Nigeria is now officially Africa’s largest economy, but why are South African companies so often wrong-footed when they venture into that country?
This week provided yet another example of a local company getting its sums in Nigeria badly wrong.
Tiger Brands wrote off the R849m in “goodwill and intangibles” it had invested in Dangote Flour Mills in Nigeria two years ago.
This impairment means that Tiger Brands’ earnings a share will drop by 50% to 55%.
This week, MTN said it would spend $3 billion upgrading its network in Nigeria to appease regulators, who banned it from selling SIM cards for a month because of “poor service”. Its were smacked when it was forced to shut down in northern Nigeria.
But the importance of Nigeria to MTN can’t be overstated: MTN Nigeria contributes 49% to the cellular group’s earnings despite the fact that it operates in 18 other countries.
The Boko Haram kidnappings made news across the world, and some South African companies are now reconsidering their plans to invest in Africa’s largest economy.
In recent days, life assurance giant Liberty revealed it was “revisiting” its plans to invest in Nigeria.
The issue occupying the minds of investment managers now is whether Nigeria is “safe”.
Charlie Robertson, Renaissance Capital global chief economist, said that if you define “safe” by investment returns, then Nigeria is certainly a better bet than South Africa.
Robertson dismissed the deadly bombings in Nigeria as “not very relevant”.
“When I Google search ‘Why is South Africa so…’ -the auto-complete is ‘violent’. I don’t get that answer for Nigeria,” he said.
There are 100 South African companies operating in Nigeria.
Robertson said that if local companies waited until Nigeria was “safe” they would find the costs of investing higher than they are today.
Ernst & Young’s Henry Egbiki said the facts supported the notion that Nigeria had few peers on the continent when it came to investment.
New foreign direct investment (FDI) projects in Nigeria have grown 20% a year since 2007, which positions Nigeria as one of the top 10 fastest-growing African countries.
In his report, A Focus on Nigeria, which was released after the World Economic Forum in Abuja this month, Egbiki says Nigeria attracted the most FDI capital and the second-most FDI projects in sub-Saharan Africa over those five years.
Franklin Templeton Investments’ emerging markets guru, Mark Mobius, said he did not believe “even such a hideous act of terrorism should dislodge Nigeria’s path to future economic growth”.
Other South African investors have fewer concerns. Famous Brands CEO Kevin Hedderwick said he planned to open 10 new Mr. Biggs restaurants in Nigeria.
