Why Now Is The Right Time To Invest In Nigeria? A Positive Perspective
Nigeria, like many African countries is not an easy market, but the many challenges most people see can often hide opportunities for those who are able to identify them.
International players’ appetite for investment is too often influenced by market reputation and country risk perception as it is portrayed by the media rather than by direct knowledge and understanding of the local context, market and business practice.You need to take the time to explore and understand the market and cultivate relationships with local businesses and partners. You will then gain the insight that you cannot find on any ‘international’ market research and the support you need to operate locally.
Since President Buhari came to power, now more than a year ago, the media coverage of the country has slowly been degrading. It all started with mostly positive coverage of the peaceful transition between the old and the new administration, then descended into a less flattering reporting on the speed of action of the newly (and slowly) formed government and now seems to focus mainly on the government inability to control foreign exchange and perceived mishandling of the country’s economy.
President Buhari may look to act slowly to some, but quick change in Africa has not always been a success and Nigeria is a colossal country with a huge potential and it needs to move one step at the time. Although progress is slow, it is going in the right direction. Security and corruption have been among the top priorities of the government and signs of improvement are evident: The North East region security situation is improving and the government has been able to and is continuing to recover several millions of dollar from corrupted officials. This government may not achieve the transformation everyone hoped for when it came to power, but is building the foundations for a more transparent and efficient administration, which will enable future governments to concentrate on the reforms the country needs.
The economy has seen better days, but what better time, than the bottom end of the economic cycle, to address such issues. Get the basic rules of the game right and you will reap the benefits when the economy flies again. And it will fly: everything is amplified in emerging and developing markets, and the curve of the Nigerian economic cycle tend to be less regular and with more extreme spikes.
Sure, there are plenty of issues still there: exchange rate peg to the dollar, limits on imports, difficulties for international companies to take their revenues out of the country, resurgence of the Delta region instability… but you need to take a mid-long term view. Warren Buffett is famously quoted for saying “Be fearful when others are greedy. Be greedy when others are fearful.” The Naira is down, the economic cycle is at the bottom (is it?) and international investors have turned their attention to neighbouring countries like Ivory Coast and Cameroon.
Everyone seems to be fearful, so what better time to be ‘greedy’ and invest in Nigeria? The fundamentals are still right, the middle class keeps growing, demand for housing and infrastructure (both in terms in power, housing, roads etc. but also in terms of connectivity and communication to support the growing internet economy) is as high as ever and the business opportunities are endless….
The fall in oil prices has affected mainly the government run agencies and state funded departments. Although more than 90% of the government income comes from oil, the oil industry only accounts for approximately 15% of the Nigerian economy. Necessity is the mother of invention and the sudden lack of oil revenue is pushing the government to reduce financial waste and prioritise resources.The private sector is ‘forced’ to be creative and Nigerians are a country of entrepreneurs who have been through political and economic situation that are far worse than today’s.
Mark Zuckerberg visit to Nigeria in September is another sign that Nigeria can and is growing beyond oil. Nollywood and the media industry are growing and new technology is making creation and distribution of content easier and cheaper resulting in wider audiences and market. More and more highly educated Nigerians are returning from the diaspora encouraged by the opportunities a 160 million people market can offer. These are successful business, fashion, telecoms, artists, medical people who have been successful in Europe and in the US and are bringing with them ideas and business practices that will help put Nigeria back on the growth track.
The current real estate market is currently going through a difficult time: several international developments where rents have been agreed in US dollars are struggling and we have all seen a slowdown in take up space and new construction sites. This certainly is not the best time to sell your asset and you will not have a queue of international corporates looking to rent your Class A office space, but this is the time to build, develop and create the real estate assets that demand will need in 3 to 5 years’ time.
The Hotel industry also remains upbeat, Hilton recently announced to plan to double the number of Hotels in Africa. Accor made similar announcements planning also to double their capacity by 2020. In the short / immediate term there is a current surge in Naira projects / real estate initiatives. Local entrepreneurs and developers have been buying local building, apartment blocks rather than dollars… and with an 8 to 10% yield they can make their investment work and probably exit in few years’ time when the curve is up again.
So before the airlines start to resume all their regular flights to Lagos, Abuja and beyond, before the oil price rises replenishing the government’s coffers and before everyone returns to the country looking to profit from a resurgent market make the most of the current opportunities, develop your relationships with local businesses, be ‘greedy’ and ahead of the curve and invest in Nigeria!