Nigeria: Investment Opportunities

Last Updated: 16 November 2018
Article by Strachan Partners

Nigeria is the largest market in Africa and one of the fastest growing countries in the world. The country has a thriving and relatively easy business environment with numerous investment opportunities in various sectors. Some of these sectors are highlighted below:

AGRICULTURE

Nigeria has a total land area of 923,768km2. The land is fertile, arable and suitable for forestry and animal husbandry. With the federal government's diversification initiatives, the Nigerian Export Promotion Council (NEPC) has marked out 13 national strategic export products and services to replace oil. This will, in turn, increase the country's foreign exchange earnings and provide alternate sources of revenue. These products include palm oil, cocoa, cashew, sugar, and rice. Also, numerous incentive schemes have been deployed by the Federal Government to make the agricultural sector attractive for investment.

The Federal Government in collaboration with the Central Bank of Nigeria launched the Anchor Borrowers' Programme in 2015 to disburse funds to farmers at the interest rate of nine percent per annum to increase the production of targeted agricultural commodities such as cereals (rice, maize, wheat etc.); cotton; roots and tubers (cassava, potatoes, yam, ginger etc.); sugarcane; tree crops (oil palm, cocoa, rubber etc.); legumes (soybean, sesame seed, cowpea etc.); tomato; and livestock (fish, poultry, ruminants etc.) . Other agricultural sector interventions include the Agricultural Transformation Agenda by the Federal Ministry of Agriculture and Rural Development and the Agricultural Promotion Policy also known as the Green Alternative.

The Federal Government has also put in place a robust incentive scheme for the export of agricultural commodities by reintroducing moribund export incentives like the Export Development Fund, the Export Adjustment Scheme Fund, and the Manufacture-In-Bond Scheme.

REAL ESTATE AND CONSTRUCTION

Over time, real estate has been renowned for being a safe investment portfolio with a steady increase in capital appreciation and which yields high returns over a long period of time. With an estimated population of 198 million people in Nigeria, the demand for housing is on the rise, especially for low-income earners who are in the majority. In the first quarter of 2018, USD$6.20 million in capital was imported into the construction industry as opposed to significantly higher figures in other sectors such as Banking, Agriculture, and Production. This lack of investor attraction can be attributed to a number of factors including the following:

  1. Inadequate financing;
  2. Exorbitant property registration fees;
  3. Undue delay in obtaining construction permits; and
  4. Undue delay in property registration processes.

These challenges have been addressed to a great extent by the Presidential Enabling Business Environment Council (PEBEC) in the course of its 'Ease of Doing Business in Nigeria Project'. In Lagos State, construction permits can now be obtained electronically and the time for obtaining a construction permit in Kano and Lagos States has been reduced from 42 days to 20 days.

In 2015, consent fees were reduced from 6% to 1.5% and Capital Gains Tax was cut from 2% to 0.5 %. These reductions were aimed at spurring property demand and encouraging realty owners to perfect their property titles. Land registration processes in the two states have also been simplified, consequently reducing the period for registration from 77 days to 30 days. The inadequacy of finance is as a result of the enormous amount of capital required to finance construction projects and high-interest rates charged by lenders. Real estate presents a wealth of opportunities yet to be explored and there exists a wide variety of viable tools for mobilization of capital in this regard such as investment in Real Estate Investment Trusts ('REITS'), the development of condominiums (also informal 'condos') for commercial and residential purposes, and the development of collaborative workspaces as opposed to traditional office spaces.

INFORMATION COMMUNICATION TECHNOLOGY (ICT)

With the increased use of smartphones and affordable and easy access to internet services, businesses of all kinds have now been taken online to take advantage of the unrestricted access to a wide range of online customers. There has also been a significant increase in the creation of virtual businesses who operate via social media pages as opposed to traditional workspaces. Indigenous companies have started taking advantage of highly profitable business prospects available in the technology and online-business sector such as the development of innovative applications and enabling technologies to enhance online transactions, payment solutions and user experience. This is especially because most private companies, government ministries, departments and agencies, and other organizations are now seeking to fully automate their transactions and to take advantage of the new prospects in finance and technology ('FinTech') in order to promote efficiency.

Nigeria now has a growing portfolio of indigenous technology companies ('TechCos') that boast of high profit margins and a remarkable footfall. The country has an abundance of young and highly skilled manpower that will drive this sector.

POWER

The Federal Government is currently implementing reforms in this sector under the Power Sector Recovery Implementation Plan approved by the Federal Executive Council in March 2017 to develop the Nigerian Electricity Supply Industry ('NESI'). The highlights of this plan include increasing electricity access by implementing off-grid renewable solutions and guaranteeing a minimum of 4,000 megawatts per hour (MWH/H) of average daily energy. This project is intended to ensure effective service delivery by the electricity distribution companies and the Nigerian Electricity Regulatory Commission. The purpose of this is to enable them to meet up with their responsibilities in the country's privatized electricity market.

