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Map of Nigeria
Foreword
Foreword
HE Goodluck Jonathan,
Vice President, Federal Republic of Nigeria
N
igeria is Africa’s most populous country. Indeed one in six of all inhabitants of sub Saharan Africa are proud to call
themselves Nigerian. Yet, as a nation, we have struggled through many years of being branded and pre-judged as a people
drawn back by corruption and suffocated by bureaucracy.
Today, at this conference, in our second decade of civilian rule and approaching our 50th year of independence, I hope that we begin to
present ourselves as we really are: an industrious, entrepreneurial nation, robust in growth, rich in culture, vibrant in labour, attractive for
investment or, more succinctly, as our new national brand puts it, ‘a good people, a great nation’.
As testified in the pages of this Investment Report, Nigeria has an enviable array of opportunities for the would-be investor – unparalleled
against any other peer. Oppor tunities are rich in mining, food production, ICTs, infrastructure, financial services and the energy sector.
Those already engaged in Nigeria bear testament to its worth, and against the backdrop of the most severe period of global economic
difficulty in living memory, Nigeria grows.
Last year, our economy grew by almost seven per cent, buoyed by our proactive investment centre and our progressive government and
here, at today’s conference, we invite you to see for yourself the phenomenal economic transition taking place today – a success story
witnessed by 150 million people living across 36 states over almost a million square kilometres in West Africa.
However, we are aware, and we recognise that there have been systemic barriers to investment in the past. We face these challenges
and we welcome advice and input towards building on our successful marriage with the private sector to realise our goal of becoming
one of the world’s 20 largest economies by 2020.
We have already built an enviable judiciary, a large and buoyant stock exchange, a massive investment programme into infrastructure and
globally lauded cellular communications, whilst our best performing states are now poised to issue bonds in international markets. On
top of this, we have significant, underutilised agricultural, mineral, hydrocarbon, marine and forest resources and an abundant English
speaking workforce.
We are the largest English speaking population in Africa. We are one of the continent’s most progressive, forward-thinking, businessfriendly countries and we, as a nation, share a steadfast vision for our future. It is a vision of economic prosperity and social cohesion.
It is a vision of our country fulfilling her potential as Africa’s leading player on the global stage. And it is a vision whose ambition will be
realised through our par tnership with you, the investment community.
I hope you will join us on this journey; this collective enterprise; this national march to our historic economic destiny. Welcome on board.
HE Goodluck Jonathan,
Vice President, Federal Republic of Nigeria
2009 | INVESTING IN NIGERIA | 1
Introduction
Introduction
Baroness Chalker of Wallasey
Chairman, Africa Matters Ltd
N
igeria, perhaps more than any other African country, evokes an almost Pavlovian response from politicians, businesspersons
and the general public alike. Everyone, even without visiting the country, seems to have an opinion on Nigeria and, often,
that opinion is negative. Unfortunately, the opinion is also all too often based on a devil’s brew of ill-informed generalisations,
colourful media articles, usually of debateable balance and, perhaps worst of all, those ‘word of mouth stories’ which, when
investigated, turn out to be well past their sell-by date.
Nigeria is not some utopian state. It is a vibrant developing nation which has struggled over many years to develop democracy, improve
economic stability, grow independent institutions and the rule of law, and enable its population to enjoy a degree of economic uplift. Not
an easy task in a country of over 150 million people occupying a land area almost three times the size of Germany. That struggle
continues, as it will for many countries in the developing world. The challenges will not disappear for some time to come.
But there is also another side to the Nigerian story, one rarely told in the international media and hardly ever repeated within the
investment community. It is not simply that Nigeria continues to offer an abundance of opportunities for investment. It is not that many
international companies – often in the non-oil business – have come and continue to come to Nigeria, invest in the country and enjoy
profitable operations, true though this is. It is not even that Nigeria itself is becoming the birthplace of major companies, which themselves
are being cour ted as par tners by the international community.
The real story is that Nigeria is steadily overcoming its challenges and is therefore continuing to develop an environment conducive to
investment.
Democratic government is now well established, even though campaigning may be more boisterous than even in the USA. The financial
services environment has been overhauled and now has to match international reporting standards. The institutions of governance are
now increasingly developed, suppor ted and enhanced by Nigerian administrations.
Nigeria, the sleeping giant of Africa, is a country of great potential and one of growing achievement. Our conference sets out to show
that the potential is being realised. Whether in its suppor t of the African Union and its institutions, in the steady expansion of its banks
into the global economy, or in the growth of its home-grown companies into multinational corporations, Nigeria is both awake and
achieving.
In ‘Stating the Case for Investment in Nigeria’, this conference presents the other side of the story. We invite investors to take a measured
look at Nigeria, to set aside oft-repeated generalisations and to approach Nigeria for what it is – an incredible, diverse and vibrant
country with a dynamic economy with a vast array of opportunities. The result may be surprising to some and to others the beginning
of a number of new and exciting par tnerships in Africa’s most populous country.
Baroness Chalker of Wallasey
Chairman, Africa Matters Ltd
2 | INVESTING IN NIGERIA | 2009
Contents
Contents
4
11
12
18
20
23
26
Economic overview: The economy battles to defeat the downturn
The 7-point Agenda
Banking and Finance: A regional banking giant in the making
Infrastructure: Developing a 21st Century infrastructure
Information and Communication Technology: A climate for growth through technology
Energy: An attractive country for investing in hydrocarbons resources
Investing in Nigerian States
Publisher
Special Advisor
Contributors
Conference Manager
Managing Director
CEO
Chris Gerrard
Roger Martin
Jake Allen, Andrew Croft, Justine Doody, Moin Siddiqi
Amy Slonje
Atam Sandhu
Leon Isaacs
Correspondence
Developing Markets Associates | 39-41 North Road | London N7 9DP | United Kingdom
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DMA acknowledge the assistance of all the individuals and organisations who have contributed to his publication. DMA would like to extend
their gratitude to Chief Mike Oghiadohme, OFR, FNIM, Wole Akinwumi, Engr Mustafa Bello, Olufemi Ajayi, Waziri Laisu, Beccy Stendall, James
Drummond andTeejayToyn-Oke. The views expressed herein are the opinions of the authors, and do not necessarily represent the Government
of Nigeria, NIPC, Africa Matters Ltd or DMA. All rights reserved. No part of this publication may be reproduced or transmitted in any form
without the written permission of the publisher.
Published by Developing Markets Associates Ltd (DMA). Printed by FOLIUM. Picture credits: istockphoto.com, Ryan Belfus.
© Developing Markets Associates Ltd
2009 | INVESTING IN NIGERIA | 3
Economy
The economy battles to defeat the
downturn
N
Moin Siddiqi, Economist
igeria, Africa’s most populous nation, celebrates its
fiftieth anniversary of independence from the UK in
2010, with a sense of pride and confidence. After lost
decades of military rule and political instability, the civilian
authorities have, over the last decade, achieved a great deal,
helped by sound macroeconomic policies and the pursuit of
ambitious structural reforms.
These reforms, notably prudent utilisations of oil wealth under the
oil-price fiscal rule, trade and market liberalisation, banking sector
consolidation and privatisations, as well as improvements in political
governance, have all enhanced the country’s productive capacity
by laying long-term foundations for stellar growth and higher
Foreign Direct Investment (FDI).
Achieving President Umaru Musa Yar’Adua’s ‘Seven Point Agenda’
will help transform Nigeria into a vibrant diversified economy,
which can create seven million new jobs and attract private-sector
capital (including FDI) into the agricultural, mining and
manufacturing sectors. Essential elements for micro-reforms are
addressing power shor tages; building an efficient industrial base;
food security through a 5-10 fold hike in yield and production;
reforming land ownership; updating the dilapidated transpor t
network; improving the educational system, with emphasis on
science and technology; and strengthening national security,
particularly in the Niger Delta, the most prolific zone in the Atlantic
4 | INVESTING IN NIGERIA | 2009
basin. The President urged:“Hard work by all is required to achieve
this [wealth creation] reform.”
The authorities are also eager to deepen structural reforms in the
areas of public financial management (also at federal and state
level), deregulation, taxation and customs administration.
