Economic reforms boost investor confidence in the Nigerian economy
In 2008, no listed Nigerian firm was large enough to be included in the FTSE 100; a share index that tracks the 100 companies listed on the London Stock Exchange (LSE) with the highest market capitalisation.
By 2013 however, barely five years later, two Nigerian firms can conveniently make it to the FTSE 100. Nigerian Breweries (NB) with a market capitalisation of $7.8 billion (N1.2trn) would be number 62 if it were on the FTSE 100, while Dangote Cement at $16.8 billion (N2.6trn) would be number 39 on the index in terms of market capitalisation.
Analysts say the growth of Nigerian firms highlights the recent raft of economic reforms undertaken by the Federal Government, which has boosted growth and a growing realisation of the investment opportunities present in the country.
“The rise of Nigerian stocks reflects both the boom in GDP, from $46 billion in 2000 to $284 billion in 2012 (IMF estimates), but also the growing appetite to invest in Nigerian stocks. Globally, investors now see the opportunity,” Charles Robertson, economist and head of macro strategy at Renaissance Capital, tells BusinessDay.
“In the Fastest Billion, we estimate that, combined with the GDP revision expected in 2014, Nigeria will be on course to $673 billion by 2020. As a result, many more Nigerian companies would (and probably will) feature on the London Stock Exchange,” Robertson says.
Nigerian equities rallied by 37 percent in 2012, and have risen 18 percent year-to-date.
The Nigerian Stock Exchange (NSE) hopes to see its market capitalisation reach $1 trillion by 2016, which if attained would echo an even bigger rise than that seen in Russia in the 2000s.
“Nigeria is clearly capable of producing business giants and global investors are waking up to the huge potential of the Nigerian economy and its entrepreneurs,” Carl Franklin, head of investor relations, Dangote Cement, says in an email response to questions.
Analysts say the regulators - the NSE, the Securities and Exchange Commission (SEC), the Central Bank of Nigeria (CBN) and the Ministry of Finance (MOF) - have all strengthened their tool-boxes, by changing the rules of engagement, and insisting on stricter compliance by players.
“Although many of the reforms needed to unlock growth potential are micro in their focus (agriculture, banking, power, oil, etc.), the broad macro underpinnings of the reform environment should not be ignored,” Razia Khan, regional head of research, Africa, at Standard Chartered Bank, says in note released last October - entitled ‘Nigeria - reforms that will change the world.’
The Nigeria economy expanded at an average of 7.2 percent per year for the past five years, according to International Monetary Fund (IMF) estimates.
A new rail link between Lagos in the South to Kano, the main city in the North, has been restored, boosting trade and helping to move agricultural products and cargo more efficiently across the country.
In its assessment released in March, the IMF notes that 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 National Bureau of Statistics (NBS) said last week, partly as a result of CBN reforms of the bond market and tight monetary policy.
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.
“It is very unlikely that foreigners would be showing the interest they currently show in Nigeria’s bond market in the absence of reassurance on these reforms,” Khan notes.
Earnings and profit are rising for many Nigerian companies, especially the banks, after their balance sheets were cleaned up following the financial sector reforms.
With the bad debts off their books, the lenders received a new lease of life to restart credit creation.
Guaranty Trust Bank plans to almost double loan growth to 20 percent this year from about 11 percent in 2012, Segun Agbaje, its CEO, said April 8.
Zenith Bank, Nigeria’s third largest lender by market value, reported this month that net income for full-year 2012 rose to N100.68 billion ($636m) from N48.7 billion a year earlier.
The rolling out of wide-ranging reforms across Nigeria’s economy is prompting investors to take a “fresh look” at the country, according to Ed Fast, Canadian Minister of International Trade.
Fast had words of praise for the Nigerian government’s privatisation and anti-corruption reform efforts, telling the global publishing, research and consultancy firm Oxford Business Group that changes introduced in the banking sector, in particular, should enhance the investment climate.
“These ongoing changes will create better opportunities for all Nigerians and for investors from around the world,” Fast said, saying “Canadian businesses are taking a fresh look at Nigeria and the opportunities it presents. They see that the environment is good for business, including a fair and strong regulatory framework to support and protect them.”
Businessday
