While reports of insecurity from Boko Haram attacks hug the headlines, investors are betting that economic growth in Africa’s largest economy will trump the unrest in the northeast as opportunities elsewhere on the continent look not quite as attractive.
South Africa just entered its first recession since 2009 and its central bank is set to hike interest rates. The Ghanaian Cedi has slumped 21 percent this year versus the dollar, while the country’s budget deficit is forecast to exceed 10 percent of GDP in 2014, according to Moody’s Investors Service.
Nigeria, on the other hand, is seeing money move into its bond and stock markets, helping to firm up the naira and lifting the local
bourse above the psychologically important 40,000 points level.
“Returns and risk in investment are commensurate and capital will naturally fly where returns are more attractive. Historically, return on investment in Nigeria is massive,” said Abiodun Keripe, head, research and strategy at Elixir Investment.
“Access to information about Africa is better today relative to what was obtainable some 15 years ago, which has also spurred the influx of investment into the country,” he said.
Keripe adds that Nigeria’s demography of 170 million-plus people and the fact that the insecurity risk has been limited to the north
give investors a reason to explore the business environment.
The International Monetary Fund (IMF) is forecasting economic growth of 7.3 percent in 2014 for Nigeria, up from 6.4 percent last year.
The naira has pared losses versus the dollar to 1.8 percent this year. It traded at N162.84 per dollar on Friday after falling as low as
N169 earlier in the year.
The budget deficit for 2014 will be equivalent to just 1 percent of Nigeria’s $510 billion economy, while inflation for April reached 7.9 percent, still within the 6 percent to 9 percent CBN target band.
The Nigerian Stock Exchange (NSE) All Share Index (ASI) closed trading on Friday up 2.95 percent or 1,181 points to 41,474.39 points.
Stocks are at their highest levels since January, even as the negative headlines out of north-east suggest a low point for the country.
“This is a reflection of the uniqueness of Nigeria and its intrinsic growth potential, which discerning investors can perceive.
Technology and globalisation are driving consumer appetite and demands, which are leading international brands to Nigeria. This
is evidenced in the keen interest in commercial real estate space,” said Diekola Onaolapo, managing director/CEO, Eczellon Capital, in a response to questions.
Recent developments such as the rebased GDP have altered the global perception of the economic stature of Nigeria, according to Onaolapo. The rebased GDP showed Nigeria’s GDP per capita almost doubling to about $2,700.
Nigerian equities may continue to rally in the medium term as the gauge of its $82 billion stock market is priced at a discount relative to peers.
“The current price to earnings (P/E) ratio of the Nigerian equities market of 13.04x makes it cheaper and more attractive in comparison with its peers which have an average of 25.85x,” said Meristem Securities Limited in a May 28 report.
International investors bought $786 million (N127.41 billion) of Nigerian stocks in the first three months of 2014, according to the most recent data from the NSE.
Policymakers in Nigeria are trying to diversify the OPEC members’ economy away from oil with reforms focused on agriculture, power, IT, mortgage refinancing for the real estate sector, and manufacturing. This is helping to lure first-time investors such as Nissan and Cargill into the country, even as those around a while longer, like Nestle, expand.
“A median age of 19 years (World Bank), re-emerging middle class with a growing disposable income reveal a consumer-driven economy which is not overly-dependent on the public sector,” Onaolapo said.
PATRICK ATUANYA