If reform plans stay on track; over the next decade Nigeria has a
realistic chance of joining the exclusive ‘club’ of the Group of
Twenty (G20) advanced and emerging-market economies, As
Merrill Lynch, the Wall Street investment bank, put it: “They have
the brains, the people, the energy and the entrepreneurial spirit.
They have everything, but it is just spending money on getting the
technology and the basic infrastructure right that will make Nigeria
blossom.” This view is echoed by Standard Bank of South Africa,
which said: “Nigeria is too big to ignore”. It boasts the resources
to become the Brazil of Africa, with a richness in energy and
‘untapped’ mineral wealth which exceeds even South Africa’s.
Creditworthiness
Gradually, Nigeria is earning credibility and respect from the
international community. Its improved policy framework and
strengthened state institutions – representing a clear break from
past ‘boom/bust’ cycles have delivered sustained economic growth;
stronger fiscal/external positions such as the ‘twin’ surpluses on the
Economy
federal consolidated budget and current-account; low manageable
foreign debt; declining consumer prices and improved
investor sentiment.
This turnaround from a period of stagnation has led to a (BB])sovereign credit rating (three notches below investment grade)
from Standard & Poor’s and Fitch Ratings on a level with Egypt,
Jordan and Turkey. The International Monetar y Fund (IMF)
acknowledged: “Substantial progress has been made in
implementing the structural agenda, including an ambitious bank
consolidation, liberalisation of the impor t tariff regime, the
introduction of a wholesale auction for foreign exchange, continued
regional average of 6.1%. The oil-price boom and higher capital
expenditures fuelled double-digit growth in nominal GDP. Also, a
surge in middle-class consumer spending has driven business
investments in recent years. A more dynamic private sector is vital
for future diversification.
Encouragingly, the non-oil economy led by services, manufacturing,
agriculture, as well as information and communications
technologies (ICTs) is providing real momentum for heady
expansion, thereby offsetting falls in oil production owing to
violence in the Niger Delta. For example, whilst non-oil GDP grew
by almost 10% a year over 2004-08, the oil sector recorded a
as sub-Saharan Africa’s second-largest economy, Nigeria is attracting
greater interest from strategic direct investors.
effor ts to reduce corruption and progress in restructuring and
privatising state-owned enterprises. The authorities will continue
their strong agenda through further efforts to remove impediments
to growth.” Exotix, the emerging-market securities brokers,
explained: “At a macro level, Nigeria has improved a lot. The
country paid off much of its debt and is now a net creditor with a
rating of BB minus.”
Following 2005’s historic Paris Club debt relief wor th US$18bn,
the Obasanjo administration also repaid most of the remaining
loans to the London Club of private creditors. In total, Nigeria
slashed its debt stock from nearly US$36bn in 2004 to US$3.7bn
in 2008 (see Table 2), a phenomenal reduction through debt
forgiveness and buyback programmes. According to the Debt
Management Office (DMO), the only outstanding loans are owned
to multilateral bodies, including the World Bank Group
(US$2.46bn), the African Development Bank (AFDB)
(US$510mn) and the European Development Bank (EDB)
(US$130mn).
Additionally, bilateral and commercial liabilities totalled US$180mn
and US$550mn, respectively, in 2008. An exceptionally low debt
por tfolio, the equivalent of 1.7% GDP, has mitigated the severity
of the global credit crunch on the domestic economy. The
probability of a sovereign and even corporate default is judged
negligible or non existent. Meanwhile, forex reser ves rose to
record highs of US$64.9bn last August, before dropping to
US$52.9bn by end-2008 (still the highest in sub-Saharan Africa),
compared to only US$5.5bn in 1999.
Growth and diversified investments
In the five years between 2004 and 2008, Nigeria’s GDP in grew
more than two-fold to US$209.5bn, with real GDP growth
averaging 7% – the best performance for decades – above the
relatively poor 0.5% growth in the same period, according to IMF
figures. Industry, specifically manufacturing, is benefiting from
improved access to credit and infrastructure investment. The
expansion of resources for priority spending between 2004 and
2007 – federal government capital and priority project spending
rose 300%.
As sub-Saharan Africa’s second-largest economy (after South
Africa), Nigeria is attracting greater interest from strategic direct
investors. Its huge and largely untapped mineral wealth, including
coal, iron ore, lead, tin and zinc, has significant potential for
industrialisation. The agricultural sector, comprising more than a
quar ter of GDP, offers scope for agro-businesses, especially in
cocoa processing.
Impor tantly, FDI reached highs of US$13.95bn and US$12.45bn,
respectively, in 2006 and 2007, up steeply from US$2.1bn in 2004,
according to UNCTAD World Investment Report 2008. The bulk of
FDI is received by the hydrocarbons industry, but telecoms,
beverages and banking are also attracting large inflows. European
and US companies have traditionally been the major investors but
Chinese and Arab investors are now making big inroads into West
Africa’s No.1 market.
The Nigerian Business Information Council puts Beijing’s
investment at over US$10bn. The China Development Bank in
collaboration with the United Bank for Africa has formed a US$5bn
infrastructure fund for the region. China’s biggest lender, the
Industrial and Commercial Bank of China, has entered into a
strategic partnership with Oceanic Bank in export trade finance.
More recently, International Business Machines (IBM) agreed plans
to build a production facility for software/hardware computers,
while the Real Estate Developers Association of Nigeria concluded
a US$500mn deal with the UAE-based Embram to fund the
construction of 100,000 housing units.
2009 | INVESTING IN NIGERIA | 5
Economy
Several years of above-average growth have, however, pushed the
economy up against capacity bottlenecks, mainly in terms of electricity
supply, but also water, roads and ports. The upgrading of infrastructure
remains a priority for fiscal spending over the medium-term, although
the Government recognises the private sector’s role in providing the
necessary infrastructure. The World Bank believes the country must
spend US$5bn annually on its depleting infrastructure.
GT Bank agrees: “Nigeria has a major need for infrastructure
development, from power plants to road development, railway
construction, water and sanitation, airport expansion to the
development of jetties.” In 2008, GT Bank co-funded a US$3bn Eko
Atlantic land reclamation/building development on Lagos Island. But
the concept of privately funded projects is still relatively new in Nigeria.
External contagion impact
Nigeria as a major recipient of private capital and fuel-expor ter
cannot possibly ‘decouple’ from the OECD-wide recession. World
output is predicted to contract by 0.5 to 1% in 2009, the first such
drop in 60 years, the IMF estimates. Growth across developing
regions is impeded by financial constraints, faltering expor ts and
associated spillovers to domestic demand, before recovering slowly
in 2010. Thus, Nigeria faces hefty terms of trade losses – with
falling oil prices (from a peak of US$147 per barrel to about
US$50) – exer ting negative effects on the balance of payments
(BoP), budgetary receipts and corporate finances. Hydrocarbon
expor ts
provide
more
than
four-fifths
of
the
Government’s revenue.
Global deleveraging has led to por tfolio outflows from prime
emerging-markets because of severe redemptions pressure on
leveraged western investors. FDI flows will also decline given the
recent slump in private equity assets and insufficient credit to
finance acquisitions. Risks are heaviest for countries heavily reliant
on cross-border flows (through bonds and bank loans) to cover
external deficits or to fund the activities of their corporate sectors
such as has been seen in Central Eastern Europe.
A severe downturn should be avoided in Nigeria because – unlike
in past crises – it is prepared better to absorb exogenous shocks.
Despite BoP pressure, reserves totalled US$51bn in early 2009,
with excess crude savings providing US$15-20bn as a possible
cushion, according to the Central Bank of Nigeria (CBN). While
debt relief effectively saves about US$4bn in annual debt-service
payments. Hence, the Government can engineer a fiscal stimulus
without resor ting to external loans.
However, after two years of sustained stability, the Naira lost
quarter of its value against the greenback between end-November
2008 and end-March 2009. Its fall (hence rising import prices) put
at risk inflation targets. Declining oil-receipts and remittance
inflows, capital flight by portfolio investors exiting the stock market
and speculative trading were behind the depreciation.
The CBN took steps to prevent speculative attacks and tightened
currency controls on a temporary basis. At the same time,
investors were reassured that they could still transfer funds out of
Nigeria. The reintroduction of the ‘Retail Dutch Auction System’ in
mid-January 2009, effectively, limits the provision of forex to only
‘legitimate’ end-users who need hard currency for external trade,
but cannot speculate on the interbank market. Any amounts not
sold to eligible customers in five working days must be resold to
the CBN.
