Between the highly visible listing of oil company Seplat (LON: SEPL) in London and a recent revision to the country's GDP calculation formula, Nigeria is suddenly in the news as an economic powerhouse and the largest economy in Africa.
Is it the next emerging market hotspot?
Nigeria's phenomenal growth
Seplat's listing is a major victory for Nigerian business, both as a symbol of the country's rising status and as an example of improved corporate governance.
The listing crowns a decade of growth and expansion. For the past ten years, Nigeria's economy has been quietly growing at an annual rate of about 7%, rising to nearly 13% last year. These growth rates and a recent (and long overdue) rebasing of GDP, in which statisticians look at a country's major industries and their contribution to the overall economy, show the dramatic rise of Nigeria's business and economic strength.
In 1990, Nigeria was a resource-based economy where agriculture and oil and gas accounted for 66% of economic activity; now, they now make up only 33%. Telecom has jumped from under 1% to nearly 9% with the rapid growth of mobile phone usage and distribution. In short, the economic data show that Nigeria is far from reliant on a single source of growth: This is a well-diversified economy with opportunities in a number of industries and sectors.
"Not a place for the faint-hearted"
On the other hand, to quote the Economist, Nigeria is not a place for the faint-hearted. Major developmental and political concerns remain, most notably poverty and corruption.
Poverty is a heavy problem: Over 60% of Nigerians live on less than one dollar a day -- and it's rising. In 2004, the number was 52%, demonstrating that the spoils of the nation's growth have not necessarily been shared and reinvested.
From a purely economic perspective, this is, unfortunately, not necessarily a problem. Nigeria is the third most impoverished nation in the world, trailing only China and India. As you may have noticed, the latter nations' economic expansions have been, for the most part, doing just fine.
Corruption is another stumbling point, and one that can have a direct impact on investment. One notable example comes from the oil industry. While oil and gas make up only 14% of the economy, oil generates over 75% of government revenues and 95% of export earnings.
The state oil company, the Nigerian National Petroleum Corporation, has been described by the Revenue Watch Institute as the least-transparent in the world, and earlier this year, Central Bank Governor Lamido Sanusi was ousted after reporting the company withheld tens of billions of dollars in revenue owed to the government (The NNPC has since acknowledged that $10.8 billion may have been misplaced).
The mysterious shortfalls in payments are nothing new, but the very public removal of Mr. Sanusi was hard to ignore. Foreign bondholders responded by withdrawing, and the currency, the naira, dropped to historical lows against the dollar.
Looking forward
Of course, no investment is without risk and no nation lacks for its particular hair-raising characteristics. But these do not negate the potential for success. China is a great example. Despite crushing poverty and its own brand of governmental concerns, the nation rose to become the second-largest economy in the world.
Nigeria has now grown to be the largest economy in Africa, and with a focus on attacking governance and reinvestment, it could very well also become the wealthiest.
