The Report: Nigeria 2017

Economy

The past few years have been difficult for Africa’s largest economy, with a fall in oil prices from more than $100 per barrel in 2014 to roughly $50 per barrel at the start of 2017 having damaging consequences for Nigeria. The fall in revenues from the country’s largest export-earner led to a slowdown in investment throughout the economy, a ballooning of federal government debt, a rise in non-performing loans in the private sector and high inflation. These factors contributed to the economy contracting 1.5% in 2016, compared to growth of 2.8% in 2015. This marked the country’s first recession in 25 years. The government, which was voted into office in 2015, has made a number of moves to stoke a recovery, with some success. Broader efforts have also been taken to accelerate growth in the coming years, with a focus on import substitution, industrialisation, diversification and export orientation.

This chapter contains interviews with Kemi Adeosun, Minister of Finance; Akinwunmi Ambode, Governor of Lagos State; Laoye Jaiyeola, CEO, Nigerian Economic Summit Group; and Yewande Sadiku, Executive Secretary, Nigerian Investment Promotion Commission.

Banking

Despite the challenges to Nigeria’s economy, many of the country’s banks enjoyed healthy revenue and asset growth in 2016. Asset quality issues continue to hinder the sector, but banks have found avenues outside of lending activities to expand their balance sheets. One area of growth stemmed from the devaluation of the naira in 2016. According to the IMF, 45% of loans held by banks are in a foreign currency. Upon devaluation, the book value of these loans in naira terms grew instantly. Naira devaluation provided a one-off boost to the value of existing assets, but material growth in forex or naira lending is not expected in 2017. The purchase of government securities is providing one of the few significant sources of actual revenue growth in the sector. While the past two years have been challenging for Nigerian banks, there is a sense that the industry has turned a corner, and that conditions are set to improve.

This chapter contains interviews with Godwin Emefiele, Governor, Central Bank of Nigeria; and Godwin Nwabunka, CEO, Grooming Centre.

Capital Markets

Given the difficulties experienced by Nigeria’s economy in 2016, every sector grappled with challenges, and capital markets were no exception. From external pressures such as low oil prices and US interest rate shifts, to internal factors such as depreciation and slowing oil production, investors in Nigeria had to account for a range of risks. These factors had a clear impact on inflows. In 2016 foreign investment in emerging markets fell to its lowest level since the 2008 global financial crisis, with capital flight accelerating in early 2017. However, the slowing of the economy has had some positive consequences. Perhaps equally important, Nigeria’s capital markets are in the midst of a robust reform programme, which should significantly improve the market’s growth and sustainability over the long term.

This chapter contains interviews with Mounir Gwarzo, Director-General, Securities and Exchange Commission; and Kayode Akinkugbe, Managing Director, FBN Merchant Bank.

Insurance

With many competing firms offering a robust suite of product offerings and related services, the insurance market in Nigeria is vibrant and growing. Like many sectors across Africa, however, domestic insurers often lack the capacity to underwrite the majority of risks stemming from the main drivers of the economy. Nigeria’s primary revenue generators – oil and gas, and the mining sector – require a level of coverage that is currently beyond the capacity of many domestic insures. This is especially true in the reinsurance market, which is dominated by foreign players. As a result, the National Insurance Commission (NAICOM) is seeking ways to increase the capacity of insurers under its purview. Over the course of 2017 NAICOM will institute risk-based supervision across the industry, which is expected to enhance the sector’s ability to effectively assess and manage risk, and encourage firms to significantly raise their capital buffers. Furthermore, Nigeria’s young and growing population will continue to be a force driving foreign investment into the insurance sphere.

This chapter contains an interview with Eguarekhide Longe, CEO, Aiico Pension.

Energy

As Africa’s largest oil producer, Nigeria is a key member of the Organisation of the Petroleum Exporting Countries (OPEC) and the world’s fourth-largest exporter of liquefied natural gas. Policy moves over the past two decades have enabled young Nigerian companies to acquire and develop oil and gas blocks, build pipelines and distribution networks, and soon, based on the current project pipeline, refineries and power plants as well. There is still ample room for improvement, however. Renewed militant activity in the Niger Delta region – where much of the upstream activity is concentrated – continues to disrupt production, while the country’s regulatory framework is ageing, with a long-awaited overhaul yet to materialise. Nigeria’s energy sector is largely awaiting the passage of the Petroleum Industry Governance Bill – which has been on the cards for roughly a decade – but given the recent momentum in the National Assembly, the next year may finally see that happen, which would bring in significant sector changes.