The CBN is committed to managing the exchange rate within a
3% range, (plus or minus) until fur ther notice. The CBN also
sharply reduced commercial banks’ allowable forex net open
position (from 5% and previously 10%) to only 1% of shareholders’
funds. This will ease pressure on the Naira by limiting demand. It
is impor tant to note: Nigeria is not returning to the preliberalisation era of the 1990s, when businesses faced onerous
forex controls.
The World Bank expects Nigeria’s real GDP growth at 5.8% in
2009 – below the official target of 7.5%. However, private
forecasters including the Economist Intelligence Unit in London
anticipate only 3.5% growth, compared with 6.8% last year. Erastus
Akingbola, CEO of Intercontinental Bank, said: “The economy is
stable, but not roaring. After two years we will start to see growth
throughout the economy, with GDP growth already a healthy 8%.”
The priority for the Nigerian authorities is preserving ‘hard-won’
gains in macro-economic fundamentals – notably the culture of
fiscal probity. The global crisis, however, greatly compounds the
policy challenges facing Nigeria as it strives to achieve the ‘Seven
Point Agenda’ for sustainable development. Presidential Steering
Committee on Global Economic Crisis was formed last January to
guide Nigeria through the financial storm and recommend policies
to the Federal Government. Its main task is ensuring adequate
credit to productive sectors.
One silver lining of the current downturn and weakening raw
material prices (especially steel and copper) is an easing of industry
cost inflation. New capital projects will benefit from lower
engineering, procurement and construction (EPC) costs and
imports are becoming cheaper as freight costs decline.
Moreover, the banking sector is well capitalised with average capital
adequacy ratio of 22% (among the world’s highest) to channel
substantial funds for both the public and private sectors.
Tackling the infrastructure gap
Merrill Lynch ranked Nigeria among the ten ‘least’ vulnerable
developing economies based on seven criteria: current account
financing gap; forex reser ves/shor t-term external debt ratio;
expor t/GDP ratio; private credit/GDP ratio; private credit growth;
loan/deposits ratio; and banks’ capital asset ratio.
Measures such as liberalising the communications sector and
privatisation have paid off. The divestiture programme has reduced
subsidies and enhanced efficiency by transferring commercial
operations to private operators. Major assets such as Nigerian
Telecommunications (NITEL), the fixed-line provider, Nigerian
6 | INVESTING IN NIGERIA | 2009
Economy
Mining Corp Quarries, Delta Steel Company Ltd, NICON
Insurance, Leyland Nigeria Ltd, hotels, most oil service and
petrochemical firms, among others, were sold. About US$11.5bn
worth of private capital was injected into the telecoms sector, while
por t concessioning has greatly improved operations (see below),
but it identified bottlenecks elsewhere (e.g, infrastructure and
customs) that slow the movement of goods. The IMF noted:
“Impor tant progress has been made in creating an enabling
environment for private sector activity, but more needs to
be done”.
Effects of port concessioning
Container dwelling times (days)
Ship waiting time (days)
Ber th occupancy rate (percent)
Employed por t workers
Before
28-32
7-8
50
26,000
2007
3-4
3-4
80-85
5,000
Source: Nigerian authorities.
Low power generation (repor ted at below 4,000 megawatts in
mid-2008) – in a country requiring at least 25,000 MW to function
smoothly – weaker distribution and transpor tation affect the real
economy. These ‘supply-side’ constraints raise the cost of business.
A 2007 sur vey showed 54% of manufacturers cited energy
shor tage as a deterrent to higher output. By some estimates, the
power cost to private businesses is six or seven times the price
paid by global competitors.
In 2008, the three tiers of government agreed to invest US$5.3bn
to expand power capacity in the country to 6,000 MW by end of
2009 and an additional 10,000 MW by 2011. Over half the
population still lacks access to any electricity at all.
Besides the construction of new generating plants, the Power
Holding Company of Nigeria (formerly National Electric Power
Authority) is being restructured. Meanwhile, the evaluation of
bidders for generating, transmission and distribution companies is
underway. As experiences of the telecoms and banking sectors, as
well as por t concessioning show, providing a sound regulatory
framework results in higher productivity and increased private
investments. Without vital electricity supply, Nigeria’s growth would
remain below its potential.
A concrete strategy is also needed for financing infrastructure
projects. Public-private par tnerships (PPPs) – popular in the Gulf
countries – are key towards achieving this goal. Chris Newson,
CEO of Stanbic IBTC Bank, said: “The Government has reiterated
its commitment to PPPs as being the mechanism through which to
deliver infrastructure – par ticularly power and transpor t and is
currently endeavoring to create the environment to ensure PPPs
happen.” But he cautioned: “Some scepticism does however exist
on the ability to deliver.”
The financial services industry is playing a vital role in supporting
wealth creation. It has grown markedly since early 2006 (see
Banking and Finance) while remaining shallow by global standards.
The sector, however, boasts huge growth potential. Fur ther
development is needed since intermediation ratios are quite low.
For example, money supply (M2) and private sector credit to GDP
in 2007 were 27.8% and 22.6%, respectively. Capital and asset
growth have yet to translate into funding mega projects and better
access to finance for small and medium-sized enterprises (SMEs).
Erastus Akingbola believes:“There is no way that the economy will
grow unless we can empower the grass roots to do business for
themselves and get off the pover ty line.” Key in this regard are
micro-reforms to bolster creditor rights, removing impediments to
secured (mor tgage) lending, and strengthening disclosure and
corporate governance.
Translating growth into higher living standards and pover ty
alleviation remains a challenge. Population growth and urbanisation
put pressure on resources, social services, and local infrastructure.
Moreover, the quality of public services, notably healthcare and
primary education varies widely across the country, reflecting the
uneven administrative capacity of the state and local governments.
However, Nigeria is making progress on its social agenda, helped by
the virtual poverty fund financed from debt relief resources. The
fund provides grants for essential activities in the Millennium
Development Goals (MDGs) priority areas.
Reaching optimal potential
The outlook for Nigeria is promising, buoyed by abunadant, rich
natural resources, solid growth potential and the entrepreneurial
culture of Nigerians. If hard-won gains and reform momentum
are intensified, the next decade could prove Nigeria’s best since
the 1960s. Research from Goldman Sachs suggests that Nigeria
boasts the capacity to sustain real growth rates of between 5 and
7% in the coming years, placing it among the world’s top 20
economies by 2025, overtaking the likes of Italy and South Korea.
“Improving long-term foundations is key to converting potentiality
into reality,” the US investment bank said.
Considering its size and regional significance, Nigeria should
capitalise on untapped ‘growth reserves’ – solid minerals, gas
monetisation, large tracks (60%) of uncultivated arable land and
massive infrastructure development across the 36 states. In the
meantime, it needs to improve its business environment and
institutional capacity to deliver critically needed 10% growth in the
medium-term.
Looking beyond today’s crisis and the revival of growth in the
developed world, Nigeria will continue to attract FDI from the
energy majors and por tfolio inflows due to higher returns on
capital. The integration into the global economy brings new
challenges for ensuring financial stability. Nigeria’s prosperity is
critical to the growth of the West Africa region and the continent
as a whole in terms of intra-regional trade and investments.
