Nigeria is a country that has been described as having huge economic potential for a long time.
Investors look at its 170 million people, and developing financial services, agriculture, oil and gas, real estate, and telecoms sector as growth opportunity for the future.
In the last decade, emerging markets have outperformed domestic markets in developed economies, which have created a willingness on the part of investors to consider countries like Nigeria, Kazakhstan, Vietnam or Argentina in their search of places to invest in.
The recent launch in April 2013 of the Global X Nigeria Index ETF (Exchange Traded Fund) helps to highlight this trend.
The Nigeria ETF is listed on the New York Stock Exchange (Ticker: NGE) and provides an easy way for US and global investors to invest in Africa’s second largest and fast growing economy.
The ETF is classified as “Frontier” fund, which is the segment further down on the development scale after emerging markets.
Frontier funds tend to be very concentrated at the sector level, partly due to a dearth of listed blue-chip quality companies in their home countries. Just about every country has a big bank, a big oil company and a large telephone company, and these businesses tend to dominate the benchmark index.
This is the case with NGE, which allocates 41 percent to financials and 24 percent to energy companies.
Nigeria is the largest oil producer in Africa and number 12 in the world with about 2.5 million barrels per day of oil production.
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The NGE portfolio is also skewed toward assets that stand to benefit from the growth of Nigeria’s consumer economy, with consumer goods companies having a 25 percent weighting, and cement companies 6 percent.
The household income of the Nigerian consumer seems to be growing, according to anecdotal evidence.
The latest personal consumption figures for Nigeria are larger than the current estimated gross domestic product (GDP) of $272 billion (N42.9trn), Yemi Kale, head, National Bureau of Statistics (NBS), said recently in an interview.
Household consumption expenditure (HCE), the largest component of GDP by expenditure, was equivalent to 61 percent of GDP in 2011, according to NBS data.
Nigeria has been named by Goldman Sachs as among the Next – 11, a grouping of fast growing emerging countries that should be the new BRIC.
The country has managed to attain macro-economic stability, thanks to reforms undertaken by the Central Bank of Nigeria, Ministry of Finance and the Federal Government.
The size of the Nigerian economy increased by 61 percent between 2009 and 2012, driven by a stable macro-economic environment underpinned by fiscal and monetary reforms, as nominal GDP rose to $273 billion at year end 2012, from $169 billion in 2009, data from Renaissance Capital, an investment bank, show.
Growth averaged 7.2 percent per year for the period, according to International Monetary Fund (IMF) estimates.
In its assessment released in March, the IMF noted Nigeria’s low level of external debt, calculated at $6.5 billion, and overall debt-to-GDP ratio of just 17 percent.
The extra yields investors demand to hold Nigerian dollar debt as opposed to US benchmark 10-year Treasury bonds have narrowed since 2012, a reflection of investors’ positive perception of the country’s political and economic stability.
Nigeria’s inflation rate eased to 8.6 percent in March from 9.5 percent in February, the lowest in almost five years, the NBS said last week.
Barclays Bank in April added 10 Nigerian sovereign bonds to its $1.7 trillion local currency emerging market bond index, following the addition of Nigerian government bonds last year to the JP Morgan Government Bond Index-Emerging Markets (GBI-EM), after the CBN in 2011 set aside the minimum one year hold period for government bonds by foreign investors.
The Nigerian Stock Exchange (NSE), which rose by 37 percent last year, is up 18 percent year-to-date, reflecting the positive macro-economic trends.
NGE, the fund will have 28 holdings, charge a 0.68 percent expense ratio and any dividend payout will be once a year, according to the prospectus.
The top five holdings of the ETF are Guaranty Trust Bank with a weighting of 10 percent, First Bank of Nigeria (9.9%), Zenith Bank (8.1%), Nigerian Breweries (7.4%), and Access Bank with a 4.6 percent weighting.
