I’ve been a frontier market fan for some time now, especially when it comes to Africa, and particularly when it comes to investing in Nigeria. Last week, Abuja, Nigeria, had the honour of hosting the World Economic Forum (WEF) on Africa, which South Africa has hosted for the past 17 of 23 years. The event offered an opportunity for Nigeria to showcase its economic potential and build some investor confidence. Unfortunately, the shocking kidnapping of school girls by the Boko Haram, probably designed to embarrass the government at the time of the Forum, highlighted that Nigeria’s path to development will not be an easy one. My thoughts and well-wishes are with the families of the girls for their safe return.
I don’t believe even such a hideous act of terrorism should dislodge Nigeria’s path to future economic growth. Despite its challenges, we continue to see potential in Nigeria from an investment standpoint for a number of reasons.
While not the largest country in Africa in terms of land mass, Nigeria is an African giant by other measures – and certainly not a sleeping giant. Nigeria boasts the largest population in Africa, at 174m as of July 2013, and recently stole the top spot from South Africa as the largest economy on the continent. How did that happen? Without question, Nigeria’s economy has been growing at a fast pace – among the fastest in Africa in the past few years. GDP growth in Nigeria stood at 6.3% in 2013 and is projected to reach 7.1% this year, while South Africa grew a more modest 1.9% in 2013 and is projected to grow 2.3% in 2014. Nigeria boasts one of the fastest-growing economies not only in Africa but in the world, with GDP growth rates above 6% every year since 2003.
Some say Nigeria’s GDP figures had been hiding a secret; the assumptions for the shape of the economy were years out of date as Nigeria’s GDP data had not been rebased since 1990. In 2013, Nigeria’s National Bureau of Statistics announced the intention to rebase its data from 1990 to 2010, and hints emerged that the rebase was going to paint a picture of a much larger economy than previously reported. Sectors that had barely existed in 1990 would be granted larger weighting. Early in April 2014, the new figures for Nigeria’s GDP were published, and at US$509.9bn, the new 2013 GDP figure was roughly 1.9 times the previous estimate.
Of course, one cannot just look at the numbers, as there are a number of important caveats. South Africa’s per-capita GDP remains far above that of Nigeria, and its stock market has a market capitalisation value more than twice that of Nigeria. As the only market that is generally classified as “emerging” in Africa (vs “frontier” for the rest of the continent), we think South Africa is likely to remain the key initial investment destination in Africa for some time to come – and one we remain keenly interested in, too.
However, no matter how you measure it, we think the development of Nigeria has great implications for the entire continent. Nigeria could set an example for other countries and act as a growth engine for the rest of Southern Africa.
Of course, Nigeria has many problems and the way which its leaders solve those problems will determine how fast progress is made. Most important, for example, are basic public services. The most evident of those is electric power. Most hotels and businesses require their own gasoline or diesel electric power generators because of the unreliability of the government power system. My team and I have had our share of being stuck in elevators in Nigeria when the power fails, so we know first-hand how important it is to an economy and the businesses in it to be able to keep things running. If the privatisation process is successful in Nigeria, we think it could be a revolutionary change to the country.