2009 | INVESTING IN NIGERIA | 7
Economy
Table 1: Key economic and financial indicators
Nominal Gross Domestic Product (GDP)
at market prices (billions of naira)1
Nominal GDP (US$ bn)
Real GDP Growth*
Real Per Capita GDP Growth*
Hydrocarbons GDP*
Crude Oil production (mn bpd)
Non-Oil GDP Growth*
Non-Oil Sectors (%) of Total GDP
Industrial Production*
Consumer Price Index (CPI)*
Total Investment (%) of GDP
Domestic Savings (%) of GDP
Monitoring Policy Rate (%)2
Broad Money Growth (%)*
Naira: US$1 (period average)
Consolidated Government Operations3
Government Expenditure**
Government Revenue**
Overall Fiscal Balance**
Net Public Debt**
Excess Crude Account (US$bn)
2000
2004
2006
2007
2008
Estimate
2009
4,981
48.98
5.30
3.90
2.04
7.50
11,674
87.85
10.60
7.60
3.30
2.34
13.30
61.30
3.70
18,710
145.43
6.00
3.40
-4.50
2.22
9.60
62.00
2.10
20,845
165.70
6.20
3.10
-5.60
2.16
9.60
64.40
3.40
24,989
209.50
6.80
3.40
-4.50
1.95
9.50
63.00
5.30
29,398
202.16
4.00-5.80
3.00
1.00
7.60
66.55
2.00
6.90
22.70
27.80
14.00
28.00
101.69
15.00
23.50
36.50
15.00
14.00
132.88
8.30
23.80
38.70
10.00
39.90
128.65
5.50
24.00
34.50
9.50
30.90
125.81
11.00
24.30
35.50
9.75
53.70
119.28
11.10
25.80
31.50
<4
30.60
145.42
23.20
20.90
-2.10
-
15.60
21.90
6.30
59.40
5.10
14.10
21.70
7.60
13.80
13.30
15.80
17.20
1.40
14.50
17.30
13.00
12.10
-2.50
14.70
20.00
18.00
10.30
-4.50
23.90
-
Key:1Sub-Saharan Africa's second-largest economy, after South Africa and equivalent
to one-half of West Africa's combined GDP. 2 The Central Bank of Nigeria's
benchmark rate. 3 Representing federal, state and local governments. 4The central
bank could relax monetary policy in coming months. *Annual percent change. **As
percent of GDP.
Sources: Nigerian authorities; IMF African Department database; International Financial
Statistics, Economist Intelligence Unit, Renaissance Capital and International Energy Agency.
Fact File: Area: 923,773 sq Km (356,669 sq miles). Population:148.1mn (mid-2007).
Form of State: Federal Republic, comprising 36 states and the Federal Capital Territory
(Abuja). Commercial capital: Lagos. GDP per capita: US$1,557(2009). Languages:
English (official), Ibo, Hausa, Yoruba. Legal system: Based on English common law.
Sovereign credit rating: BB-. Solid mineral deposits: Columbite, gemstones, tantalite,
talc, rock salt, gypsum, tin, iron ore, uranium, limestone, lead/zinc, gold and coal.
Table 2: Balance of payments and external debt (in US$mn, unless otherwise indicated)
Expor ts (FOB)
Price of Nigerian oil (US$/barrel)
Impor ts (FOB)
Trade Balance
Terms-of-Trade (%)1
Current Account Balance
Current Account (%) of GDP
2000
19,132
28.42
8,717
10,415
7,429
15.10
2004
34,766
38.30
15,009
19,757
20.40
16,840
19.10
2005
55,144
55.30
17,288
37,856
38.00
24,202
21.50
2006
59,144
65.30
31,113
28,031
18.00
13,796
9.50
2007
65,133
73.00
31,948
33,185
13.60
21,972
13.20
(%) chg
2004-07
87.30
90.60
112.80
68.00
30.50
-
2008
76,277
97.70
44,880
31,397
42.20
-
Gross International Reserves
Impor t-coverage2
Central Bank's Foreign Assets
Deposits in OECD-based Bank
9,911
13.50
10,730
6,616
16,956
7.50
18,653
12,479
28,280
9.80
27,713
18,327
42,229
12.50
43,663
34,773
51,334
12.50
53,053
36,849
202.70
184.40
195.30
52,900
65,413*
37,665**
1,140
2,127
4,978
13,956
12,454
485.50
8,500***
34,134
69.70
178.40
35,900
40.80
103.20
20,500
18.20
37.10
3,500
2.40
6.00
3,300
2.00
5.00
-91.00
-
3,700
1.70
4.80
FDI inflows3
Total External Debt
Debt Stock (%) of GDP
Debt (%) of merchandise expor ts
Key: 1 Annual percent change in 'Terms-of-Trade' (the ratio of expor t to impor t
3 Net
prices). 2Gross forex reserves in months of imports of goods and services.
flows of foreign direct investment, after repatriation of interest and profits. FDI 2007
inward stock: US$62,791mn, up from US$23,786mn in 2000. * End-Sep; ** End-June;
*** As of August 2008; Figures for 08 exports/imports are estimates.
8 | INVESTING IN NIGERIA | 2009
Sources: The International Financial Statistics, Bank for International Settlements,
UNCTAD World Investment Report and Economist Intelligence Unit.
Economy
Figure 1: Nigeria's output growth versus peer countries average 2000-08 (Percent)
10.00
9.00
8.8%
8.00
7.00
6.00
5.2%
5.00
4.2%
4.00
4.0%
3.6%
3.00
2.00
1.00
0
Nigeria
South Africa
Saudi Arabia
Brazil
Indonesia
Source: IMF Country Report, Jully 2008
Figure 2: Main source of imports, (percent of total 2007)
11%
47%
8%
8%
7%
6%
4%
4%
5%
China
Netherlands
United States
South Korea
United Kingdom
France
Brazil
Germany
Others – Belgium, Cote d’Ivoire, India,
Italy, South Africa, UAE
Source: IMF, Direction of Trade Statistics
2009 | INVESTING IN NIGERIA | 9
Economy
Table 3: Business climate indicators
Starting a business
Procedures (number)
Duration (days)
Cost (% of GNI per capita)
Dealing with construction permits
Procedures (number)
Duration (days)
Registering property
Procedures (number)
Duration (days)
Cost (% of proper ty value)
Paying taxes
Payments (number)
Time (hours)
Profit tax (%)
Labour tax and contribution (%)
Total tax rate (% profit)
Trading across borders
Documents for expor ts (number)
Time for expor ts (days)
Cost to expor t (US$ per container)
Documents for impor ts (number)
Time for impor ts (days)
Cost to impor t (US$ per container)
Enforcing contracts
Procedures (number)
Duration (days)
Cost to enforce; in (%) of claim
Closing a business
Time (years)
Cost (%) of estate
Recovery rate, cents on dollar
Sub-Saharan Africa's average.
Source: World Bank Doing Business 2009 report.
Nigeria
SSA*
OECD
Average
8.00
31.00
90.10
10.20
47.80
112.10
5.80
13.40
4.90
18.00
350.00
17.20
271.10
15.40
161.50
14.00
82.00
21.90
6.80
95.60
10.50
4.70
30.30
4.50
35.00
938.00
21.80
9.70
32.20
37.80
311.70
21.50
13.20
66.70
13.40
210.50
17.50
24.40
45.30
10.00
25.00
1,179
9.00
42.00
1,306
7.80
34.70
1,879
8.80
4.00
2,278
4.50
10.70
1,069
5.10
11.40
1,133
39.00
457.00
32.00
39.40
659.70
48.90
30.80
462.70
18.90
2.00
22.0
28.00
3.40
20.20
16.90
1.70
8.40
68.60
*
if hard-won gains and reform momentum are intensified, the next
decade could prove Nigeria’s best since the 1960s
10 | INVESTING IN NIGERIA | 2009
7-point Agenda
The 7-point Agenda
‘Let us join together to ease the pains of today while working for the gains of tomorrow. Let us join together now to build a society
worthy of our children.’ – President Umaru Musa Yar’Adua
In September 2007, President Umaru Musa Yar’Adua unveiled his
‘7-point Agenda’, a blueprint for policy implementation in seven
key areas, supporting the country’s ‘Vision 20:20’ whose ambition
is to see Nigeria become one of the world’s 20 largest
economies by 2020. The agenda is being driven through
partnerships between policy makers in government and key
stakeholders within the business community.
The recently signed 2009 Appropriation Act marks the actual
commencement of the implementation of the 7-point Agenda,
the ‘take off ’ phase of ‘Vision 20:20’ – arguably the most
significant and far reaching initiative instigated under President
Yar’Adua’s administration.
Sectors
Critical Infrastructure
Developing and improving the nation’s critical infrastructure is a
key goal in the 7-point Agenda. The following sub sectors have
been given priority status due to their cross cutting significance to
the Nigerian economy:
• Power – attracting investment, public private partnerships (PPPs),
increasing power generation capacity through the installation of
distribution grids and the refurbishment of existing plants;
• Transport – attaining an efficient inter-modal system, which
effectively links the country’s different modes of transport;
• Telecommunications – improving the infrastructure backbone
and meeting the universal service obligation;
• Gas – improving its infrastructure capacity, pipeline connectivity,
encouraging investment in and relocation to Nigeria through
demonstrably affordable and available gas resources.
