The Report: Nigeria 2015

Economy

As the world’s seventh-most-populous country and its 26th-largest economy, Nigeria boasts a medium-sized middle class in absolute, if not relative, terms, and benefits from having had its first peaceful handover of power since 1999 following the presidential electoral victory in March 2015 of Muhammadu Buhari over incumbent Goodluck Jonathan. Although it is on track to become one of the world’s 20 largest economies by 2020, with average annual growth of 7% in the past decade, Nigeria requires significant private and foreign investment to attain its economic and human development goals. As part of the Jonathan administration’s Transformation Agenda efforts have been made to ease bottlenecks to growth, ranging from power generation and distribution to the agricultural value chain, premised on total infrastructure spending of $2.9trn over the next 30 years. While the economic policy of the incoming Buhari administration had yet to be clarified at the time of printing, investors expect the structural changes that have already been launched – ranging from power-sector restructuring to streamlining rules for doing business – to be seen through.

This chapter contains interviews with Ngozi Okonjo-Iweala, Coordinating Minister of the Economy and Minister of Finance; Aliko Dangote, President and Chief Executive, Dangote Industries; Tony Elumelu, Chairman, Heirs Holdings; Foluso Phillips, Chairman, Nigerian Economic Summit Group (NESG); Saratu Umar, Executive Secretary, Nigerian Investment Promotion Commission (NIPC); and Yemi Kale, Statistician General, National Bureau of Statistics (NBS).

Banking

Nigeria’s banks have been through some challenging times in recent years, but for all their travails, they have turned in an impressive performance and continue to present a compelling narrative to foreign investors. However, the challenging times are not over just yet. West Africa’s largest banking sector – accounting for74% of regional banking assets and now fully recovered from its last crisis in 2009 – is facing structural changes that affect its traditional profitability drivers. The recent benchmark interest rate hike by the Central Bank of Nigeria, to 13%, and the devaluation of the naira, down by nearly 30% in just three months to $1:N198, are likely to affect debt servicing on loans denominated in foreign currency. As banks increase their exposure to large corporate deals at ever slimmer margins, they are being prodded to expand their retail and SME loan books to offset drops in traditional revenue streams. The resolution of the last banking crisis, and likely arrival of new players, should boost competition and prompt lenders to develop the data ecosystems needed to tap the retail market.

This chapter contains a viewpoint from Godwin Emefiele, Governor, Central Bank of Nigeria (CBN), and an interview with Daniel Monehin, Division President, Sub-Saharan Africa, MasterCard.

Capital Markets

Following two years of rapid, double-digit gains in its equity market and strong foreign investor appetite in fixed income, Nigeria’s capital markets entered 2014 with the wind at their back, thanks in part to the announcement of a favourable reweighting of the MSCI Frontier Index in 2013. As the portfolio of investable instruments continues to grow with the launch of new platforms, Nigerian authorities are seeking to further deepen Africa’s third-largest financial markets. Indeed, new products, along with more liquidity, will be needed if the Nigerian Stock Exchange is to reach its goal of a $1trn capitalisation by 2016. The Nigeria stock market is poised for stronger growth throughout 2015. The peaceful conclusion to the March 2015 elections should help rebuild investor confidence, both in the stock market and the wider economy, although depressed oil prices continue to be a reason for caution. Ongoing structural reforms are set to foster better capitalised players that will drive the expansion of penetration locally and further attract global frontier market funds.

This chapter contains interviews with Oscar N Onyema, CEO, The Nigerian Stock Exchange (NSE), and Wale Agbeyangi, Managing Director, Cordros Capital.

Insurance

With a growing population of 170m and penetration still low, Nigeria’s insurance sector has considerable potential in demographic terms alone. At present, a large number of insurers compete for what business is available, creating a highly fragmented market. Acquisitions are an increasingly common mode of entry for foreign investors – a trend that is likely to continue. In the near term, attempts at better enforcement of laws and regulations are likely, as is the possible scaling-up of microinsurance and the introduction of sharia-compliant products. Despite shortcomings in enforcement and financial reporting, the insurance sector continues to post double-digit growth, with a bright future ahead given demographic trends.

