Investing in Nigeria: Searching for the Crystal in the Mud

Lagos, Nigeria, March 9, 2016 (Newswire.com) - In his newly published article, leading lawyer and businessman, Barrister Osita Oparaugo talked about the silver lining in the somewhat cloudy economic weather that has befallen Africa's largest economy. He says, 'The only thing, worse than being a frontier economy, is being a mono-product frontier economy. It gets worse when the demand for the only exportable product is no longer in high demand due to the abundance of alternatives'

He explains that, 'as a mono-product frontier economy, with oil accounting for more than 70 percent of foreign earnings, the plunge in oil prices meant that the associated foreign currency earnings of the country also dwindled, thereby reducing the capacity of the banking system to meet the forex demand for out-bound cash flows – funds that were fleeing the Nigerian economy to safety'
 

'The only thing, worse than being a frontier economy, is being a mono-product frontier economy. It gets worse when the demand for the only exportable product is no longer in high demand due to the abundance of alternatives'

Barrister Osita Oparaugo, Managing Director, Footprint to Africa

He also explained that the decline in the price of oil also meant the decline of the level of aggregate income, savings and investments which forced the Central Bank of Nigeria to adopt capital controls to save the value of the naira. He said, 'The fear of investors’ funds being trapped within the economy, as well as a presumed imminent devaluation resulted in a massive selloff of the market to gather whatever funds could be recouped before the disaster landed'

Whilst companies' sales were slowing down at a terrifying pace with companies laying off workers every week, Barrister Oparaugo said, 'Though the macro-economy floundered in the eyes of international observers, a harder, more intent gaze could have yielded something positive for the investor that cared to take as much as a second look'

"It will be particularly instructive to note that over the course of the last 12 months, parent companies who had interests in Nigeria, especially the consumer goods sector took the opportunity to increase their stakes in local units"

The article then proceeds to highlight the multinationals that have increased their stakes in the local Nigerian business, some of which include Diageo, Kelloggs, Unilever, GlaxoSmithKline, FrieslandCampina and CocaCola. He noted that each of these transactions underlined one trend which he identified simply as, 'fast moving consumer goods.

He quoted Omair Ansari, Frontier Markets Consumer Analyst at Renaissance Capital, as saying, 'fast-moving products and impulse purchases sold for between 5 and 25 cents are the biggest opportunity'

According to Barrister Oparaugo, another consequence of the capital controls imposed by Nigeria’s Central Bank, and the attendant scarcity of forex is that businesses, both big and small had to reevaluate their operations, to re-optimize the use of their resources in the light of the new restrictions. This meant that bigger companies had to look inward to smaller firms to meet some of their sourcing requirements. Multinationals, such as Nigerian Breweries, the Nigerian unit of Heineken had to stop its importation of Barley, and replace it with locally sourced sorghum to produce its beers. Shoprite, the South African grocery chain store had to reduce imports of fruits and vegetables, and rely more on local farmers and suppliers to stock up its stores.

He said, 'Because these firms were pushed to the wall, they had to come up with solutions that could work for them, which also meant that the associated local businesses benefited also. In the case of Nigerian Breweries, local farmers got to receive improved seeds in order to plant better varieties of sorghum that was good enough for Nigerian Breweries to brew its beer with. This provided the opportunity for local businesses to grow, expand their reach and improve their competencies'

He said, 'The point being made is that there appears to be investment opportunities for investors willing to look a little harder. Of course, this is not to say that investors should take the plunge without looking. More than ever, they will need to work closely with their local partners to identify opportunities worth their while. This is perhaps the time to discover the resourcefulness of fund and asset managers'

He urged potential investors to exercise caution as the market could take longer to recover and currency fluctuations could still determine what the final value of returns will turn out to be.

He closed by saying, 'As the saying goes; the market can stay irrational much longer than you can stay solvent'

His article can be found on Footprint to Africa