The Niger Delta
The Nigeria Delta region faces a number of challenges ranging
from environmental degradation, pollution and oil spills to social,
economic, security and political problems. The 7-point Agenda
aims to address these issues through the implementation of the
existing Master Plan. The Delta’s over-reliance on oil and gas
industries will be reduced through the diversification of the region’s
economy with the development of sectors such as agriculture, ICT
and tourism, aided by investment and PPPs; and there will be a
derivation of funds for development in the region, managed by the
Niger Delta Development Commission (NDDC),
Food Security
The 7-pont Agenda’s emphasis is on agrarian development through
the implementation of modern technologies, research, production
and development. Under the 7-point Agenda, reforms in this
sector will lead to hugely improved domestic and commercial
outputs and ensuring farmers have knowledge of and access to
modern agricultural methods and resources.
Other
programmes/plans include the Profitability and Prices Suppor t
Mechanism which aims to strengthen agribusinesses; the
improvement of rural access infrastructure through projects such
as the River Basin Development Authorities (RBDAs); and The
National Food Sector Plan (NFSP), a collaboration of many
significant stakeholders in this sector.
Human Capital Development
The provision of health, education and social protection and
mobility is core to empowering the population to achieve
sustainable national development. Under the 7-point Agenda,
reforms in fundamentally crucial areas such as health – through
agencies such as the National Primary Health Care Development
Agency (NPHDA), and education – through the Universal Basic
Education (UBE) programme, aim to vastly improve the
population’s well being over the coming decades.
Land Tenure Changes and Home Ownership
Nigeria is Africa’s most populous countr y and pressure from
rural-urban migration within its borders are impacting on the
social amenities and infrastructure in major urban areas. In order
to address this situation the 7-point Agenda highlights reforms in
the land laws, the development of new towns in rural areas and
the restructuring of the Federal Housing Authority (FHA) as
crucial measures towards modernisation and improvement in
this sector.
National Security and Intelligence
The security of a nation and its people is a prerequisite to growth
and prosperity. The 7-point Agenda aims to address challenges in
this area through public education programmes, investment in the
security and emergency services at both national and sub-national
levels and also through measures against corruption and towards
good governance.
Wealth Creation
Poverty alleviation through wealth creation is a key aim of the 7point agenda. In order to achieve this, the Government has
pinpointed seven key areas through which economic growth (both
at micro and macro levels) can be stimulated: leadership and
governance; skills development for productivity; promoting a
formalised ‘Self Employment’ sector ; facilitating access to credit;
Non-Governmental Organisations (NGOs); Nigerians in the
Diaspora; and training.
2009 | INVESTING IN NIGERIA | 11
Banking and Finance
A regional banking giant in the making
N
Moin Siddiqi, Economist
igeria has a large financial services industry comprising
several hundred-community banks (which are being
transformed into micro-finance institutions), seven
micro-finance banks, 49 insurance companies, 91 primary mortgage
providers, 24 commercial banks (down from 89), 322 bureau de
changes and 24 pension fund managers. As well as a stock market
with 209 listed companies, the system has active money, foreign
exchange, a commodity exchange in Abuja and bond markets.
Commercial banks, however, still account for over 90% of the
financial sector’s total assets. They are, in fact, ‘universal banks’
with separate insurance and securities subsidiaries like most
western banks.
The 2005 ‘Big-bang’ consolidation transformed Nigeria into the
largest sub-Saharan African banking sector outside South Africa.
Credit for the real economy (including various tiers of government)
and customer deposits have surged in nominal Naira terms since
2006. The total assets of Nigerian banks rose three-fold, from N4.39
trillion in 2005 to N13.42 trillion by end-September 2008, with gross
deposits rising from N2.18 trillion to N8.8 trillion. The Central Bank
of Nigeria’s (CBN) figures show credit to private sector jumped a
staggering 279% from N1.95 trillion in 2005 to N7.4 trillion by end2008, equivalent to nearly one-third of GDP.
The number of bank branches also increased by one-third during
2007. The payment system has greatly improved since the
introduction of a Central Interbank Funds Transfer System and a Real
Time Gross Settlement System, where interbank clearings are settled
in central bank funds and data on each banks’ net credit worth or
daily positions is available online.
Of the 24 mega-banks, the only foreign-owned institutions are
Stanbic of South Africa, Citibank Nigeria Ltd (US) and Standard
12 | INVESTING IN NIGERIA | 2009
Chartered (UK). The shareholdings of 21 indigenous banks are
diverse with no single investor holding a controlling stake. The
Government’s direct or indirect ownership is capped at 10%. All 21
domestic lenders are listed on the Nigerian Stock Exchange (NSE)
and therefore subject to detailed scrutiny from both the Securities
and Exchange Commission (SEC) and the CBN.
The International Monetary Fund (IMF) said: “The banking sector is
now broadly stable – banks are well capitalised, liquid and profitable
compared with the pre-consolidation period, when a large number
of institutions were unsound or marginal performers.” In 2004, there
were 89 banks with an average capital base of US$6mn – of which
the largest had just US$150mn in Tier-1 capital. In the Top 1,000
World Banks ranking for 2008 compiled by the UK’s Banker
Magazine, 18 Nigerian banks were included compared to none in
2004.
Today, 12 mega groups boast shareholders’ funds in excess of
US$1bn. Several banks using a variety of investment vehicles have
raised about US$12bn in fresh capital over 2006-07, much of it via
issues of Eurobonds and Global Depository Receipts (GDRs). Older,
well established banks notably First Bank, Union Bank and United
Bank for Africa as well as newer generation banks led by Oceanic
Bank, Intercontinental Bank, Access Bank and Zenith Bank that
significantly boosted their capital as the sector consolidated are faring
best. Banks formed by multiple mergers have faced more integration
challenges. This and the pressure to rapidly deploy capital to boost
returns in new domestic and cross-border activities underscores the
importance of vigilant risk-oriented supervision.
The industry still has an ‘oligarchic’ structure because the 10 largest
banks held 71.4% and 70.6%, respectively, of total 2007 assets and
deposit liabilities, on CBN figures. Also, their share of total credits
Banking and Finance
rose from 66.6% in 2006 to 74.15% in 2007. In terms of
capitalisation, the top 10 banks controlled 76.6% in 2007 as against
58.5% in 2006.
Capital deployment
The challenges for Nigerian banks are building sustainable loan
portfolios and improving earnings’ capacity. The next ‘frontier’ should
be retail banking since only 10% of the population hold bank
accounts. Encouragingly, the product range is now diversifying thanks
to fierce competition. Banks are actively developing tailored
products, including home mor tgages, lease facilities for cars and
household items, credit/debit cards, upgrading IT systems (internet
banking) and expanding ATMs, with a view to increasing service
delivery to customers.
Agusto & Co. (a national credit-rating agency) suggests,“Banks have
to be innovative. The only way to go is the way of other countries
in the world – mortgage finance and consumer finance to boost the
level of people’s leverage.” A thriving retail market requires laws on
consumer protection, land titling (vital for mor tgage lending),
contract enforcement and bankruptcy, as well as creating a credit
bureau for checking credit history to guide future lending decisions.
Corporate banking and structured trade financing remain core
businesses. With higher capital, banks can participate in strategic
sectors of the economy, such as project financing for power plants,
telecom networks, transpor tation, heavy industry and upstream
oil/gas ventures. Okey Nwosu, CEO of First Inland Bank, explained:
“With the size of capital that the banks have, we find ourselves being
able to handle a number of transactions that before now would not
have been handled locally. This increases the volume of business that
we can do.” Professor Charles Soludo, Governor of the Central Bank
of Nigeria (CBN), stated: “A new banking system has emerged and
will only get stronger for the benefit of the Nigerian economy.”
The unleashing of private enterprise creates a demand for services
such as debt-equity capital raising to fund expansion ventures,
corporate advisory, as well as new capital market products like
exchange-traded funds and derivative products linked to real estate
investment. Banks are also expanding treasury operations to provide
new instruments swaps and forward contracts for institutional and
high net wor th clients. Nigerian flight capital is estimated at
US$170bn or higher.