This chapter contains an interview with Fola Daniel, Commissioner for Insurance, National Insurance Commission (NAICOM)

Energy

Still Africa’s largest oil producer, with an industry that in past decades has fuelled the growth of what is now its largest economy, Nigeria has the biggest reserves on the continent. Local operators are expanding their share of production, while domestic services companies are boosting capacity to meet local content requirements. Yet the sector faces steep challenges, from policy uncertainty amid looming legislative reform to output disruptions due to unrest in the Niger Delta, the heart of its producing region. These obstacles have only been exacerbated by falling crude prices, which halved in the second half of 2014. Although oil has traditionally dominated Nigeria’s production mix, natural gas looks set to gain more ground in the coming years, thanks largely to the forecast increase in demand from the recently privatised electricity sector and investments by state-owned Nigerian National Petroleum Corporation (NNPC) in gas aggregation and transport infrastructure, which are strengthening supply links to power plants.

This chapter contains interviews with George Osahon, Director, Department of Petroleum Resources (DPR); Ernest Nwapa, Executive Secretary, Nigerian Content Development and Monitoring Board (NCDMB); and Adewale Tinubu, Group CEO, Oando.

Utilities

The lack of power has been among the biggest obstacles to economic growth, and Nigeria is in the midst of a long and complex effort to increase electricity supply by more than fivefold by 2020, from the current level of about 3400 MW to 20,000 MW. The immediate result of this is a spike in demand for capital to rehabilitate existing capacity and add new supply, making foreign investment – through tenders and ancillary initiatives like the US Power Africa programme – crucial to the success of this reform effort. As of early 2015, the market had entered into what the road map calls a “transitional electricity market”. Over the next several years, two government-owned firms will act as intermediaries for transactions in the marketplace. Both bodies are temporary actors in the market and will be closed once the electricity sector can stand on its own. For now, their presence is deemed necessary to facilitate the signing of long-term contractual relationships between parties along the value chain, and to limit defaults and volatility.

This chapter contains interviews with Chinedu Nebo, Minister of Power, and Paul Hinks, CEO, Symbion Power

Transport

Upgrading and developing new transport infrastructure is essential to unlocking Nigeria’s undeniable growth potential. Given that state coffers are strained, and multiple sectors are competing for funding, the government is looking to reduce public control of its transport network and hand over development, management and maintenance responsibilities to the private sector. The port concessions show the PPP model can work and demonstrate the possible efficiency and performance gains from privatisation. Across all modes of transport, a mismatch between demand projections and current capacity is evident, making a strong case for interested bidders, given the right regulatory framework and operating conditions. Prospective investors will be eagerly waiting to see how the transition impacts the passage of key bills – like the NTP – and the confirmation of the revised roles and remits of the various regulatory bodies and state institutions operating in the sector.

This chapter contains interviews with Uche Orji, Managing Director and CEO, Nigerian Sovereign Investment Authority (NSIA), and Charles Brewer, Managing Director for Sub-Saharan Africa, DHL Express.

Agriculture

With the world’s seventh-largest population, which continues to grow rapidly its current 170m, agriculture is key part of Nigeria’s economy. After decades of declining production, trends have been moving in the opposite direction in the past several years as overall food supply rises. Guided by the Agricultural Transformation Agenda, which was launched in 2011 as part of a push to overhaul productivity and output in the sector, short-term goals have included eliminating market distortions and improving transparency while delivering more and better inputs to farmers. The medium-term goal is to achieve self-sufficiency in a number of key staples, such as rice, and to develop the agribusiness sector and export markets. Given the successes achieved so far, the agricultural sector is poised to reinforce its role as a key economic contributor.

This chapter contains interviews with Akinwumi Adesina, Minister of Agriculture and Rural Development, and Johan Steyn, Managing Director Middle East and Africa, Cargill.

