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Asia Business Development – Asia Business Consulting » Nigeria – West Africa’s rising investment hub

SpirE-Journal 2014 Q3

Nigeria – West Africa’s rising investment hub

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Nigeria – West Africa’s rising investment hub

Nigeria’s economy was worth over USD400 billion in 2013 – ahead of South Africa’s GDP of USD355 billion . Nigeria is becoming Africa’s largest oil exporter. But amidst the opportunities, challenges remain – chiefly political instability, theft of natural resources and lack of infrastructure. Will Nigeria’s emergence as the latest frontier market be a smooth one?

A growing economy

Now being referred as one of the MINT frontier economies in the world (Mexico, Indonesia, Nigeria and Turkey), Nigeria is expected to emerge as an economic powerhouse of the future . It has a good track record over the past ten years, with 7.4% real GDP growth in 2013, up from 6.7% in 2012.

Nigeria is Africa’s most populous country and the ninth most populous in the world.

Nigeria is Africa’s most populous country and the ninth most populous in the world, with 173.6 million people in 2013. According to recent UN projections, Nigeria will become one of the most populous countries in the world by 2050.

Petroleum and oil resources play a major role in the Nigerian economy. The country is the 6th largest producer of petroleum in the world, the 8th largest oil exporter and has the 10th largest proven crude oil reserves.

Economists sometimes refer to an abundance of natural resources as a curse. Such resource endowments can stunt the development of genuinely competitive industries and functioning political institutions, inducing the political class to pursue “short-termism.” Yet post-War history has examples of both successes and failures among energy exporters – Norway, Mexico, some of the Gulf states, Brunei and arguably Russia being among the more successful. Which path will Nigeria take?

What Nigeria has to offer

Nigeria is pursuing a policy of attracting foreign investment as the government strives to raise economic growth. In spite of numerous political set-backs, its efforts are bearing some fruit. Some of the reasons for this include:

Natural resources

Nigeria has been a member of the Organization of Petroleum Exporting Countries (OPEC) since 1971. Its oil and natural gas reserves are located primarily in the Niger Delta region. According to the International Monetary Fund, natural gas and oil exports accounted for 96% of Nigeria’s export revenues in 2012. With a keen eye on the European market, the Nigerian National Petroleum Corp (NNPC) plans to increase gas exports there as well.

Improving business environment

The United Nations Industrial Development Organization (UNCTAD) concluded in a report released on June 2014 that Nigeria is one of the top investment hubs for Foreign Direct Investment (FDI) in Africa. It recorded a USD5.6 billion inflow for 2013. At the same time, international investors bought USD786 million (NGN127.41 billion) of Nigerian stocks in the first 3 months of 2014, according to the Nigerian Stock Exchange’s (NSEs) recent figures.

Strategic location

Nigeria is emerging as a global megacity with a youthful, growing population. Lagos – one of only two coastal megacities in Africa – allows access to other developing economies around the world. It offers a favorable location for trade, tourism and industry. Furthermore, the country also ranks as the ninth largest workforce globally and by 2030 the number of citizens of working age will be 50% greater.

Lagos, one of only two coastal megacities in Africa, is a hub for trade, tourism and industry.

Magnet for investors

Since its return to democracy in 1999, Nigeria has embarked upon an ambitious reform program geared towards greater economic openness and liberalization. China’s recent announcement of a massive USD12 billion in infrastructure underlines Nigeria’s attractiveness as an economic partner.

Where do the opportunities lie?

Behind the impressive headline economic growth of 7.4% in 2013 lie a host of fast-growing sectors with somewhat strong fundamentals.


Spire journal has long argued that a common trend in emerging economies is demand for high-quality education and healthcare outstripping the state’s ability to provide it, creating an opportunity for the private sector. Nigeria’s government is expected to spend USD6.27 billion over the next four years on education. According to the Transformation Agenda in 2011 launched by the President, the only way to develop human capital is through education. This agenda is aimed at raising growth through pushing human capital development from 2011 to 2015. There will be a role for the private sector to work with the state sector to upskill and expand the provision of education. Private education providers now account for 10% to 40% of primary and secondary schooling in Africa. The bulk of this private sector footprint lies in Ghana, Kenya and Nigeria, at approximately 40% of all schools. For instance, Omega schools – a chain of 40 low-cost private schools established in 2009 – is currently operating in Ghana and Sierra Leone with plans to expand to Nigeria as well.


In recent years, many private hospitals have emerged to provide medical care to the general public. The World Bank announced this year that it will invest USD150 million over the next five years to help Nigeria boost its healthcare sector. An USD21.5 million grant on behalf of the governments of Norway and the UK is also expected to improve access to healthcare across Nigeria. For instance, Kent Hospital, owned by leading investor Mid Europa, plans to enter into partnerships with local healthcare providers as part of their strategic entry into the continent. Kent Hospital is one of the leading private hospitals in south-eastern Europe.