Nigerian banks are becoming ‘multinational’ companies by expanding
into neighbouring West Africa, Kenya, Tanzania, Zambia and South
Africa, as well as opening foreign offices in New York, London, Paris,
Dubai and Beijing. Cecilia Ibru, CEO of Oceanic Bank, said: “The
presence of Nigerian banks in other countries will lead to easy trade
facilitation.”
Impact of market distress
Nigeria is not facing a ‘systemic’ banking crisis like several western
markets because banks did not invest in ‘toxic’ papers – namely
Collateralised Debt Obligations (CDOs), Structured Investment
Vehicles (SIVs) and Asset-Backed Securities (Index) (ABS) – an index
of ‘credit default swaps’ tracking 20 bonds collateralised by subprime
mortgages. African banks tend to invest in the safe havens of US
Treasury bills and prime OECD government bonds.
However, lenders are exposed to growth slowdown and the volatility
on the NSE, which has lost some 60% of its market capitalisation since
March 2008. Financial stocks comprising half of total capital dominate
the bourse with branches in Abuja, Kaduna, Kano, Ibadan, Lagos, Port
Harcourt, Onitsha andYola. The market downturn could impact banks’
balance sheet by increasing provisions for bad debt, thus reducing
profitability and lending to non-oil sectors – the engine of economic
growth in recent years. Unlike most developed banking systems, credit
is still flowing in Nigeria, albeit at a markedly slower pace.
Renaissance Capital, a Russian emerging-markets investment bank,
expects bank lending to increase 20% Year-on-Year in 2009, down
steeply from 111% and 52%, respectively, in 2007 and 2008. The
federal and other tiers of government now hold less cash for deposit
placements. Renaissance Capital expects deposit growth of only
23% Year-on-Year during 2009, with adverse effects on new loans.
With low risk appetite and the need for improving liquidity levels,
Nigerian banks are effectively de-leveraging their balance sheets (i.e,
debt shedding). As Renaissance Capital put it: “Cash is king in these
uncertain times.”
There is unease at the rapid growth of ‘margin’ lending (where banks
loan money for share purchases). The CBN calculated exposure to
the stock market at N900bn – equal to one-fifth of total credit.
Private sources put the figure in the range of N1.0-1.4 trillion. The
value of portfolio investments [like elsewhere] has depleted to a
point where margin exposure could become non-performing loans
(NPLs), thus reflecting widespread defaults amid tumbling equity
prices. This exerts pressure upon lenders for bad debt provisions
and eventual write-downs.
The CBN is confident that individual banks will not experience
solvency and liquidity problems by loan defaults. “Rate of profitability
may reduce but large scale losses may not occur,” stated CBN. The
Governor told the Financial Times: “Any time, any day, a bank could
run into trouble, anywhere in the world. You have a plan in place to
be able to take the bank out of the system and make sure it doesn’t
cause a contagion, it doesn’t snowball in a systemic crisis.”
Despite possible effects on the balance sheet of some banks
triggered by equity sell-offs, the sector remains sound to absorb the
shock. Aggregate Tier-1 capital at end-2008 was N2.8 trillion
(US$23.5bn) – an implied Capital Adequacy Ratio (CAR) of 20%,
well above the minimum regulatory requirement of 10%. Local
lenders are neither heavily leveraged (i.e, burdened with excess
debt) nor ‘over-exposed’ to external financing like Eastern European
banks. Hence, direct forex risk is minimal and any exposure is within
the net open position limits set by the CBN. Also, interest rate risk
is low since banks are well capitalised.
The CBN calculated that if all margin loans were written-off under
a worst-case scenario, the CAR would still average 15% – healthy by
2009 | INVESTING IN NIGERIA | 13
Banking and Finance
the current global norm. Renaissance Capital agrees that the sector
could write-off N1 trillion of NPLs against its equity but still exceed
minimum capital threshold. The CBN is looking at creating an Asset
Management Company funded by public and private capital to buy
bad loans at discounts to par; and, banks were given the option of
rescheduling margin loans up to end-2009.
creating an estimated US$2.5bn of new savings each year. Employers
and employees in small to large-sized firms must now contribute
7.5% of their salaries to a pension fund. Access Bank pointed out:
“Capital is being created in the hands of people and this is going to
transform the country.” Assets under management in the pension
fund sector were estimated at about US$7.5bn in mid-2008.
Amid some anxieties about the safety of personal savings, Nigerian
banks received a clean bill of health from the National Deposit
Insurance Corporation (NDIC), one of the financial regulatory
agencies. Ganiyu Ogunleye, Managing Director of NDIC, said: “We
can assure that currently Nigerian banks are quite healthy. And
whoever says they are weak, may be unaware of the indicators. The
indicators that we have in terms of their capital adequacy or liquidity
suggest that they are well positioned to discharge their mandate and
also deliver service. That is the position as far as we are concerned.”
The insurance business has also undertaken a restructuring exercise.
In September 2005, the National Insurance Commission (NAICOM)
increased capital threshold to N2bn for life insurance firms, N3bn
for general insurance concerns and N5bn for composite insurance
businesses. While companies involved in reinsurance were instructed
to hold minimum N10bn. The deadline for re-capitalisation was
February 2008. Subsequently, 43 non-life, 26 life-insurance and two
re-insurers met higher benchmarks, out of 114 companies that were
registered prior to the deadline. In November 2007, 49 insurance
firms were certified to carry out business, 26 of which are listed on
the Stock Exchange.
The CBN has improved supervisory capacities to keep pace with a
rapidly maturing banking industry. It formed a private credit bureau
to provide a central data for major clientele of commercial banks;
issued circulars cautioning against insider related credits; set
prudential guidelines to regulate income recognition and loan
classifications; amended the Banks and Other Financial Institutions
Act (BOFIA) to control the amount of credit approved to a single
borrower and requiring directors to disclose their interest; and
created a framework for contingency planning for systemic distress.
Last January, it appointed ‘Resident Examiners’ for attending board
and management meetings as observers and investigate operations,
in order to improve overall supervision.
Market penetration for insurance products is low for a country with
a population of almost 150mn. Estimates for penetration figures vary
from 2% (both life and non-life) to 10%. The UK Trade and Investment
Report puts Nigeria’s share of the global insurance market at just
0.01%, well below South Africa’s 0.86%. Nonetheless, growth
potential is huge as the market develops in the coming years.
Prudent supervision
The IMF believes further improvements are needed in areas of bank
licensing arrangements; the monitoring of capital adequacy rules and
larger exposures (banks can now lend 20% of their loan book to a
single entity that could pose problems); risk-management, internal
control and auditing; and permissible activities, including cross-border
operations. The legal, regulatory and operational frameworks for
supervising big banks require the CBN to adopt a forward-looking
risk-based supervisory model. This, however, requires substantial
resources for staff training and installing new systems.
The Presidential Steering Committee on Global Crisis, appointed
last January, recommended that Nigerian lenders should adopt
International Financial Reporting Standards (IFRS). Under current
disclosure rules, Nigeria only demands quarterly reporting of gross
earnings, pre-tax profits and net profits.
Fledgling non-banking sector
A successful banking consolidation proved a catalyst for the dynamic
reform of pensions, bond market and insurance sectors. The
imposition of the 2004 Pensions Reform Act injected long-term
money into capital markets. The Legislation requires licensed private
fund administrators to hold one-quarter of total portfolio in local
equities and the rest in government bonds, proper ty and cash.
Bankers see tremendous scope in the ‘pensions boom’ that is
14 | INVESTING IN NIGERIA | 2009
Calling strategic investors
The Sovereign Wealth Funds in the Arab Gulf countries have
incurred heavy losses on their equity stakes in European and US
banks (notably UBS, Citigroup and Merrill Lynch, among others).
They should therefore consider taking stakes in Nigerian megagroups, which could be on a level with Russian banks in a few years.
Erastus Akingbola, CEO of Intercontinental Bank, said: “The credit
crunch has put bankers off the US and Europe. They will come to
Africa instead.”
