Why Foreign Investors Are Interested in Nigeria

Nigeria is a stand out in terms of economic importance in Africa and still does in large part to the fact that it is a base of interest for international investors, which are on the look out for growth in emerging markets. As the biggest economy in terms of population and also one of the most resource rich in the continent, what Nigeria brings to the table in terms of size of market, demand and growth potential is very hard to pass up.

Over the past few years foreign investment in to the country has grown despite the challenges we face. What we have seen is that foreign players are drawn to what they perceive to be Nigeria’s large scale growth opportunities across many sectors, which in turn is a result of global capital’s search for what is beyond Europe, North America and some parts of Asia. Also it is out there that foreign investors know they will require to be patient, do risk assessment, and have a great knowledge of the local environment.

This article looks at what makes Nigeria an attractive destination for foreign investors, which sectors are of primary interest, the issues of risk that come into play, and what we may see in the future for investment in the country.

Nigeria’s Economic Appeal

Nigeria’s large and growing population is what in large part accounts for its appeal to foreign investors. The country, which has a population of over 200 million at present, puts out a very large consumer base which is also still growing. This creates a stable market for the long term of goods, services, infrastructure, and digital products.

Closely related is the issue of the growing consumer market. What we see is that a middle class that is expanding, urbanization which is on the rise, and the fact that people are adopting technology more, which is in turn shaping what we see as new consumption trends in cities like Lagos, Abuja, and Port Harcourt. For investors this is playing out in the retail, banking, telecom and housing sectors.

Nigeria’s prime location in West Africa is also to the country’s benefit. It is home to a growing market within which there is also many fast growing economies. What also is of note is that companies which base themselves in Nigeria are able to use it as a base to access the larger West African region and also do well under regional trade agreements which promote trade between bordering countries.

Also in that regard Nigeria’s natural resource base is a key factor. The country is home to large oil and gas reserves which it is also known for but also has large amounts of agricultural land, solid minerals and renewable energy which is a plus. This diversity of resources gives investors many options based on what sector they are interested in.

Key Sectors Attracting Foreign Investors

The oil and gas industry is a very well established field of foreign investment in Nigeria. For years international energy companies have been into exploration and production in that region which includes the Niger Delta. Although the world is see to be shifting towards clean energy sources at this time, oil and gas still is very much a mainstay of Nigeria’s economy and foreign exchange earnings.

Agric and agribusiness are also of great interest at present. In Nigeria we see large tracts of arable land and a huge rural labor force which is very good for growth of the sector, which in turn has great chance at modernization. Also foreign investors are into food processing, storage, supply chains and export oriented farming which we are seeing more of as food security issues play out globally.

In recent years the technology and fintech sector has grown to become one of the most dynamic investment areas. In Nigeria we see a young tech savvy population which has caused great growth in mobile payments, digital banking, and online services. This has made the country a leader in tech in Africa, which in turn has attracted venture capital and global tech companies.

Telecom is also a very key sector. We have seen transformation of communication and business operations via the growth of mobile networks and the internet. Investors see value in the out looking to the growth of digital infrastructure and delivery of connectivity services.

Manufacturing and consumer products see large growth markets. As Nigerians turn to local products we are seeing foreign companies invest in production plants, supply chains, and distribution networks, which also include regional markets.

Real estate and infrastructure are still very much in play because of rapid urbanization. In growing cities we see the development of housing, transport systems, energy supply, and commercial spaces. Out of these needs come what is to be very large scale investment in construction and public private partnerships.

Drivers of Foreign Investment Interest

Several basic elements which are at play cause foreign investment in Nigeria. Market opportunity is the key factor. We see in which economies demand has not yet played out and in that regard Nigeria is a prime example. Population growth and urban expansion together present a continuous demand across many industries which foreign investors are very much aware of.

Regional trade issues also factor in. As we see greater economic integration in Africa, which has also seen the introduction of continental trade agreements, Nigeria has become a key player in cross border trade. Companies that invest in Nigeria also profit from access to the larger regional market.

