This article was produced by the IFC.

By David Lawrence

Though the health impact of the pandemic in Nigeria has been limited compared to many other countries, the economic toll from Covid-19 has been challenging. In the first quarter of 2020, the global economic slowdown triggered by the pandemic led to a collapse in oil and gas prices, which account for almost 90% of Nigeria’s exports and more than half of its fiscal revenues.

Lockdowns and movement restrictions designed to slow the spread of Covid-19 hampered businesses, slowed down trade, and disrupted supply chains, causing significant uncertainty for Nigeria’s business community and investors. As a result, the 85 million Nigerians living in poverty are at risk, as are Nigeria’s 41 million small and medium enterprises, which account for three-quarters of employment.

Even so, the longer-term prospects for economic growth in Nigeria are promising, according to many observers who cite the country’s population size (the largest in Africa), as well as rich natural resources, including fossil fuels, minerals and arable land. Nigeria also boasts the continent’s highest nominal GDP. In some sectors, the crisis may even open up new opportunities, say experts, especially with the launch of the African Continental Free Trade Area (AfCFTA) agreement.

“If you look at Nigeria in the short term, you might see the challenges rather than the opportunities,” said Eme Essien, country manager for IFC’s Nigeria office. “But if you have the fortitude to see past the short-term bumpiness, Nigeria looks very interesting. All of the fundamentals come into play: the size, the dynamism, the opportunities. There are a lot of investors who see that in Nigeria, but not nearly enough.”

Attracting investment

Two reports published in 2020 – the World Bank Group’s Country Private Sector Diagnostic (CPSD) for Nigeria and a complementary report, the Covid-19 Rapid Assessment – examine the impact of the pandemic on Nigeria’s private sector and identify several promising areas for investment.

“Nigeria is an attractive investment destination with many prospects and should be an essential component of every Africa strategy,” said Yewande Sadiku, CEO of the Nigerian Investment Promotion Commission (NIPC). She noted that the country is the 14th largest economy in the world with a “large population of young, energetic, tech-savvy people with an entrepreneurial, can-do spirit”.

In response to the impact of Covid-19, the government approved the one-year, $5.9 billion (₦2.3 trillion) Nigeria Economic Sustainability Plan in June 2020 to boost the country’s economy, encourage local sourcing for goods and services, and protect the most vulnerable.

This has helped Nigeria bolster some sectors hit by the pandemic, though more investment is needed to support the country’s resilient recovery and job creation needs. Investors note that agribusiness and information and communication technology, or ICT, are two sectors with unique potential.

Local farmers’ ripening potential

Agribusiness accounts for about 23% of Nigeria’s GDP and employs 45% of the workforce. With 82 million hectares of arable land – more than 40% of the country’s total – plentiful water supplies, and a favourable climate, Nigeria could further develop numerous crops, including cassava, citrus, cocoa, sesame seeds and tomatoes. Furthermore, by developing agri-processing, Nigeria can reduce its reliance on food imports and increase its food security.

Since 2019, the government has introduced restrictions against some agricultural imports to support smallholder producers. (Most farmers are in this category.)

However, supply chain disruptions caused by Covid-19 have encouraged some producers to cut costs and look closer to home to source inputs, complementing the government’s policy to stem imports and increase local production. Opportunities for import substitution are many.

“When global supply chains collapsed, businesses started thinking a lot more about sourcing locally, which in many ways is good for the local economy,” said Danladi Verheijen, managing director and co-founder of Verod Capital Management, a West African private equity firm.

Folasope Aiyesimoju, CEO of United Africa Company of Nigeria, one of Nigeria’s leading consumer-focused conglomerates, agrees that now is the time to boost domestic supply-chain development. “Before the pandemic, we realised that the greater the degree of domestic input in our supply base, the better for us and the simpler the supply chain,” he said. “We’re looking at investing in companies that specialise in supporting small-scale local suppliers in the agricultural value chain. We have accelerated these efforts because of Covid-19.”

The World Bank Group’s CPSD and Covid-19 Rapid Assessment recommend building stronger links between agricultural supply chains and smallholder farmers and digitising supply chain management to increase opportunities for smallholder farmers. Agricultural infrastructure such as warehouses and transportation systems, financed through public-private partnerships, could also improve food transportation.

Alluvial, a Nigerian agricultural company, is using digital solutions to help local farmers capture this local supply chain development opportunity. The company uses community block farming to aggregate farmers into cooperatives, which allows them to access equipment, inputs, finance, and vital services more competitively. It is also developing an agro-advisory service that will allow farmers to use chatbots to query weather and soil information, which will help them optimise their use of fertilisers.

“The solution lies to a significant extent on bringing the farmers together so they can access the inputs at more competitive prices,” said Dimieari Von Kemedi, co-founder and managing director of Alluvial. “Collectively, they are as valuable a customer as any commercial farm – in fact, a lot more. This will help increase farmer productivity.”

But some observers note that switching to local suppliers is no panacea – that while manufacturers are looking into local sourcing because of the pandemic, domestic producers can be more expensive. In response, some companies are developing stronger partnerships with their supply base, by guaranteeing offtake from suppliers or providing support with business planning, financing, or equipment.

Harnessing a tech-savvy generation

Throughout the world, the ICT sector has been indispensable at a time when Covid-19 restrictions have limited mobility, and Nigeria is no exception. The country’s active entrepreneurial culture and $12 billion e-commerce market, which includes 87 Nigerian platforms employing 2.9 million people, position the sector to take advantage of growing demand for ICT services during the pandemic and beyond.

“Nigeria has a large and young population, many of whom are digital natives,” said NIPC’s Sadiku. “We must ensure that government policies properly support ICT, the digital economy, and innovation – that runs through all aspects of life.”

The country’s ICT sector has had several major successes attracting investment from funders at home and abroad, contributing to regional growth.

For example, Kobo360, an African logistics company with headquarters in Nigeria, created an app that matches truck drivers with companies looking for freight services. The system lowers the costs of transporting goods in Africa, where truck drivers face challenges such as poor transportation infrastructure, safety issues, and difficulties finding cargo to transport. Kobo360 now operates in 16 African countries, including Burkina Faso, Côte d’Ivoire, Ghana, Kenya, Togo and Uganda.

Another Nigerian start-up, Paystack, provides secure payment services that allow entrepreneurs and businesses to accept online payments using mobile money or credit and debit cards. In October 2020, Paystack announced that it was being acquired by Stripe, an international payment processing platform. Paystack’s digital strategy positioned it well to facilitate business and trade despite the global economic downturn triggered by the pandemic.

ICT can boost other sectors, such as financial markets, through digital financial services. Already, it is making a difference to farmers – especially those in rural areas – by providing them with vital information about prices, markets, weather, and financing.

Looking past the pandemic

While the Covid-19 pandemic has caused economic upheaval in the short- and medium-term, the long-term prospects for business and investment in Nigeria are worthy of attention, according to experts.

“The focus needs to be on the long-term opportunities for investors in Nigeria – that’s where the opportunity is,” said IFC’s Essien. “If you can create a product or service that speaks to the needs of people, you can create a business that is very vibrant, where you have solid market share, and you can ride out all the short-term volatility.”

Others encourage observers of Nigeria’s investment potential to look beyond today’s statistics.

“There may be difficulties in investing in Nigeria now, but nobody invests because of today,” Sadiku says. “Everybody invests because of future prospects. What sort of relationship do you want to have with a country that will be the world’s third-most populous in 2050? It is a question to ask ourselves now, not in the future. A lot of opportunities that do not exist now will be very visible then.”