Nigeria is Africa’s foremost business destination. Over the past decade Africa has been the second-fastest growing economy in the world, with GDP accelerating more than five percent a year on average, according to the World Bank.
And even as the global economy has slowed in recent months, growth in Africa has largely remained on track, with the World Bank predicting the continent could be on the brink of an economic takeoff much like China 30 years ago.
So what’s driving it?
Africa’s natural resources are a big factor; so too is the continent’s rising consumer class.
According to the McKinsey Institute, household consumption is now higher in Africa than India or Russia, and it is expected to grow – it estimates that the number of African households with discretionary income is expected to jump by more than 50 percent to almost 130 million by 2020.
“Africa is increasingly being taken more seriously as an investment and business destination, but in many sectors, a window of opportunity does still remain open for establishing an early mover advantage,” says Ajen Sita, Africa Managing Partner at Ernst & Young. “However, competition is intensifying and that window is closing.
“For companies and investors looking for long-term sustainable growth, we are in no doubt that the time to act on the Africa opportunity is now. Now is the time to invest in understanding markets, identifying partners, developing opportunities, configuring industries, building brands and establishing local credibility.”
Investors have taken note. Oil-rich Nigeria has been a preferred destination – it being Africa’s most populous country and second-largest economy – where economic growth was around six percent every quarter in 2012 and stocks have surged.
It ticks all the right boxes.
The good news for would-be investors is that Nigeria’s economy is expected to grow slightly faster this year than in 2012, driven by progress in the agriculture, banking and oil sectors, while high inflation rates should ease slightly.
Growth in Africa’s second biggest economy is forecast at 6.75 percent compared with an estimated 6.61 percent in 2012, according to an outlook from the national bureau of statistics (NBS).
“Energy reforms … banking sector, agricultural reforms and oil sector reforms are expected to drive higher growth during the period (2013-2016),” the report says.
A market analyst in Hong Kong said recently that investing in the Nigerian oil sector made sense for Asian economies, where state-run companies are looking for new reserves.
“We like the potential upstream asset acquisition in Nigeria because it could help Sinopec replenish its dwindling oil reserves and improve the firm’s overall profit margin amid sustained high oil prices in the long term,” said Gordon Kwan, a energy research analyst at Mirae Asset Securities Ltd. in Hong Kong, told Bloomberg News.
The opportunities are huge and Nigeria is among the countries that are leading the charge in Africa’s economic revolution. The increasing flow of foreign direct investment, and investment by African into other regions of Africa, could launch the continent to greatness over the medium future.
“Nigeria’s large market, growing middle class and rapidly transforming economy continues to attract international investors, who find these opportunities irresistible,” one expert told Asia Outlook.
Many are predicting that Nigeria may soon join the Brics (Brazil, Russia, India and China and South Africa), nations, with the country’s Finance Minister and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala confirming that Nigeria has what it takes join the Bric nations in an interview with the BBC. She admitted however that even though the fundamentals are right, infrastructural constraints, such as epileptic power supply, hinder growth.
“When we solve those problems, we are going to be in the low double digits and that will parachute Nigeria into the Brics,” she said.
Image: Getty
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