Last year Nigeria became the largest economy on the continent, surpassing South Africa with a GDP valued at US$519bn. At a GDP growth rate of 7.3% and a population of over 160 million, Nigeria could be argued to present the best opportunity for many investors, including South Africans, looking at the African continent.

South African law firm Webber Wentzel and africapractice recently hosted a panel discussion to explore the investment potential presented by the Nigerian economy.

Three key themes emerged from the discussion. The first of these highlighted the relatively small impact that the elections would have on the country’s investment potential. The second theme focused on the financial sector, with a strong suggestion that Nigeria had to be at the core of any strategy devised by banking institutions serious about success on the continent. The final theme was South Africa’s need to better understand the jurisdictions in which it was looking to invest, starting with Nigeria.

Influence of the elections on investment conditions

With the Nigerian 2015 election as the background to the discourse it was significant to note suggestions that it would have minimal impact on the Nigerian investment landscape. There are genuine concerns about the elections becoming a possible cause for violence, and further security instability. However, historically these factors have never posed that much of a threat to the country’s economic stability.

While the elections and politics in Nigeria do not necessarily lead to economic instability, there was a shared concern amongst attendees and panelists that it remains a major obstacle to Nigeria reaching its full potential.

This is a result of what some see as vested interests of particular groups and communities where singular interests prevent a collective solution. An example of this observation is the national energy deficit and the booming backup generator businesses.

Opportunities in the Nigerian financial services sector

The Nigerian federal government has already proven its ability to untangle frenzied and problematic areas in Nigeria with the success of the changes made in the financial sector. This has led to tremendous growth in the Nigerian banking sector with 13 Nigerian institutions being included on The Banker’s Top 1000 Banks index in 2014. The second theme in our discussion addressed these improvements.

Nigeria has become one of the most important destinations for banking investors looking for growth. Institutions currently drafting their strategies for African growth would be remiss if they excluded a Nigerian consideration. In fact, it would be prudent for Nigeria to be at the centre of any Africa strategy. With over a 160 million people living in Nigeria, only 28.6 million, or 32.5%, of the adult population in Nigeria have access to banking services. This presents a great opportunity for South African banks looking for growth outside South Africa where the market is almost all captured and saturated.

Understanding the Nigerian market and business culture better

The final theme that emerged was that South African businesses were not doing enough to understand the Nigerian market and the opportunities it offers. An example which was given showed how some of South Africa’s financial institutions gave an inordinate amount of power to credit committees based in Johannesburg, but which had very little experience and knowledge of the Nigerian market.

This has often led to a disconnect between the heads of business development teams tasked with opening up opportunities in Lagos and the restraint coming from decision-makers in South Africa. A point was raised about how South African business people made less effort to understand other African cultures compared with the effort invested in understanding cultures of countries outside of Africa. For example, a South African CEO would ensure that he/ she knew of the intricacies of Japanese customs prior to dealing with a Japanese company, yet would not show the same courtesy in understanding African markets.

Nigeria is one of the most distinct African markets and requires one to embrace the rich culture that is infused within its business environment.

African expansion provides hope for sluggish South African economy

The panel discussion was an important learning opportunity for business stakeholders in South Africa looking for opportunities beyond our borders. South African companies like MTN, Standard Bank and Shoprite have already made their forays into one of the most exciting markets on the African continent. The kind of success already experienced by a company like MTN, which has ridden the wave of the Nigerian mobile boom, indicates the possibilities for any other first movers who can exploit Nigerian sectors at the cusp of expansion, such as agriculture, infrastructure and power.

South Africa’s growth rate for 2015 is pegged at 2.3% by the IMF in contrast to an over 5% growth rate in Nigeria. South African companies should be seeing this as a genuine opportunity. With the slowdown in the economies of our BRICS partners, other African economies may be the only avenue to help South African businesses.