Construction & Real Estate

In recent years the construction market in Nigeria has been among the world’s fastest growing, forecast to have expanded by 13% in 2014 on the back of a diverse array of demand drivers, including substantial state investment in infrastructure, rising levels of foreign direct investment and rapidly increasing urbanisation rates. The authorities have launched a host of initiatives that are aimed at addressing many of the industry’s steepest challenges – high building costs, delays in public contract payments, lateness in project delivery, lack of a national building code, reliance on state infrastructure projects and poor quality standards – though the efficacy of these schemes has yet to be confirmed. In the last few years Nigeria’s real estate market has expanded rapidly, continuing a decade-long upward trend fuelled by rising per capita incomes, steadily increasing foreign direct investment, urbanisation and strong corporate demand. Even though local and foreign developers have carried out a large number of projects in recent years, in most segments demand has been outpacing delivery. As a result, the country is undersupplied in a handful of key areas, including high-quality office space, affordable housing and formal retail. Despite a range of pressing challenges, Nigeria’s real estate sector is set to continue expanding in future, albeit at a slower pace than over the past decade.

This chapter contains an interview with David Frame, Managing Director, South Energyx Nigeria.

Telecoms & IT

Over the past decade Nigeria has become the largest telecoms market in Africa and the Middle East, with more than 140m active telecoms subscribers in 2015, according to the Nigerian Communications Commission (NCC), the federal telecoms regulator. As is the case elsewhere in frontier and emerging markets, mobile subscribers accounted for over 99% of this total, with virtually all of that segment controlled by the country’s four GSM operators: MTN Nigeria, Airtel Nigeria, Globacom and Etisalat Nigeria. Nigeria’s overall telecoms capacity is relatively high – a number of high-capacity submarine cables come ashore in the country – but bringing this capacity into people’s homes remains a major hurdle. Yet despite the challenges, most indicators point to continued expansion. Taking into account the nation’s large population and solid economic fundamentals, most local players are counting on continued rapid telecoms uptake. In the past five years Nigeria has grown into one of Africa’s largest and most vibrant markets for ICT products and services, with an ecosystem that ranges from software start-ups to infrastructure firms. According to the Federal Ministry of Communication Technology, the federal oversight body, the nation accounts for 29% of all internet usage on the continent, and this figure is expected to rise. Despite the rapid pace of growth in recent years, the industry faces a host of challenges, including low penetration in terms of both usage and infrastructure access, high operating costs and a lack of local content. Nevertheless, most Nigerian ICT players are looking forward to continued growth ahead. This is due in part to the significant scope for expansion in terms of potential bandwidth – thanks to a total capacity of nearly 10 Tbps, most of it unused, through the existing submarine cables.

This chapter contains interviews with Omobola Johnson, Minister of Communication Technology, and Issam Darwish, Executive Vice-Chairman and CEO, IHS Group.

Industry

In spite of the country’s traditional reliance on hydrocarbons, Nigeria’s industrial sector is diversified and growing, ranging from food and beverages to building materials. After a decades-long slump in manufacturing output, triggered by the scaling up of oil production in the 1970s, the country is working to reverse the trend and enable manufacturing and heavy industry to play a larger role in the economy. In the short and medium term, the government’s focus is on import replacement and addressing primary sector blockages, such as power, transport infrastructure and financing. The country’s solid fundamentals, including rising purchasing power, a growing population and limited penetration, make it an attractive long-term bet, as evidenced by the spate of new investments in recent years and the strong performance of companies in the FMCG, auto and building material segments.

Retail

Formal retailing is just getting started in Nigeria, and currently accounts for roughly 5% of the market. There are a host of obstacles to growth, starting with the difficulty of acquiring land on which to establish a mall, store or restaurant. Sourcing goods locally is difficult, while clearing imports is expensive and time consuming. Transporting goods to stores, finding staff and winning over a buying public that is either sceptical or cannot afford the products are also challenges. Retailers have long expected that the Nigerian market would require a long-term approach, and entering early would mean building brand loyalty among consumers even before they may be able to afford to buy. For now, that means overcoming the obstacles and additional costs associated with the market, in the hope of enjoying significant profits in the future.

This chapter contains an interviews with Jeremy Hodara, Founder and co-CEO, Africa Internet Group.

