Nigeria’s promise turns to peril as investors head for exits

epa04615789 A general view of a business district with the Wema Bank building (L), Lagos, Nigeria, 10 February 2015. Nigeria is africa's most populous nation, and a fast growing economy on the continent. recent reports state credit rating agencies may lower Nigeria's credit rating, as lower oil prices and political unrest have their impcat on country's economy. Nigeria is heavily dependent on oil revenues that make some 70 per cent of Nigeria's tax revenue. Oil also makes a major part of Nigeria's exports, amounting to some 90 per cent ot total exports. Wema bank say they operate as a commercial Bank with regional Scope in South-South Nigeria, South-West Nigeria, Lagos and Abuja since 2011.  EPA/AHMED JALLANZO


The promise of Africa’s biggest economy has turned to peril. Companies drawn to Nigeria by the prospect of a population bigger than Germany and Turkey’s combined are retreating; those staying have publicly criticized the president, a military strongman in the 1980s who came back to power via an election last year; and foreign investors are pulling their money out.
The corporate tribulations that began with a slide in oil prices and accelerated after the imposition of capital controls are also entangled in a global emerging-market slump. In propping up the naira in a futile bid to contain inflation, officials have jacked up pressure on an economy running out of cash, deepening a black market in currency trading and causing shortages of imported goods from fuel to milk. USA officials said they will press their Nigerian counterparts to change tack during talks in Washington this week.
“Our clients, Fortune 500 and other multinationals, are all quite concerned by the state Nigeria finds itself in,” said Alexa Lion, a senior analyst at Washington-based Frontier Strategy Group, which advises companies looking at developing nations. “Sentiment has worsened. There’s a lot of anxiety.” Frustration too.
After four years trying to gain traction, Truworths International Ltd., a South African clothing retailer, last month gave up. It closed its last
two outlets in Nigeria, in the southeastern cities of Enugu and Warri. Willing to tolerate dilapidated infrastructure, complicated red tape and expensive rent, the company said the import and foreign-exchange restrictions caused it to throw in the towel.

“We were happy to lose money for a few years while we developed the business and opened new stores,” Chief Executive Officer Michael Mark said in an interview. “The straw that broke the camel’s back was not being able to get stock into Nigeria. You can’t have a clothes shop with no clothes. With all the other things, it just wasn’t worth it. It was impossible to do business.”
Nigeria’s appeal has faded as the price of oil, source of 90 percent of export earnings, has crashed. Growth slumped to 2.8 percent last year, the slowest since 1999, and will decelerate to 2 percent in 2016, according to Morgan Stanley. In dollar terms, the economy in 2019 will still be 17 percent smaller than its 2014 peak of $542 billion. Only two years ago, McKinsey & Co. said Nigeria had the potential to grow 7.1 percent annually until 2030 and build a $1.6 trillion economy.
As Nigeria lags, other countries in sub-Saharan Africa have gotten more appealing. Last month, Nigeria fell from first to fourth, behind Ivory Coast, Kenya and Tanzania, in a ranking of business prospects by the research unit of Nielsen Holdings Plc.
Portfolio investors including Aberdeen Asset Management Plc and Ashmore Group Plc, which together oversee about $450 billion of assets, have retreated from Nigerian markets. The main stock index is down 10 percent this year, while the MSCI Frontier Markets Index has lost 2.8 percent. Nigeria’s local-currency bonds are the only ones among 31 emerging markets tracked by Bloomberg to have generated a loss this year.
Foreign direct investment this year is set to be the lowest since the 2008-09 global financial crisis, according to data from the central bank.
For now, President Muhammadu Buhari and Central Bank Governor Godwin Emefiele say they aren’t budging from their strong-naira policy. While both acknowledge that businesses are struggling to source enough dollars, Buhari says that a devaluation and easing of capital controls would be akin to “murdering” the naira and send prices up. That’s already happening as manufacturers struggle to buy foreign inputs, with inflation accelerating to a three-year high of 11.4 percent in February.
Markets are betting Nigeria will be forced to follow oil exporters from Russia to Kazakhstan and Mexico and let the currency weaken. While the naira has been all but pegged at 197-199 per dollar since March 2015, forward prices suggest it will drop 29 percent to 280 in a year. The black market rate has weakened to 320.
Bruno Witvoet, the Africa President of Unilever, whose Nigerian subsidiary has seen its shares plunge 31 percent since Buhari came to power, said it would be “very insane” for the country to persist with the currency policies. Nestle SA says its local unit, which has fallen 18 percent in that period, has had to widen the number of banks it uses so that it can access enough foreign exchange.

epa05133652 (FILE) A file photograph dated 17 August 2010 showing a man working in the Chevron oil  facility boat in the oil rich Niger delta region of Nigeria. Chevron made a loss of 588 million dollars in the fourth quarter, chiefly due to weak oil prices, the second largest US oil company by market capitalization said in a press release 29 January 2016. The price of oil fell to a more-than 12-year low last week and continued to fall after sanctions against Iran were lifted, which fueled concerns that global oversupply of the commodity will continue. Chevron has already reacted to the slumping oil price by cutting jobs and investments.  EPA/GEORGE ESIRI

epa04628281 A Nigerian garage attendant pumps petrol in to a motorcycle taxi in Ikeja, Nigeria, 19 February 2015. Nigeria postponed a general election by six weeks - to March 28 and April 11 - citing security concerns about the Islamist insurgency in the north of the country but with both leading presidential contenders stating they will further boost the economy of Africa's richest nation.  EPA/AHMED JALLANZO

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