Inadequate electricity supply has been a blight on Nigeria’s economy. As Africa’s most populous country, Nigeria produces less electricity than the Republic of Ireland! More than 50% of Nigerians have no access to electricity at all. Moreover, the cost of alternatives – mainly diesel – is expensive. The Nigerian power sector needs a massive dose of investment to be ready to support future population and economic growth.

As Africa’s most populous country, Nigeria produces less electricity than the Republic of Ireland!


Only 1.6 % of Nigeria’s state budget goes to agriculture. Yet it is still a huge sector for the economy and one with plenty of opportunities for productivity and export-enhancing investment. The Agricultural Development Program enabled Nigeria to feed itself in the 1960s so why not now? Nigeria’s government aims to unlock the potential of 84 million hectares of arable land, two of Africa’s major rivers, and a large, youthful workforce. Its target is to boost food production by 20 million tons, create an additional 3.5 million jobs in agriculture and food-related industries as well as make Nigeria self-sufficient in rice by 2015.

Challenges of operating in Nigeria

While addressing the business opportunities, it is necessary for investors to adopt a sober view of the risks. Nigeria still has a long way to go in order to achieve the level of political stability and predictability that one finds in most East Asian countries.


100 million Nigerians are still mired in poverty, in a country of 174 million . 90% of the population still lives on less than USD2 a day. This complicates the challenge of forging the kind of lasting social compact that is needed for political stability.

Political instability

Politics is the main problem facing investors in Nigeria. The Al-Qaeda linked jihadist group Boko Haram has recently escalated its activities in the country. This culminated in the abduction of 200 school girls from Borno earlier this year. Moreover, elections are around the corner. In Nigeria, elections are a flashpoint for violence. The 2011 elections saw 500 people being killed. Political violence in Nigeria tends to cripple investor confidence and create a ripple effect on the economies of neighbouring territories. Nigeria consist of 350 ethnic groups and several religions. Religious and ethnic conflict has played a destabilizing role in politics. The 2014 Transparency International Global Corruption Barometer showed that 9 out of 10 people said that the police were corrupt.

Poor infrastructure

Infrastructure is usually a key decelerator to economic growth in emerging countries and Nigeria is no exception. According to a World Bank report, a sustained expenditure of approximately USD14.2 billion a year is necessary to meet Nigeria’s infrastructure challenges. Recent statistics from the World Economic Forum (WEF) report on Global Competitiveness for 2014-15 placed Nigeria at 127 out of 144 economies – a decline of 7 places from last year. This was attributed to underdeveloped water and sanitation, poor road networks and other transport deficiencies.

Rampant theft of oil

Oil theft costs the Nigerian economy some USD8 billion a year . At least USD400 billion of oil revenue has either been stolen or misspent since independence in 1960. For instance, in September 2013, Shell had to forcibly close its Trans-Niger pipeline due to leakage from theft – less than a week after reopening. From politicians, militants and oil traders to members of local communities, many Nigerians are habituated to ‘bunkering’ or oil theft.

Future outlook

One statistic sums up Nigeria’s situation. According to the World Bank, Nigeria was ranked 147th out of 189 countries for ease of doing business in 2014; a jump of 9 places from 2013. While Nigeria’s business climate is improving, it remains abysmal.

Nigeria was ranked 147th out of 189 countries for ease of doing business in 2014; a jump of 9 places from 2013.

Nigeria is viewed by global fund managers as a MINT economy, meaning that it is an up-and-coming frontier economy for portfolio investment. Its GDP was worth over USD400 billion in 2013. It has the demographic, geographic and natural resource ingredients for economic take-off. What is holding it back is the elusive goal of political stability.

It is hard to deny that Nigeria’s political class has failed to create sound institutions for political governance and economic management. The various civil insurgencies, the depredations of the Boko Haram group, the rampant theft of oil and the widespread electoral violence all attest to this. This stands in contrast to African countries like Ghana, Kenya, Tanzania and even Rwanda, which have made far more progress in this direction in the last decade.

Economic opportunities in sectors like agriculture, power, education and healthcare are attractive. Nigeria’s port city of Lagos offers a promising route for the export of manufactured goods. The potential of the oil and gas sector, if properly realized, could create thousands of jobs and massive economic multiplier effects. And above all, Nigeria is in the strongest position to play the role of the Singapore or Hong Kong of the West African region.

However, all these opportunities will remain unrealized and Nigeria will remain perpetually an economy of the future unless it stabilizes its politics. International aid agencies, NGOs, and the world community at large would do well to focus their efforts in Nigeria on institutional capacity-building. Above all, this is what will unlock Nigeria’s economic potential.

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