This chapter contains interviews with Emmanuel Ibe Kachikwu, Minister of State, Petroleum Resources; Femi Otedola, Chairman, Forte Oil; Mohammad Sanusi Barkindo, Secretary-General, OPEC; and Guido d’Aloisio, Central Africa Regional Manager, Saipem.

Utilities

As Africa’s largest oil producer, Nigeria is a key member of the Organisation of the Petroleum Exporting Countries (OPEC) and the world’s fourth-largest exporter of liquefied natural gas. Policy moves over the past two decades have enabled young Nigerian companies to acquire and develop oil and gas blocks, build pipelines and distribution networks, and soon, based on the current project pipeline, refineries and power plants as well. There is still ample room for improvement, however. Renewed militant activity in the Niger Delta region – where much of the upstream activity is concentrated – continues to disrupt production, while the country’s regulatory framework is ageing, with a long-awaited overhaul yet to materialise. Nigeria’s energy sector is largely awaiting the passage of the Petroleum Industry Governance Bill – which has been on the cards for roughly a decade – but given the recent momentum in the National Assembly, the next year may finally see that happen, which would bring in significant sector changes. This chapter contains interviews with Emmanuel Ibe Kachikwu, Minister of State, Petroleum Resources; Femi Otedola, Chairman, Forte Oil; Mohammad Sanusi Barkindo, Secretary-General, OPEC; and Guido d’Aloisio, Central Africa Regional Manager, Saipem.

Industry & Mining

Comprising major food and consumer staples producers, Africa’s largest cement manufacturers, and a handful of heavy industries and light manufacturing, Nigeria has a diversified industrial sector. According to data from the Nigerian Investment Promotion Commission (NIPC), the country is home to the largest manufacturing sector on the continent and, along with Egypt, South Africa and Morocco, it accounts for two-thirds of the continent’s manufacturing in nominal US dollar terms. Given the potential of the industrial sector for both employment and revenues, the government is hoping to stoke further growth. The potential Nigeria offers as an industrial producer is not in any doubt, and the long-term advantages are sizeable, but so too are the challenges. As a result, the stabilisation of the macroeconomic situation offers some short-term hope. The long-term promise, however, is significant given the country’s vast array of inputs, such as natural gas, metals and agricultural commodities, as well as a domestic market of 189m people and duty-free access to another 120m consumers within ECOWAS.

This chapter contains interviews with Okechukwu E Enelamah, Minister of Industry, Trade and Investment; and Kayode Fayemi, Minister of Solid Minerals Development; and a roundtable interview with Chidi Okoro, Managing Director, UAC Foods; Theo Williams, Country Manager, AJE; and George Plymenakos, Managing Director, Nigerian Bottling Company (NBC).

Agriculture

As Nigeria’s economy contracted in 2016, the country’s agriculture sector took on even more importance. Long touted as a remedy to the West African nation’s dependence on oil, agriculture is now seen as a potential economic saviour. Before hydrocarbons became the main source of economic growth and export revenue, agriculture dominated the local economy. A number of indicators have been stalled in a low-growth pattern for decades; however, they are now beginning to move in the right direction. Despite some challenges and a high food import bill, the agriculture sector continues to grow.

This chapter contains interviews with Audu Innocent Ogbeh, Minister of Agriculture; Rahul Savara, Group Managing Director, TGI Group; and Bukar Tijani, Regional Representative for Africa, UN Food and Agriculture Organisation.

ICT

Despite facing many challenges in 2016, the Nigerian telecoms market continues to grow and offers significant potential for investment. With a population of 189m, this substantial consumer base offers a variety of opportunities for mobile operators, broadband companies and content providers. Furthermore, the government’s intention to use telecoms and ICT not only for economic development, but also for financial inclusion, bodes well for the industry. At the same time, the Nigerian telecoms sector is constrained by high costs, general economic uncertainty and an uneven competitive environment. However, the long-term outlook for the market is positive: the country has a young, rapidly expanding population, providing a substantial pool of consumers, and smartphone use and data consumption are expected to increase swiftly over the next five years and beyond. Investment in infrastructure will be key in the years ahead, as well as a more attractive environment for both foreign investors and local start-ups. Despite these challenges, the country has managed to produce some of the continent’s most successful ICT firms, and the sector is expected to emerge as a standout market in the coming years.

This chapter contains an interview with Ayotunde Coker, CEO, Rack Centre.

