Nigeria’s resilient economy looks to its next chapter

SPONSORED | Nigeria presents an interesting tale of apparent opposites in the African growth scenario. Taking pole position as the largest economy in Africa in 2016 while suffering from its worst recession in 25 years is indicative of the ups and downs seen in the country’s economy.

The past 24 months, in particular, have been difficult for the nation amid an exodus of foreign direct investment (FDI) and assets prior to and during the presidential elections in February 2015. The country risked a liquidity crunch, with the Central Bank of Nigeria and the Nigerian Stock Exchange both facing trials and national reserves decreasing from more than $50-billion to $20-billion.

Other socioeconomic issues also came to the fore: volatile commodity prices; poor production in the dominant oil sector and depressed import levels; a devalued currency; inflation; high unemployment; and the challenge of corruption.

In line with these developments, foreign exchange suffered a blow. A contributing factor was Nigeria’s seven official and unofficial exchange rates, ranging from the official Central Bank rate to the parallel market or street rate, which led to market speculation.

As such, there are inherent challenges to keeping control of foreign exchange and how its rates are determined – and, as is to be expected, there have been considerable swings in the rates over the past two years. Exchange rates have ranged from 305 naira to the dollar to 520 naira to the dollar at its lowest level on the street.

Also contributing to the crisis were overseas remittances – money sent from Nigerians living outside the country to citizens within its borders, which is the second-highest source of foreign exchange in Nigeria. Twenty million Nigerians living elsewhere in the world have a significant impact on spending power, particularly when those remittances come in the form of British pounds and US dollars. However, with the banks’ foreign exchange crisis in late 2015 and 2016 stemming from the unavailability of foreign exchange, that value fell considerably.

Despite these hardships faced by the Nigerian economy and trade environment, marked improvements in the past year have led to a general consensus of a more positive outlook for the country.

Unpredictable commodity prices levelled out and even saw an upswing at the start of 2016 that continued throughout the year – and, with the return of global banks providing additional credit lines to Nigerian banks to fund trade; an increase in FDI; and significant capital markets transactions such as the listing of the $1-billion Federal Government Eurobond on the Nigerian Stock Exchange in March this year, there is growing evidence of optimism in the country.

Upward movement in performance in the manufacturing, energy, retail and agriculture sectors means buds of growth are starting to show. Dangote Cement, the largest cement producer across the continent, for instance, has in the past year built additional manufacturing plants in the country that have stopped Nigeria importing cement and instead start exporting the product to the rest of Africa. Sales from Dangote’s Nigerian operations increased 13.8% in the past year.

This development speaks directly to the trend of a fundamental and ever-increasing move to local production. In retail, significant shelf space is taken up by Nigerian products, from fresh produce right down to soap and toothpicks. Shoprite Nigeria even introduced its “Made in Nigeria” campaign in March this year to promote local producers. According to reports, more than 80% of products sold by the retailer are locally made and sourced. “Made in Nigeria” now has meaning and is not just a passing comment.

The shift to local production was driven mostly by the lack of availability of foreign exchange through the Central Bank, and it changed the economic focus of the country from importing to local production – noticeable too in agriculture, for example, where there is a concerted push towards domestic rice production, as well as exports of agri-commodities.

Dangote Rice – a subsidiary of the Dangote Group, which also owns Dangote Cement – plans to produce 225,000 metric tonnes of parboiled, milled white rice in 2017 alone, moving up to 1-million metric tonnes over the next five years, satisfying 16% of the domestic market.

Overall, the difficulties of the past two years have forced Nigeria to diversify its economy, moving from a reliance on oil to industries such as manufacturing, agriculture and retail, and driving growth by increasingly investing in local producers.

Nigeria has over the years proven to be a resilient country. With improved transparency between banks and international companies, greater regulation and an increasingly inclusive economy, the country’s good-news story is slowly but surely gaining a new chapter.

Charles Weller is head of FI trade Nigeria at Barclays Africa.

This article was paid for by Absa.