Nigeria has in recent times placed emphasis on alternative power sources by focusing on gas and hydro-power generation. Many individuals make use of solar panels to generate electricity for both domestic and industrial purposes. The Federal Government has so far encouraged the construction of Independent Power Plants (IPPs) in various parts of the country by foreign and local investors. The Azura Thermal Power Station, an IPP in Benin City, Edo State, Itobe Power Plant, Kogi State, and Mambilla Power Station, Taraba State are in the works.

The recently passed Meter Asset Provider (MAP) Regulations also provide new investment opportunities for individuals and organizations in the Nigerian power sector as metering service providers. This is expected to fast-track the provision of meters to consumers of electricity and encourages competitive meter services in the electricity industry. Interested investors will be required to apply for MAP Permits and will be subject to a bidding process.

OIL AND GAS

Regardless of the shift from over-reliance on oil proceeds, the oil sector still plays an important role in the Nigerian economy as the exploration of the country's huge oil reserves will not be neglected. The Federal Government also seeks to explore the country's natural gas reserves as an alternative source of power generation.

The year 2018 saw a remarkable implementation of the provisions of the Nigerian Oil and Gas Industry Content Development Act ('Local Content Act') with the construction of the Egina Floating, Production, Storage and Offloading Unit ('FPSO'). Six out of Eighteen modules of the FPSO were manufactured in Nigeria and this is notably the highest level of local content in any FPSO project in Nigeria. The Federal Government encourages investments in landmark projects of this kind that will enhance the country's industrial development and provide employment opportunities for its citizens.

TRANSPORTATION

In recent times, a huge amount of public revenue has been expended in the development of infrastructure for transport purposes. In 2017, the Federal Government approved the construction of the Lagos-Ibadan Railway with the aim of developing infrastructure. There are plans to further develop the maritime industry by constructing two new seaports in Bonny, Rivers State, and Lekki, Lagos State. The Aviation Sector has not been left out from this chain of development as the Federal Government has announced approval to concession the international airports in Abuja and Lagos.

Private-Public Partnerships are encouraged in this sector. It is imperative to note that the inland waterways are a transport medium with potentials that are insufficiently harnessed.

ENTERTAINMENT AND MEDIA

According to PwC Nigeria's report on the Business of Entertainment published in October 2017, Nigeria is set to be the world's fastest-growing Entertainment and Media ("E&M") in the next five years with a Compound Annual Growth Rate ("CAGR") of 12.1%. Also, total music revenue in Nigeria rose 9.0% in 2016 to reach US$39 million and is set to rise at a 13.4% CAGR to US$73 million in 2021. Nigeria's movie industry, "Nollywood", is currently the third largest in the world after the United States' "Hollywood" and India's "Bollywood". Social media has taken precedence over traditional media as the foremost entertainment medium. However, there is a decline in the growth of the industry's contribution to the GDP as a result of inherent challenges such as piracy and low broad brand penetration among others. Regardless of these challenges, the entertainment industry in Nigeria, whether in film, music or art, remains a gold mine.

SPORTS

57% of Nigerians watch sports content, particularly football, on a daily basis at home or on mobile. This figure drops drastically where local sporting activities are concerned. This lackluster attitude has been largely attributed to poor sports infrastructure and poor capacity development in the Nigerian sports industry unlike what is obtainable in international football leagues. Nigeria has the audience to buy into great local sporting content but lacks the necessary infrastructure to make local sporting content viewer attractive. The country has also recorded brilliant successes in competitive sports at international levels. Investments in sports will lead to a positive transformation of the local sports industry and an increased contribution of the industry to the country's Gross Domestic Product (GDP).

HEALTH CARE

Healthcare is one of the fastest growing industries in the world. Over $200 billion of revenue was generated last year in healthcare revenues in the United States alone. With a rapidly increasing population, there is a remarkably high demand for healthcare services in Nigeria which is more often than not met with a very limited supply. There is a need for increased accessibility to medical services, the construction of medical facilities equipped with modern healthcare technology to reduce the rate at which Nigerians seek medical treatments abroad and increased health awareness across all population levels. Opportunities in the health care sector are not limited to hospital management but also include the provision of health insurance services and pharmaceuticals among others.

ENVIRONMENTAL SUSTAINABILITY

In recent times, there has been a remarkable increase in the awareness of environmentally friendly practices such as the use of renewable energy sources, proper waste management, and sanitation, especially in furtherance of the United Nations' Sustainable Development Goals (SDGs). Business opportunities abound in these sustainable practices carried out for the benefit of our planet. These include the provision of waste recycling and repurposing services, the development of renewable energy plants, innovative waste disposal technologies and eco-friendly solutions to problems in various communities within the country.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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