Nigeria: Case study for Zim

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This week we take a closer look at, Nigeria, a country I consider to be Africa’s most exciting! In spite of the recent slowdown from the slump in oil prices, Nigeria is one of Africa’s most stimulating countries. With over 168 million people with an average age of 18,6 years, it is the largest African market. With the world’s eighth largest gas reserves, 33 solid mineral deposits and being the seventh largest oil producer in the world, Nigeria has tremendous potential.

Ritesh Anand Column

According to a recent study by PWC, with a projected GDP of nearly US$4 trillion by 2050 and an annual average real GDP growth rate of around 6%, as well as a youthful and growing working population, Nigeria is projected to rank 13th among the world’s largest economies.

Over the past decade, Nigeria has boasted superior economic growth and with the right reforms and investments, Nigeria could become one of the world’s leading economies by 2030. Nigeria’s potential advantages for future growth include a large consumer market, a strategic geographical location and a young and highly entrepreneurial population.

In April 2014, the Nigerian National Bureau of Statistics released the numbers for Nigeria’s GDP rebasing, which had not been conducted since 1990. Since the previous study, it is estimated that the Nigerian economy has grown by 90%, with a national GDP of around US$510 billion in 2013. This makes Nigeria Africa’s largest economy, overtaking South Africa and the 20th largest economy in the world, according to IMF estimates for 2014.

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According to PWC’s long-term projections, Nigeria could sustain average growth of around 5-6% per annum in the long run, following projected growth of around 6-7% for the rest of this decade, assuming that broadly growth-friendly policies are pursued. While foreign investment has, in absolute terms, long been focused on the oil sector, portfolios are becoming increasingly diversified into power, agriculture and mining.

The World Bank’s 2014 Doing business in Nigeria report recorded 34 significant improvements in the ease of doing business since 2010. The government’s focus on infrastructure development (for example power, roads, and rail) is expected to support further growth of the economy. Other transformation programmes include power sector reform and the Pension Reform Act 2014.

There is a clear upside potential for five major sectors of the Nigerian economy:

Retail and wholesale trade — Based on an expanding consumer class in Nigeria, retail and wholesale spending could rise strongly over the next few decades. This could make this the largest sector of the economy in the longer-term and provides a particularly good opportunity for producers of fast-moving consumer items such as juices, which could grow by more than 10% per year up to 2030.

Agriculture — The sector, which is now the largest at 22% of GDP, could more than double in size by 2030. This would require raising yields through greater use of fertilizers, seeds and mechanised implements, shifting the crop mix to more valuable crops and increasing the amount of land under cultivation.

Infrastructure — On average, the value of a nation’s core infrastructure — roads, railways, ports, airports, the electrical system — is about 70% of GDP; in Nigeria, core infrastructure is estimated to be only around 35-40% of GDP. Its road network lags well behind other emerging economies such as China and even India. On a per capita basis, Nigeria has one-third the residential buildings of Indonesia and one-sixth of the commercial space. Between core infrastructure and real estate, total infrastructure investments in Nigeria could be as high as US$1,5 trillion between 2014 and 2030.

Manufacturing — Manufacturing in Nigeria remains at a relatively early stage of development, contributing only around 7% of GDP in 2013. It has, however, achieved strong growth recently, with output rising by 13% per year from 2010 to 2013. Based on current trends, this could yield a four-fold increase in manufacturing output by 2030.

Oil and gas — While the oil and gas sector is expected to grow relatively modestly compared to other sectors and remains vulnerable to global price fluctuations as seen recently, its success is still important for the Nigerian economy. With the right reforms, liquids production could increase from 2,35 million barrels a day on average now to over 3m bpd by 2030, while natural gas output could grow at around 6% per annum to 2030.

In recent months, the price of crude oil has fallen sharply. With Nigeria producing about 2,4m bpd and exporting 2,2m bpd, the country may have lost as much as US$25 billion over the last year, forcing the government to introduce a raft of measures to shore up its revenue in the face of dwindling earning from crude oil, its main revenue source. The situation could become worse in the short-term as oil price falls have continued.

It should, however, be noted that this is not an entirely new experience as the country has been through a similar situation in 2008 when oil prices fell sharply to below US$40 per barrel (though it rebounded relatively quickly, it may not happen this time). The country and the economy could ultimately benefit from a drop in oil prices if it provides an incentive for greater economic diversification.

Overall, Nigeria continues to be an attractive place to invest not because it is an oil producer, but because of the immense size of its domestic market and the extraordinary commercial energy of its people, which remains largely untapped. Despite the recent slowdown, Nigeria has tremendous long-term growth potential and could be one of Africa’ most exciting investment opportunities.

Much like Nigeria, Zimbabwe is blessed with tremendous natural resources and a very enterprising population that is resilient and highly adaptable. With the right economic and investment policies Zimbabwe could be extremely attractive for investors. With only 13 million people, it may not be as exciting as Nigeria, but there is no doubt that Zimbabwe can be ushered to attain the huge potential it has.

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