Boko Haram’s insurgency has killed thousands in northeastern Nigeria yet it is the country’s economic woes that are the main concern in the financial hub of Lagos
Last April, after a long-overdue statistical reassessment of Nigeria’s economic output, the country emerged from the shadows of South Africa to become Africa’s largest economy. The news came on the heels of record levels of confidence in Nigeria’s bond and equity markets. The Nigerian Stock Exchange (NSE) ended 2013 as one of the world’s top performing. Between 2011 and 2013, four local banks raised close to two billion dollars in Eurobonds; a July 2013 sovereign bond offer worth $1 billion was oversubscribed by 400 per cent.
Most of the excitement has since cooled in the wake of tumbling global oil prices. Nigeria, long dependent on crude oil for as much as 80 per cent of government revenues and 90 per cent of its foreign exchange earnings, has been hit badly by the slump. The currency (naira) has gone into a freefall, losing more than a quarter of its value, as measured against the US dollar, since October, as have the government’s budget assumptions. The country is expected to earn about $26 billion from oil and gas sales this year, down from close to $60 billion in 2011, according to a recent HSBC report.
Complicating Nigeria’s financial woes is a longstanding terrorist insurgency that many are seeing as the worst threat to the country’s existence since a 30-month civil war five decades ago. Boko Haram, the terrorist group, recently declared allegiance to ISIL, or Islamic State, its counterpart in brutality and the size of its territorial ambitions. In its stronghold in Nigeria’s vast, arid northeastern region, the group currently controls an area almost twice the size of Qatar. Its onslaught has claimed more than 10,000 lives and displaced well over a million people.
From time to time Boko Haram succeeds in striking outside its stronghold, causing panic in financial circles. In the weeks leading up to the World Economic Forum on Africa, hosted for the first time by Nigeria last May, a series of bombs went off on the outskirts of the capital Abuja, killing several people.
Privately, however, business executives in Lagos, Nigeria’s commercial hub 700km southwest of Abuja, say their biggest worry is not the country’s security situation but economic uncertainties – especially the wildly unstable naira and the government’s unsatisfying response.
Olufemi Awoyemi, chief executive of Proshare, an investment advisory firm, says foreign portfolio investors, whose enthusiasm helped Nigeria’s stock market rebound from a 2008 crash, now have to deal with diminishing returns in the face of a weakening currency. He adds the situation has also discouraged the booking of letters of credit by importers.
“The naira is difficult to hedge,” says an executive at one company that imports agricultural commodities and equipment for its Nigerian operations.
The backdrop to Nigeria’s economic narrative is an equally precarious political situation. General elections, originally scheduled for February, have now been postponed by six weeks. Unlike in the past, when the ruling People’s Democratic Party – holding federal power since 1999 – went into elections as clear favourites, this time it is facing a serious challenge from the All Progressives Congress, a two-year-old coalition of opposition parties. If the elections go on as planned and the APC wins, there is the possibility of a substantial change in economic direction from the middle of the year.
What will not change is the size of Nigeria’s economic opportunity, based solidly on demographic potential. On his inaugural visit to Nigeria last year, Arif Naqvi, founder and chief executive of the Abraaj Group, told a youth gathering, “The biggest asset you have is your youth.” Like the rest of Africa, Nigeria is a very young country. Seventy per cent of the population – translating to more than 100 million people – are under 35. This large youth population, given the right education and training, constitutes a formidable labour pool. It also offers a promising consumer market to everyone from retailers to bankers.
Privately, business executives in Lagos say their biggest worry is not the country’s security situation but economic uncertainties
Nigeria’s investment opportunities are concentrated in infrastructure (transport, power, healthcare and housing), agriculture, retail and telecommunications. State and federal governments are investing billions of dollars in building new roads and bridges and airports and increasingly focusing on public-private partnerships. Nigeria’s power deficit is staggering; it generates less than 5,000 megawatts of electricity – a tenth of what South Africa generates for a population that is only a third of Nigeria’s. The government is currently in the middle of a sale of several state-owned power plants, the second phase in a decade-old privatisation programme.
A reform agenda pushed by the Ministry of Agriculture is helping build confidence in the sector and attracting local and foreign investors. Last year Olam, the global commodity giant, opened a 105,000 metric-tonne rice milling factory in Rukubi Village, a five-hour drive from Abuja, joining a growing clan of local and international businesses that have recently invested tens of millions in facilities processing fruit and meat and producing improved seed varieties.
Telecommunications is now one of the fastest-growing sectors of the Nigerian economy, outpacing oil and gas. A raft of e-commerce start-ups have launched in recent years, attracting tens of millions of dollars in equity funding from international investment firms like Tiger Capital and Kinnevik.
The financial services sector is also attracting attention. The Abraaj Group has recently invested in a local insurance company while Exotix, the UK investment bank, opened its first African office in Lagos in 2014. Atlas Mara, an investment vehicle co-founded by former Barclays Bank chief executive Bob Diamond, acquired a 29.9 per cent stake in Nigeria’s Union Bank last year.
Diamond is one of a group of high-profile international investors who are consistently bullish about Nigeria’s prospects; others include Abraaj’s Naqvi, Jim O’Neill, the former Goldman Sachs economist who famously coined the term BRICS, and Mark Mobius, chairman of Templeton Emerging Markets Group.
For intending foreign investors, Nigeria’s many possibilities are easily obscured by its much-reported problems in security and political and economic uncertainty. But it would be a mistake to write off the country. Analysts say the economic upheaval offers an opportunity to fundamentally restructure the economy, rescuing the country from a dangerous dependence on oil and gas. And the importance of a long-term strategy cannot be overstated.
“The immediate matters less than the long term. No one I know wins in Nigeria betting only on the short term,” says Jonathan Berman, author of the book Success in Africa and chief executive of JE Berman Associates, an investment and advisory firm. “Five, 10 and 15 years from now, a well-crafted investment in Nigeria will be a good bet.”
Yet for the thousands of displaced Nigerians who have fled their homes due to Boko Haram’s largely uninterrupted reign of terror to Africa’s poorest country Cameroon, the immediate is all they can think about.