Investors Retreat From Nigeria, Halting Africa’s Biggest Economy


The out-come of President Muhammadu Buhari’s dictatorial defense on naira, is that companies and investors attracted to Nigeria by the prospect of a rapid growing population believed to be bigger than Germany and Turkey’s combined, are shutting down their companies and pulling out their monies; those staying have publicly hauled criticism on the president.

Based on incidents and observations, there has been a gradual slump in the labor market since the down slide of oil prices, toppled by capital controls. In propping up the naira in a futile bid to contain inflation, officials have increased pressure on an economy running out of cash, deepening a black market in currency trading and causing shortages of imported goods. U.S. officials said they will press their Nigerian counterparts to change tack during talks in Washington this week.

A senior analyst, Alexa Lion, at Washington-based Frontier Strategy Group, which advises companies looking at developing nations confirmed the situation as critical.

“Our clients, Fortune 500 and other multinationals, are all quite concerned by the state Nigeria finds itself in. Sentiment has worsened. There’s a lot of anxiety,” she said.

Investors Are Frustrated

Another company; Truworths International Ltd., a South African clothing retailer, just shut down last month after four years of trying to gain traction in Nigeria. It also closed its last two outlets in the southeastern cities of Enugu and Warri. They said as much as they were willing to tolerate dilapidated infrastructure, complicated red tape and expensive rent, but the import and Forex restrictions was the limit for them.

The companies Chief Executive Officer, Michael Mark said in an interview.

“We were happy to lose money for a few years while we developed the business and opened new stores. 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 Economy Loosing It’s Lustre

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 slumbers, other countries in sub-Saharan Africa gets 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. According to data released by Central Bank of Nigeria, foreign direct investment this year is set to be the lowest since the 2008-09 global financial crisis.

Meanwhile, President Muhammadu Buhari and Central Bank Governor Godwin Emefiele still maintains their stance on strong-naira policy. Although they both acknowledge that businesses are struggling to source enough dollars, Buhari says that a devaluation and easing of capital controls would be akin to “killing” 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.

Market speculations believes Nigeria will be forced to follow oil exporters from Russia to Kazakhstan and Mexico and allow 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.

The Africa Unilever President, Bruno Witvoet, whose Nigerian subsidiary has seen it’s shares plunge 31 per cent since Buhari came to power, said it would be “very insane” for the country to persist with the currency policies. Nestle South Africa says its local unit, which by the way, has fallen 18 per cent in that period, had to widen the number of banks it uses so that it can access enough Forex.

For Frontier Strategy Group’s Lion, Nigeria is too important for foreign companies to exit en masse. “But a lot will depend on what happens with the currency,” she said. “For now, the opportunity cost of not being there is too high. That could change if the currency situations worsens. It’s definitely a pivotal time.”

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