In 2008, when Kingsley Eze, a Nigerian
entrepreneur, met with Norman Markgraaff in South Africa to explore
partnerships in real estate projects in Nigeria, it was clear to both
parties that he was swimming against the tide. Corruption and 419 fraud
letters hung like a halo over Nigeria. Boko Haram was yet to join the
mix. As Chief Executive of Private Estates International, Norman had
been in the real estate business for over 35 years, built thousands of
housing units, expanded the business into other parts of Africa but had
never considered the Nigeria market.
Kingsley had a simple strategy for the
meeting. He would acknowledge the gory stories of fraud but would show
that they were not endemic to Nigeria. He would recount how Vodacom
passed up an opportunity to acquire a GSM license in Nigeria, and how
MTN, which at the time was the number 3 operator in South Africa, took
the leap of faith with Nigeria and became the biggest phone operator in
Africa. When Norman asked for another example, Kingsley discussed the
performance of Shoprite, a South African retailer that had recently
entered the Nigeria’s retail space. If that meeting was held today,
Kingsley would have proudly informed Norman that Shoprite has become so
successful that it plans to build 44 retail outlets within the next
three to four years. According to the Economist magazine, the seven
Shoprite outlets in Nigeria sold more bottles of Moet & Chandon
champagne than all the Shoprite outlets in all of Johannesburg combined.
That is the quantum of return on
investment Nigeria delivers. According to Jim O’Neill, an economist,
Mexico, Indonesia, Nigeria and Turkey (MINT economies) are expected to
produce the highest return on investment in the next 10 years. In fact,
Nigeria is poised to become one of the world’s largest economies in the
21st century overtaking economies such as Italy, France and the United
Kingdom.
This goal is realisable. Between 1999
and 2012, Nigeria’s GDP grew at an average of 7.9 percent. This is
remarkable when compared with a GDP growth rate of 2.2 percent in the
United States, 1.8 percent in the United Kingdom and 0.4 percent in the
Euro zone, notwithstanding that Nigeria is starting from a much lower
economic base. In this same period, Nigeria became the second largest
economy in Africa (behind South Africa) with a GDP per capita that grew
from US$700 to US$2,600.
In this same period, Nigeria has become
an attractive destination for Foreign Direct Investments (FDI). Between
2010 and 2013, Nigeria attracted over US$20 billion in FDI, equivalent
to 10 percent of the total FDI to Africa. This reversal of fortune has
been attributed to Nigeria’s current political, economic and demographic
realities. Nigeria has had 14 years of uninterrupted democratic rule.
The external debt portfolio decreased from US$36 billion (in 2006) to
US$4.5 billion (in 2010) resulting in a debt to GDP ratio of 19 percent,
one of the lowest in the world. Inflation has remained in the single
digits. With 170 million people, Nigeria is one of the ten largest
populations in the world. With over 60 percent of the population below
the age of 25 years, Nigeria has more people eligible to work than
otherwise.
Despite the phenomenal economic growth,
unemployment is still a major challenge. Poor infrastructure is a key
driver of the unemployment profile. Nigeria’s economic growth is more
remarkable given its low infrastructure stock. According to the National
Planning Commission (NPC), Nigeria’s infrastructure stock is about 35
percent of its GDP compared to 87 percent for South Africa. This
situation offers significant opportunities for the savvy infrastructure
investor. For instance, Nigeria generates about 3,600MW of power, which
is about 13 percent of its projected electricity demand by the year 2015
(28,360 MW). There are not many countries in the world that provide
this level of suppressed effective demand: people willing and able to
pay for as long as the service is provided.
The NPC estimates that Nigeria needs
over US$2 trillion in infrastructure investments over the next 30 years
(2013-2043). To meet this investment need, Nigeria needs to ramp up its
spending on infrastructure from the current 3-5 percent of GDP to an
average of 9 percent over the next 30 years. Given Nigeria’s high GDP
growth projection for the period, such a ramp-up would be particularly
challenging for the government. Therefore, private sector investment is
critical to meet this need. The government has shown commitment to
private sector-led growth. In September 2013, government privatised 15
power companies. Another 10 power plants are in the process of being
privatised providing further proof of government’s commitment.
Despite these opportunities, there is
no doubt that investing in Nigeria is not for the faint of heart. The
country still presents significant challenges for business development.
The 2014 Doing Business report places Nigeria as 147 out of 189
countries, this is a 9-step drop from 2013. The 2014 Economic Freedom
report placed Nigeria as 129 out of 175 countries, also a 9-step drop
from its 2013 position. In terms of corruption, Nigeria is ranked 144
out of 177 countries on the Transparency International’s 2013 Corruption
Perception Index. Although the anti-corruption institutions still
exist, there has not been any high profile case to communicate
government’s commitment to fighting corruption. However, continued
commitment to privatisation of major government enterprises may be a way
to reduce the size of government bureaucracy and stem the resultant
leakages.
There is no doubt that Nigeria presents
a compelling case for the infrastructure investors, like Norman, who
are able to move beyond the gory “single story”. Private Estates
International set up office in Nigeria in 2010 and is currently
developing a track of land measuring 1,100 hectares into the new Enugu
Lifestyle & Golf City. The city, which is built around an 18-hole
golf course, has a residential, commercial and industrial layout. This
investment happened because an entrepreneur was willing to tell a
compelling investment story and the investor was willing to listen with
objectivity.
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