Nigeria 19th most attractive investment destination in Africa

Lagos, Nigeria

Nigeria is the nineteenth most attractive economy for investments flowing into the African continent, according to the latest Africa Investment Index 2016 (AII) by Quantum Global’s independent research arm, Quantum Global Research Lab. In 2015, Nigeria attracted a net foreign direct investment of US$3.1bn.

Prof. Mthuli Ncube, head of Quantum Global Research Lab stated: “Despite the current economic challenges, we are quite confident on the medium to long term market prospects. Nigeria has earmarked a significant amount of capital to develop critical infrastructure in the country and there are various opportunities for public-private collaboration providing investors’ return on their investments. We anticipate that investment in infrastructure will underpin the growth of the economy and meet the needs of a large Nigerian growth population.”

Following the decline in oil prices, which impacted various African oil producing nations, the Nigerian government has intensified its effort towards diversifying the local economy and has laid out a roadmap to enhance public infrastructure and support high-growth sectors in the country such as manufacturing, ICT, and agriculture amongst others to meet the local demand along with boosting exports globally in the short to medium term to stabilise the macro-economy.

Nigeria is the biggest economy in Africa with a GDP of $415bn that is projected to grow to about $595bn by 2020. This presents a big market for goods and services. In this sector, GDP per capita currently at 2,260 is projected to leap to $2, 907 by 2020, which could boost consumption and domestic demand.

Commenting on Nigeria’s economy, Prof. Ncube further added: “The short- to medium-term focus of the Nigerian Government is to reduce imports and address primary sector blockages, such as roads, bridges, power, railway, aviation, water, housing, agriculture, education and health. Despite the current market volatility, Nigeria presents tremendous investment opportunities in these areas, which would not only support the local economy but also deliver significant yields to foreign investors.”

Nigeria has implemented various reforms to boost and restructure the economy including the introduction of the Nigeria Industrial Revolution Plan (NIRP), establishing the Enabling Business Environment Council (PEBEC) to make Nigeria more attractive for investments, and the microcredit scheme in the 2016 budget, which will see the Bank of Industry overseeing the disbursement of loans to 1.6 million traders, artists, farmers and young entrepreneurs over the next 12 months.

According to the report, the top five African investment destinations attracted an overall FDI of $13.6bn. Botswana was ranked the most attractive economy for investments flowing into the African continent followed by Morocco, Egypt, South Africa and Zambia.

Construction of the index

The AII is constructed from macroeconomic and financial indicators and the World Bank Group’s Ease of Doing Business Indicators (DBI). The DBI ranks countries in terms of a regulatory environment conducive to business operation. The AII focuses on 6 pillars or factors from a wider range of investment indicators, which include the share of domestic investment in GDP, the share of Africa’s total FDI net inflow, GDP growth rate forecast, population augmented GDP growth factor, real interest rate, the difference of broad money growth to the GDP growth rates, inflation differential, credit rating, import cover, the share of the country’s external debt in its GNI, current account ratio, ease of doing business and the country’s population size. The AII indicators are based on secondary data collected from World Bank Development Indicators, IMF World Economic Outlook, UNCTAD Data Centre and own estimates.

The AII is a combination of individual indicator’s rank into a single numerical ranking. It averages the country’s macroeconomic and financial indicators rankings on the six different factors. Each indicator, and hence factors, receives an equal weight. Their rank score is then averaged to produce the total average score which is consequently ranked from one to 54. The lower the value of the ranking, the better the implied business investment climate.

To produce an index score that captures medium-term changing aspects, individual country’s ranking is scaled relative to a benchmark or reference value (i.e., the past three-year rolling average ranking). In addition to the intended measurement, this approach enables us to avoid periods of structural changes (which may compromise the index) that may be present in a longer time span, whether we consider a change from a reference average value or a historical reference period.