inflow of FPI during the period amounted to ₦123.43billion, while total outflow amounted to ₦94.14billion. During the same period, ₦510.10billion (57.30%) out of the total transactions on the floor of the NSE, was made by domestic investors while 42.70% was made by FPI, compared with 38.6% for domestic investors and 61.40% for FPIs as at December 2012.

Nigeria’s Share of FDI from the US
America’s investment flow to Nigeria has been on continuous growth. In three years, it has amounted to over $20 billion. For example, the US Export and Import Bank provided $1.5 billion guarantee for any American firm that is investing in Nigeria’s power sector. General Electric (GE), a global infrastructure company, then signed a memorandum of understanding (MoU) with the Federal Ministry of Power to generate 10,000 to 20,000 watts of electricity. GE will be investing $1 billion in Nigeria within the next five years. Also, an American firm, Simeon Power, won the contract to privatise the Ughelli Power Plant.

The United States Agency for International Development gave a grant of more than $100 million to support the development of farms in the country. Many American companies had indicated interest in developing infrastructure in the country including interest in estate development, especially the extension of the Asokoro District in the Federal Capital Territory. A US’s based company also plans to set up a Starch Firm in partnership with the Kogi State government. The company will also produce sucrose and other sweeteners to be used in the manufacturing of other products.

Power Sector Attracting Much FDI after Oil
The Nigerian electricity industry has been separated into generation, distribution and (a single) transmission companies. This is in line with the Federal government’s plans to persuade the private sector participation and attracting foreign investments into the power sector. According to the Bureau of Public Enterprises (BPE), all the preferred bidders for the 15 Power Holding Company of Nigeria (PHCN) successor companies have paid the mandatory 25% of the offer value of their bids. This cumulatively amounted to a total of $559.45million.

The increased FDI inflows into the power and petroleum sectors are expected to have significant impact on the economy.Nigeria’s domestic market and diversification of the economy will provide a lot of opportunities, and create opportunities for FDI in other sectors. Presently, the sectors with the major FDI inflows over the years have been the oil and gas, manufacturing, infrastructure development, services and consumer goods sectors. It is expected that the FDI inflows into the sectors will be sustained. Moreover, the emerging opportunities in hospitality, tourism, shopping mall development and restaurants cannot be ignored as major grounds for FDIs.

Following government’s effort at improving the country’s infrastructural deficit, opportunities also abound in infrastructure development in the air, road and rail transportation sectors. The continuous development and introduction of additional reforms in the agricultural sector are likely to attract major foreign investments too. Reforms such as zero duty on imported plant and machineries can also help improve domestic production and establish new investments.

Nigeria’s Quest for Exotic Goods
Montaudon, a high end brand of champagne which sells for as much ₦750,000 per bottle, has made its debut in the Nigerian market. This came at the back of a recent report released by Euromonitor International which rated Nigeria as the second fastest growing market in the world for champagne. According to the report, Nigeria spends an average of ₦41.41 billion on champagne annually.

Charles Armand de Belenet, global marketing and communications director, at Pernod’s GH Mumm and Perrier Jouet Champagne brands, revealed that Nigeria’s champagne consumption is quite big and it is the most attractive market at the moment.

It is not only European wine producers that are looking into the Nigerian market, distillers from South Africa are also cashing in. Wines of South Africa (WOSA), an association of South Africa’s wine exporters, has also seen Nigeria as a promising market. Many of the global luxury brands have entered the Nigerian market, and these include several famous spirits, as well as champagne brands whose products are being welcomed by the country’s affluent consumers.

Shopping Malls Account for over $1Billion in Nigeria
Recent research carried out by MarkMonitor Nigeria Limited, a market intelligence research firm, revealed that shopping malls account for more than $1 billion of foreign investments in Nigeria. The success story of ‘’The Palms Shopping Mall’’gave rise to several other malls in almost every state of the federation.The Palms is a shopping and entertainment mall, first and largest centre of its kind in Nigeria that is at par with similar shopping centres anywhere in the world. It is one of the busiest malls in Africa.

In Lagos alone, there are more than ten malls. These malls are of international standard with retail and leisure stores; each offers its own unique proposition to consumers. In most emerging markets, around 10-20% of the retail businesses are accounted for by the organised sector and Nigeria is no exception. Following the opening of more departmental stores across the country, the market is experiencing a new purchasing trend as large numbers of consumers seem to prefer malls to open market, generating billions on a daily bases.

New Acquisitions in Oil & Gas Yields over $5.5 Billion
A few months ago, Heritage Oil acquired a stake in a string of Nigerian oil field assets, Oil Mining Lease (OML) 30, which had been owned by Shell Petroleum Development Company of Nigeria (SPDC) in a deal worth $850 million. Output from OML 30 has averaged 20,000 barrels of oil per day (bpd) since the acquisition. The company is looking to expand its footprint in Nigeria as it is in discussion with concerned parties. The company, which made its name in big oil in Uganda, is under pressure to almost triple production at the Nigerian field, by the end of the year.

ConocoPhillips, an oil company, gave up its assets in Nigeria including stakes in OMLs 60, 61, 62 and 63; offshore OMLs 131 and 214 (both in deepwater); and Brass LNG in one single sale. Oando was announced as the winner after submitting a bid worth $1.3 billion. This is the time for discerning investors to buy shares in Oando Plc.

ND Western has completed its acquisition of OML 34 from the consortium made up of Shell, Total and ENI, which owns a 45% interest. A consortium made up of Scotland based Eland Oil &Gas and Nigerian company, Starcrest, completed the acquisition of a 45% stake in onshore block OML 40. The Shell/Total/Eni divestment has netted them just under $2.6 billion in two years after the three companies sold their jointly-held 45% stake in oil mining leases (OMLs) 3, 26, 30, 34, 38, 41, and 42.

NSIA Approves an Allocation of $850 million Investment
The Nigerian Sovereign Investment Authority (NSIA) has revealed plans of its investment portfolio with the injection of $525million for the take-off of projects under the Stabilisation Fund and the Future Generation Fund in June. The investment allocation formula stipulates that the Future Generation Fund and the Nigeria Infrastructure Fund would each get $325 million, or 32.5% of the $1billion seed funding of the Sovereign Wealth Fund (SWF); while $200 million, or 20% would go to the Stabilisation Fund, leaving balance for future investment opportunities. Priority areas being considered under the Infrastructure Fund portfolio includes healthcare, transportation, water resources, power, and housing.

These funds in key sectors of the economy create unending opportunities for smart investors who are prepared to take advantage of the countries’ economic growth.  

Policy Recommendations
The federal government has an urgent need to embark on capital projects. This will augment the infrastructural facilities with which foreign investors can build on. Efforts should be made to engage in joint ventures that are beneficial to the economy. There should be consistency in policy objectives and instruments through a good implementation. The Nigerian government needs to come up with more friendly economic policies and business environment which will attract FDIs into virtually all the sectors of the economy. The current indigenisation policy should be pursued to the letter as a way of preventing absolute foreign ownership in the key sector of the economy. It is also important that government should begin a systemic elimination of bureaucracy and unnecessary regulation in all legislations enacted by the national assembly.