Media & Entertainment

In recent years Nigeria has earned a reputation as one of the fastest-growing media markets in Africa. Over the past few decades the nation’s large population – currently estimated at around 170m, according to the World Bank – and rapidly expanding middle class have driven demand for new newspapers, magazines, radio and television programmes, music, film and, more recently, digital media of all sorts. The music industry and the Nigerian film industry have become significant cultural institutions in their own right, earning fans throughout Africa and further afield. Nigeria is the single largest media market in sub-Saharan Africa, and a handful of Nigerian media outfits have a pan-African reach. While catering to the needs of the country’s large and diverse population is seen as a major challenge, it is also an opportunity for the development of niche and tailored publications, targeted advertising and new markets.

The State of Osun

Having been established in 1991, the State of Osun is one of the younger states in Nigeria, and in recent years the state government has made ambitious efforts to expand and develop the local economy. Named after the River Osun, linked to the Yoruba goddess of fertility, the state was carved out from the former territory of Oyo State during a boundary re-drawing in the 1990s. Over the past two and a half decades, Osun has grappled with many of the same challenges as other states in the country – poorly maintained infrastructure, irregular federal funding and inadequate social services – but a spate of reforms launched are aiming to address those issues. Although Osun does face its fair share of challenges, including a dependency on the volatile agricultural sector and neglected infrastructure, the current administration has taken a number of steps to block monetary leakages, improve project preparation and delivery, and raise internally generated revenue.

Tourism

As Nigeria receives little in the way of mainstream leisure travellers, the tourism sector is represented mainly by the domestic, visiting friends and family (VFF), and corporate travel segments. While the tourism sector faces significant challenges, Nigeria is a market that any travel or hospitality business with serious international and continental ambitions can ill afford to avoid. The sector is anchored by a steady corporate base with deep pockets, and as the economy continues to grow and industrialise, the supply of hotel rooms is expected to lag demand for some time to come. If Nigeria’s natural and cultural offerings can be better packaged, and some of the prohibiting factors that currently deter discretionary travel can be addressed, a nascent leisure sector could emerge to diversify the visitor profile and encourage tourists to explore new Nigerian destinations.

Health

With almost half of all Nigerians living below the poverty line and facing the dual burden of a high incidence of both infectious and non-communicable diseases (NCDs), Nigeria’s under-funded public health system is under significant pressure. Accordingly, international aid organisations and the private sector have a major role to play in alleviating the burden on the state, and there is a strong need for stakeholders to work together to ensure that reliable and affordable health care reaches all segments of society. While significant progress has been made in the reduction of life-threatening infectious diseases and performance on key health indices is improving, there is still a long way to go to meet the UN’s Millennium Development Goals (MDG), an objective that is incorporated into Vision 20:2020, the country’s long-term economic development strategy. There are also hurdles to overcome in ensuring that every Nigerian, irrespective of geography and income, has access to basic health services. The Ministry of Health has proposed ambitious initiatives that could dramatically improve the provision of health care at all levels; execution and delivery will be dependent on key legislative bills being passed, the requisite funding being mobilised and the direction of the new administration.

This chapter contains an interview with Colin Cummings, Chairman and CEO, Swiss Pharma Nigeria.

Education

Home to the largest and one of the youngest and fastest-growing populations in Africa, Nigeria’s youthful demographic profile could prove either a future economic asset or a significant social burden. Given that 63% of the country’s 170m people are under the age of 24, much will depend on the progress that can be made to improve the quality and capacity of its education system. Major improvements will be essential if the country is to fulfil its economic potential in the medium and long term. The government has been lauded for raising education spending, but observers still see funding as insufficient. Nigeria’s rapid population growth should translate into expanding demand for education for years to come. The growth of technical and vocational institutes will go a long way towards providing an alternative to universities short on spaces, and is helping to match the market with technical skills needed.

Tax

In conjunction with PwC, OBG explores the taxation system. There is also a viewpoint from Taiwo Oyedele, Partner and Head of Tax and Regulatory Services, PwC Nigeria, on the need for reforms to streamline the tax system.

Legal Framework

OBG introduces the reader to the different aspects of the legal system in Nigeria, in partnership with Ajumogobia & Okeke. There is also a viewpoint from Ovie Ukiri, Managing Partner, Ajumogobia & Okeke, on the Pension Reform Act of 2014.

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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