Transport

With Africa’s largest economy and its biggest population, Nigeria’s growth potential has been widely reported; however, long-term bottlenecks have prevented the country from realising that potential. The transport sector has been identified over the years as one of those bottlenecks. As a result of decades of poor maintenance and underinvestment in new capacity, the sector is marked by congestion, inefficiency and high overheads. Therefore, transport infrastructure and the logistics sector were identified as key elements of the March 2017 Economic Growth and Recovery Plan – President Muhammadu Buhari’s strategy for the country’s post-recession development. Officials have stated that public sector spending alone cannot address all of the challenges facing the sector, however, leading to a shift towards improving the business environment in order to attract new private investment in rolling stock, infrastructure and facility management.

This chapter contains interviews with Hadi Sirika, Minister of Aviation; and Hadiza Bala Usman, Managing Director, Nigerian Ports Authority.

Construction & Real Estate

Following a difficult 2016 the Nigerian construction sector showed signs of stronger growth in the first half of 2017. The uptick in activity comes on the back of a low base, however, as the country’s first recession in 25 years affected private investment in real estate building and oil companies had to scale back investment plans due to lower global oil prices. The stabilisation of the naira, the utilisation of new contract structures and an increase in local suppliers are now helping to provide fertile ground for activity. While public sector tenders remain limited compared to the booming years of the 2000s, the increase of private development in the residential and commercial building segments offers promise. Nigeria’s real estate sector has traditionally been defined by an abundance of demand and relatively limited supply, whether in residential, commercial or retail space. Since 2015, however, the situation has changed for some segments. In the office market, for example, supply is beginning to catch up or even outstrip demand. The real estate sector continues to account for around 7% of GDP, but the return on investment for developers is far less than it was five years ago, as Nigeria’s first recession in 25 years hit in 2015. The government’s efforts to boost middle-income home ownership should bear fruit in the longer term.

This chapter contains an interview with Igbuan Okaisabor, CEO, Construction Kaiser.

Retail

Given Nigeria’s demographics, the country’s retail sector holds significant potential. However, in line with many other African economies, formal retailing remains nascent and accounts for just 5% of all shopping. With 189m consumers in the country, there is ample room for growth, but navigating domestic hurdles has proven difficult. Currency depreciation and rising inflation, combined with a recession in 2016 and an increase in parallel market activity, have made the future of the retail industry difficult to predict. Nigeria’s recent economic troubles have had an impact on the immediate prospects for retailers, but these challenges do not weaken the long-term potential of the sector thanks to the country’s tantalising demographics. While projections may be difficult given the inherent challenges of measuring the informal sector and predicting currency movements, the opportunity for significant growth remains clear.

Media & Entertainment

Nigeria’s first news outlet was established in 1859, and the country’s media sector has since grown into a prosperous industry that comprises newspapers, radio broadcasters and television stations, and caters to an audience of over 189m in a variety of languages. As is the case for many media industries around the world, the shift to digital has resulted in changes in Nigeria. Some alterations have been simple to navigate, while others, such as the rise in online content, have proven more difficult. With a young population and a high rate of connectivity in regional terms, Nigeria is well placed to embrace the new media revolution.

This chapter contains an interview with Jason Njoku, CEO, Iroko.

Health & Education

In February 2017 the Nigerian government approved the second National Strategic Health Development Plan. The policy “lays emphasis on primary health care… in addition to the provision of financial risk protection to all Nigerians”. It also aims to fast-track the operationalisation of the 2014 National Health Bill, which overhauled the organisation and funding of the health care system and allowed private sector participation to expand. At a time when the government’s budget is shrinking, the private sector has emerged as a crucial player in the country’s bid to improve efficiency as well as access to health care services. With 43% of its 189m citizens under the age of 15, Nigeria is a young country on the cusp of a major demographic shift. Significant reforms are required to the education system if the nation’s youth are to find a place in the workforce. As the population continues to grow, pressure on public services, including education, will increase. Without further reform, the public school system is likely to come under severe stress. The administration is aware of the challenges and has implemented policies to improve both primary education and university-level instruction. As such, there are significant opportunities for further investment and development from the primary to the tertiary segment.

This chapter contains an interview with Mark Wagstaff, Country Manager West Africa, Pfizer.

Legal Framework

This chapter introduces the reader to the different aspects of the legal system in Nigeria, in partnership with Stillwaters Law Firm.

It also contains a viewpoint with Afamefuna Nwokedi, Principal Counsel and Group Head, Stillwaters Law Firm.

Tax

In conjunction with Deloitte Nigeria, this chapter explores the taxation system, examining Nigeria’s investor-friendly environment.

It also contains a viewpoint with Yomi Olugbenro, Partner and Head of Tax, Deloitte Nigeria.

The Guide

This section includes information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.

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