Encouragingly, Soros Fund Management, owned by George Soros
with US$20bn under assets, has expressed interest in Nigeria’s
banking stocks where valuations are now attractive on forward price:
earnings ratio after recent hefty falls. Two other big (unnamed) US
and European hedge funds have also visited Lagos. Remi Babalola,
Minister of State for Finance, said: “What makes it interesting is that
they are the first to come since the global financial crisis, and since
the departure of most other investors from the market. It’s going to
be a magnet for other investors to come in.”Victor Osadolor, group
chief financial officer at UBA, echoes this view that: “These are
sophisticated investors, so they understand where to come in. There
are plenty of bargains.”
Nigeria is now emerging as a liberalised, invigorated and fast-growing
economy, capable of competing in global markets. Its financial
industry could be hugely transformed within three to five years in
terms of sophistication, liquidity and volumes of inward foreign
investments. The Financial System Strategy 2020 aims to make
Nigeria the commercial hub for the West Africa region.
|
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Banking and Finance
Figure 1:Year-on-Year loan growth, 2007
400
350
338%
300
243%
192%
99%
Figure 2: Loan/deposit ratios, 2007
53%
56%
20
10
167%
175%
124%
85%
Source: Central Bank of Nigeria
2009 | INVESTING IN NIGERIA | 15
Banking and Finance
Composition of assets in 2007
Other assets 10%
Short-term funds 5%
Call and placements 4%
Advances and leases 36%
Fixed assets 4%
Investments 9%
Government securities 15%
Composition of deposits in 2007
Cash and due from banks 17%
Others 2%
Domicilliary 9%
Demand 47%
Term 28%
Savings 14%
16 | INVESTING IN NIGERIA | 2009
Source: CBN
Banking and Finance
Table 1: The top-20 Nigerian mega-banks by capital (US$mn)
Banking group
Oceanic Bank International plc
Intercontinental Bank plc
Access Bank plc
Guaranty Trust (GT) Bank plc
United Bank for Africa (UBA) plc
First City Monument Bank (FCMB)
Zenith International Bank plc
Union Bank of Nigeria plc
First Bank of Nigeria plc
Diamond Bank plc
Afribank Nigeria plc
Stanbic IBTC Bank plc1
Ecobank Nigeria
First Inland Bank plc
Platinum-Habib Bank (PHB) plc
Spring Bank plc2
Citibank Nigeria Ltd
Fidelity Bank plc
Skye Bank plc
Standard Char tered Bank Nigeria2
Results
Sep-07
Feb-08
Mar-08
Feb-08
Sep-07
Apr-08
Jun-07
Feb-07
Mar-07
Apr-07
Mar-08
Dec-06
Dec-07
Apr-07
Jun-07
Dec-05
Dec-06
Jun-07
Sep-07
Dec-05
Capital
1,777
1,696
1,431
1,382
1,245
1,053
915
826
485
423
321
297
295
292
284
267
263
234
233
207
Key: 1Repor ted results are before the merger between IBTC Chartered Bank and
Stanbic Bank Nigeria Ltd in September 2007. 2Later figures not supplied. Capital=
Shareholders' equity or core "Tier 1" capital. Assets= Cash and short-term funds,
demand balances with other banks, loans/advances (business and personal lending),
structured project finance, short-term investments (Treasury bills), equity holdings
(including stakes in non-banking ventures), debt stock & fixed assets Profits = Pre-
Assets
8,265
11,781
10,055
6,225
9,479
3,950
8,716
5,460
6,855
2,506
2,957
864
2,640
1,556
3,001
1,052
872
1,706
3,563
531
CAR (%)
21.5
14.4
14.2
22.2
13.1
26.6
10.5
15.1
7.1
16.8
10.8
34.4
11.2
18.6
9.4
25.4
30.1
13.7
6.5
39.9
Profits
183
377
160
232
202
116
202
136
192
70
127
35
86
33
81
60
33
44
25
ROE (%)
10.3
22.2
11.2
16.8
16.2
11.0
22.1
16.4
39.5
16.5
39.5
11.8
29.1
11.3
28.5
22.8
14.1
18.9
12.1
ROA (%)
2.2
3.2
1.6
3.7
2.1
2.9
2.3
2.5
2.8
2.8
4.3
4.1
3.2
2.1
2.7
6.9
1.9
1.2
4.7
tax earnings in US dollar millions for end financial reporting year. CAR= Capital
assets ratio – a measure of underlying financial strength. The health of a single bank
is measured by annual returns on equity and total assets: ROE= Return on equity
(core capital); ROA= Return on total assets deployed.
Source: The Bankers' Almanac, January 2009.
Table 2:The aggregate balance sheet of the banking industry (in billions of Naira)
Tier-1 capital
Total financial assets
Capital assets ratio (%)
Net credits
Non-performing credits
NPLs to gross loans (%)
Operating income
Operating expenses
Efficiency ratio (%)
Profit before tax (%)
Return on assets (%)
Return on equity (%)
NPLs= Non performing loans.
Source: The Central Bank of Nigeria.
Dec-04
351
3,393
10.3
1,133
316
22.6
418
322
77.0
96
2.8
27.3
Dec-05
555
4,389
12.6
1,477
357
19.1
352
290
39.9
62
1.4
11.2
Dec-06
1,042
6,738
15.4
2,081
222
6.3
375
270
71.4
105
1.5
10.1
Dec-07
1,711
10,469
16.3
3,802
388
8.1
1,193
786
65.9
407
3.9
23.7
%) chg
2004-07
387.5
208.5
235.5
22.8
185.4
144.1
323.9
-
Nigeria is now emerging as a liberalised, invigorated and fast-growing
economy, capable of competing in global markets
2009 | INVESTING IN NIGERIA | 17
Infrastructure
Developing a 21st century infrastructure
A
Justine Doody
ll stakeholders in the Nigerian economy understand that
the country’s future prosperity hinges upon the creation
of infrastructural systems suitable for twenty-first
century needs. While great strides have been made in some
areas, notably communications, much remains to be done.
Developments currently underway will put in place infrastructure
that will support economic growth for decades to come.
Finding funds for development
The Federal Government of Nigeria estimates that investment in
infrastructure of US$40 billion over the next six years is necessary
if Nigeria is to achieve its goal of becoming one of the world’s top
20 economies by 2020. The Nigerian Government has made
transpor tation a major priority in its budget allocation for 2009 –
the 2009 budget sees US$776.9mn assigned to transpor tation
projects, up from US$641.9mn in 2008, which itself represented a
sevenfold increase on the sector’s allotment for 2007. In
November 2008, to help the country close its infrastructure gap,
the World Bank offered Nigeria an interest-free International
Development Assistance (IDA) credit of US$3bn between 2009
and 2011.
Government intervention and institutional assistance can only go
so far ; private sector involvement is key to the reinvigoration of
the country’s infrastructure. To facilitate the par ticipation of the
18 | INVESTING IN NIGERIA | 2009
private sector in infrastructure development, the Government
instituted the Infrastructure Concession and Regulatory
Commission (ICRC), which has responsibility for advancing and
administering Public Private Partnerships (PPPs) in roads, airports,
por ts, energy plants and other public infrastructure. In August
2008, Chief Ernest Shonekan, a former president of Nigeria, was
named as Head of the ICRC. In order to fur ther increase the
attractiveness of the sectors for investors, both transportation and
ICT have been granted Pioneer Status under Nigerian law – this
enables new companies in either industry to avail of a tax holiday
of up to seven years.
Moving forward on roads
Nigeria’s road network, stretching over 193,000 km, carries up to
95% of the country’s passenger and freight traffic. Upkeep is
shared between federal, state and local governments, with the
Federal Government having responsibility for 17%, state
governments 16% and local governments 67% of the total network.
The road system has fallen into disrepair through a lack of
maintenance and limited new construction, and the Government
estimates that around US$5bn will be needed over the next eight
years to bring the network into line with international norms.
The Federal Government hopes to partner with the private sector
to rehabilitate the road network, allowing private sector operators
Infrastructure
to toll federal roads in exchange for maintenance and construction.
State governments have already embarked on successful
cooperation with the private sector in road development.
Construction began in earnest in October 2008 on the Lekki-Epe
Expressway in Lagos State, a PPP between Lagos State
Government and the Lekki Concession Company (LCC). In July
2008, the World Bank approved an IDA credit of US$390mn for
upgrading Nigeria’s roads. The money is being used to support the
Federal Roads Development Project (FRDP), which seeks to
improve the efficiency of road development through strengthening
institutional policy as well as introducing performance-based
contracts for road upkeep.