The issue of the youth population is a large element in this. In Nigeria we see a preponderance of young people which in turn we see to be very innovative, adaptive, and into digital products. For investors in tech, education, and entertainment that is a very good growth environment.

Privatization and economic reforms also have seen to it that foreign investors’ interest has grown. Over time what used to be state dominated sectors we have been opening up, which in turn has brought in private and foreign players. Although progress is slow, these reforms are a tell tale that we are working towards a better investment climate.

Risks and Challenges for Investors

In spite of the opportunities present, in Nigeria also we see many issues which investors have to take into account. Currency volatility is a main issue which plays out. We see in this issue of exchange rate fluctuations’ effect on profit, planning and repatriation of funds.

Inflation also plays a role in what businesses and what consumers pay. As prices go up very fast, we see that which in turn causes uncertainty for both groups, which in turn makes long term planning a challenge.

Regulatory and policy instability is also an issue. We see that regulations, approval processes, and government policies change which in turn affects what businesses do. Also in emerging markets we note that investors prefer stability and predictability, which at times is not present.

Infrastructure still is a large issue. We see that in power supply issues, transport problems, and logistics which in turn increases business costs. Also many companies are putting in private solutions to fill in these gaps.

Security issues in some regions also play a role in terms of investor confidence. Although many areas of the country are stable and business is doing well, local security problems still play a factor in investment decisions.

Ease of doing business is a field which is always changing. Administrative issues, permit access, and red tape at times tie up business operations.

Government Efforts to Attract Investment

Nigerian government has put forth many initiatives which improve the investment climate. We have designed investment promotion policies which in turn encourage foreign presence in key sectors via incentives and simplified processes.

Economic reforms still at the forefront of how investors think. We see in improved transparency, modernized financial systems, and support for private enterprise which are elements of our present development strategies.

Trade promotion strategies are also put in place which see to improve cross border trade and we remove barriers to import and export, which in turn is very important for companies which operate within the region.

Public and private entities are playing an ever larger role in infrastructure development. In terms of power, transport, and housing, the government is teaming up with private sectors also, which in turn they share out financial and which also operate the projects.

Real-World Investment Trends

In recent times multinationals have increased their foray into the Nigerian market, which has seen them in areas like consumer products, telecommunication, energy and finance. They are to that extent confident of the market’s long term growth despite present issues.

At present we see a great increase in startup activity, which is very much the case in tech. Also we have that venture capital which is behind the growth of digital platforms and which supports innovative service providers that attend to local needs as well as that which looks to expand into other regions.

Regional trade relationships are also growing as Nigerian companies and foreign investors look to the international market for growth. This trend is a component of a larger movement towards integrated African markets.

Future Outlook

Looking out at the future, Nigeria’s strong investment appeal is set to persist. With its large population, natural resources, and geographic position, which gives it a strategic advantage, it will remain a preeminent foreign capital destination in Africa.

However, to sustain investor confidence we see it as a requirement for continuous improvement in infrastructure, achievement of policy stability, and economic diversification. In these areas we also see opportunity to trigger even higher levels of investment and growth.

If we see the push through with reform and the slow but sure recovery of business, then Nigeria may take it to the top rank of investment destinations in Africa and also a key player across global emerging markets.

Conclusion

Foreign investors have to do with many of Nigeria’s issues, which include its large consumer base, resource wealth, strategic location, also we see growth in tech and manufacturing sectors. At the same time they are careful which is in regard to issues of currency instability, infrastructure deficits, and regulatory uncertainty.

Nigeria is a mix of great opportunity and complex issues, which is what you would expect from a high growth emerging market. What its future holds in terms of investment is dependent on how well it is able to balance growth with structural reforms, which in turn will improve business climate. Should the right environment be put in place, Nigeria is very much going to be at the top of the list for global investors which are looking at long term plays in Africa.