Nigeria aims for investment hub as appetite for South Africa wanes

Nigeria is increasingly positioning itself as an investment hub on the African continent as appetite for South Africa, its more developed rival to the south wanes.

 South Africa’s credit-rating outlook was cut to negative from stable by Fitch Ratings last week because of deterioration in the country’s growth prospects.

 South Africa’s economy, the second largest on the continent – after Nigeria leapfrogged it post a rebasing of gross domestic product (GDP) data – is threatened with recession as a 20-week strike over pay shut the world’s biggest platinum mines.

 The country’s GDP contracted an annualised 0.6 percent in the three months through March, comparing unfavourably to Nigeria whose economy expanded by 7.72 percent in the fourth quarter of 2013.

 Growth in Nigeria’s $492 billion economy should accelerate to 7.1 percent in 2014, according to the IMF, while Fitch downgraded South Africa’s growth forecasts to 1.7 percent this year, from a previous estimate of 2.8 percent.

 Analysts say pundits’ focusing on Nigeria’s perceived weakness of insecurity, terrorism and corruption are missing the big picture.

 “Global investors have plenty of experience investing in countries which mainstream media paint in a negative light. In particular, investors have learnt that terrorism has little to do with investment,” said Charles Robertson, global chief economist at emerging markets focused investment bank, Renaissance Capital.

“Investors have seen planes explode over Russia, hotels attacked in India, and banks targeted in Turkey; none have warranted a change of view by investors.  Nigeria has strong growth in a low growth world, great demographics in an ageing world, and good debt metrics in an over-indebted world; Nigeria remains attractive for global investors,” Robertson said in response to BusinessDay questions.

Nigeria’s demographic dividend can be seen in its 170 million people being Africa’s largest population and consumer market. Not surprisingly more babies are born every year in Nigeria than in Western Europe.

The country will run a post rebasing current account (C/A) surplus this year, estimated at 5 percent of GDP, compared to South Africa’s estimated current account deficit of 4.5 percent.

The budget deficit to GDP and public debt to GDP is estimated at 1 percent and 11 percent respectively, compared to South Africa’s 4.2 percent and 40 percent.

Slow growth may put the South African government’s fiscal targets beyond reach, while keeping the current-account deficit under pressure, another rating agency Standard & Poor’s S&P said in a June 13 statement.

Investors have tended to value countries running twin surpluses (current account/ budget), since the Fed warned of tapering in May 2013, leading to withdrawal of capital flows from countries deemed risky.

The South African rand was named as part of investment bank Morgan Stanley’s “fragile five” in August 2013 which describes currencies that are particularly vulnerable because of their dependence on foreign investment to fund current-account deficits.

The rand, which is down 1.2 percent against the dollar this year, is one of the four worst performing currencies (including Indonesia’s rupiah, the Indian rupee and Turkey’s lira) out of 31 major currencies over the past month, according to Bloomberg data.

The naira has remained stable in the period, supported by oil prices which have been climbing since early June as ISIL militants seized territory across Iraq, threatening to disrupt supply of the second largest OPEC member.

South Africa imports 70 percent of its oil needs, while Nigeria is a major oil exporter.

While South Africa currently has larger equity and bond markets, Nigeria’s financial markets are becoming more sophisticated.

Lafarge SA recently announced it will combine its Nigerian and South African assets to form a new company to compete with Africa market leader Dangote Cement Plc.

The entity which will be known as Lafarge Africa Plc will be listed on the Nigerian Stock Exchange (NSE), as opposed to Johannesburg.

“The proposal to list on the NSE would have been unthinkable five years ago,” said Gregory Kronsten, Head, Macro Economics and Fixed Income Research at FBN Capital.

The Frontier Strategy Group reported last week that Nigeria was tops in investor interest in a poll of 200 multinational firms.

The country also successfully hosted the World Economic Forum (WEF), Africa, last month in Abuja which attracted over 1,000 diverse investors from Asia, Europe, North A