Decongesting ports
Nigeria’s rail system consists of around 3,500 km of track, which has
been allowed to decay since independence in 1960. The network
has since 1955 been under government control through the
Nigerian Railway Corporation (NRC).
Nigeria’s telecoms industry is one of the country’s great success
stories. Driven by extraordinary growth in the mobile sector, from
a baseline of 0.73% in 2001, teledensity had grown to 39.45%
calculated by active subscribers in August 2008. From 0.1%
Internet penetration in 2001, by March 2008, the country had 10
million Internet users, a penetration rate of 7.2%, up from 8 million
users or 4.9% of the population in September 2007.
Getting railways on track
Railway renewal, advantageous in its own right, would have the
added benefit of taking pressure off the over-stretched road
network, which currently has to carry the burden of freight that
would more naturally be transpor ted by rail. But reforms have
been difficult to set in train; a US$8 billion oil-for-rail contract
agreed between the federal government and China Civil
Engineering Construction Company in 2006 ran into trouble in
2009, and its future is uncer tain. The Government is hoping to
reboot reform through offering the railway system to private
investors in the form of separate concessions. In order to prepare
the rail network for concession, the Government has earmarked
US$136mn in the 2009 budget for rail modernisation projects, and
in April 2009, the Nigerian Senate began work on amending the
legislation governing the rail system to provide for private
sector involvement.
Air transport on the rise
Despite the industry’s global troubles, air travel in Nigeria continues
to grow at a rapid pace. In 2008, Nigeria’s air traffic increased 31%,
with 10.99 million passengers passing through the country’s
airpor ts, compared to 8.41 million in the previous year. The air
sub-sector is under the control of the Federal Airport Authority of
Nigeria (FAAN), which is responsible for 21 of Nigeria’s airports,
and the Nigerian Civil Aviation Authority (NCAA).
New investment projects in the air sub-sector include the ambitious
private sector initiative at Minna in Niger State, where work is under
way to create an airpor t city, which is intended to function as a
transpor tation and manufacturing hub. The project is set to be
completed in 2019. In line with its strategy of partnering with the
private sector, the Government hopes to hand over management of
the country’s major airpor ts to the private sector on a BuildOperate-Transfer (BOT) model. In 2003, the domestic terminal at
Lagos’s Murtala Muhammed Airport (MMA) was passed on to BiCourtney Limited, and the Aeroporte Gateway Consortium holds
the concession on Abuja's Nnamdi Azikiwe Airport.
Nigeria’s major sea por ts are at Calabar, Lagos, Onne, Por t
Harcourt, Sapele and Warri. Congestion at the ports remains an
issue, with dwell times well above international norms. Since 2004,
the Government through the parastatal Nigerian Ports Authority
(NPA) has been working on a concessioning scheme transferring
control of the por ts to the private sector. One solution to the
congestion problem may be the establishment of dry ports with
transhipment and customs clearance facilities at various inland
locations. Currently, Nigeria has six dry ports, at Jos, Kano, Abia,
Ibadan, Katsina and Maiduguri.
Mobilising communications
Roll-out of infrastructure in the sector has been driven by the
operators, who have seen the industry go from strength to
strength in terms of profitability. Overtaking South Africa in 2008
to become the largest mobile market on the continent, Nigerian
telecoms grew by 23% in 2008, taking in revenues of US$8.24bn.
The operators are working on improving capacity to ensure
continued growth: mobile market leader MTN committed
US$1.3bn in 2008 to capital expenditure in Nigeria, while market
number three Zain Nigeria is laying 4,000 km of fibre-optic
infrastructure in the country.
Fixed-line infrastructure lags far behind mobile capabilities. The
national fixed-line operator, Nitel, has been struggling for years as
privatisation efforts have failed to bear fruit, and its infrastructure
is poorly maintained and unreliable. But the Government has
launched a new privatisation attempt, offering a 51% stake in the
company as well as 100% of Nitel’s mobile arm, MTel. The deadline
for bids is May 4, 2009.
Broadband take-up in the country remains low, at just 0.4% at the
end of 2008. The national telecoms regulator, the Nigerian
Communications Commission (NCC), is engaged in a project to
extend broadband services using wireless technology to all of
Nigeria’s 36 state capitals by the end of 2009. New fibre networks
are being created by national conglomerate Dangote working with
Phase 3 Telecoms, as well as by Ericsson in cooperation with
Nigerian company 21st Century Technologies.
At the moment, Nitel supplies the majority of Nigeria’s
international bandwidth through its SAT-3 satellite service. New
capacity will come on-stream in 2009 with the completion of
Nigerian Second National Operator Globacom’s Glo-1
undersea cable.
2009 | INVESTING IN NIGERIA | 19
ICT
A climate for growth through technology
M
Andrew Croft, Managing Editor, Communications Africa/Afrique
uch has been achieved in the name of Nigerian
connectivity, but there is much to be done. The good
news is that the climate for investment is continually
improving, driven by increasing demand for advanced
communications infrastructure and public sector service delivery.
The world has been transformed by information and
communication technologies (ICTs). ICT development and
deployment has enabled and suppor ted economic growth and
social cohesion. In Nigeria, information and communication
technologists have been prominent within and beyond the
country's borders, providing local connectivity and content driven
initiatives to international standards, and influencing the West
African region and the rest of the continent in the process.
Corporate investment
The world is coming to Nigeria's ICT sector. The Nigerian
Government has attracted seven national long distance
communications operators, 13 fixed wireless access network
operators, eight interconnect exchange operators, two Internet
exchange operators, and 562 Internet service/solution providers,
through a pro-active policy of liberalisation. Nigeria also boasts 13
unified access network operators, and four 3G licenses. By 2010,
the country is expected to have approximately 40,000 GSM base
20 | INVESTING IN NIGERIA | 2009
stations and 10,000 CDMA base stations, up from approximately
10,000 GSM base stations and 2,000 CDMA stations in 2007.(1)
Global players such as SAP (a software developer) have drawn up
credible plans to invest heavily in the development of Nigeria’s
(ICT) infrastructure – notably, in sector training and in the
applications and equipment that can enable transformation of
business in the country and beyond its borders. Those corporate
players that have demonstrated commitment to Nigerian
connectivity include Starcomms, Nitel, MTN,Visafone, Glo, Reliance,
and Celtel; and infrastructure specialists such as Motorola, Huawei,
Nokia-Siemens Networks, and Alcatel-Lucent.
What happens in Nigeria sets an example elsewhere in Africa. In
April 2008, for example, Motorola committed itself to supporting
performance improvements across MTN Nigeria’s multi-vendor
network. In December, Eric Pradier, Vice President, Motorola
Global Services EMEA, contextualised the contract with MTN
Nigeria, following Motorola’s agreement to implement its network
optimisation services at MTN’ Uganda. Mr Pradier said, “The
phenomenal growth of mobile telecoms in Africa is placing new
pressures and demands on operators' existing network
infrastructures, which require new solutions that go beyond
conventional planning and management techniques in order to
improve service experience.”
ICT
Public and private sector development
What happens elsewhere, occurs in Nigeria. An international
submarine communication cable built by Alcatel-Lucent and
financed by Globacom, spans 9,200km, from Por tugal, through 15
countries, to Lagos, the hear t Nigeria’s financial and commercial
affairs – promising to increase the quality and quantity of Internet
service provision for Nigerians. Elsewhere, a Nigerian company,
Alheri Engineering, is collaborating with Phase3 Telecoms to build
a fibre optic cable network throughout Nigeria, providing improved
internet connectivity to private and commercial structures.
The Nigerian Communications Commission (NCC), the country’s
independent National Regulator y Authority for the
telecommunications industr y, is amongst the continent’s most
progressive institutions – par ticularly with respect to legislative
frameworks and suppor t for research. It seeks to achieve the twin
goals of suppor t for a market-driven telecoms industry and the
continuing promotion of universal access. Nigeria’s National
Information Technology Development Agency (NITDA) acts as the
In the private sector, organisations such as Jidaw Systems Limited
have sought to help Nigerians and Nigerian organisations
‘interested in growth and empowerment with Information and
Communications Technology’ – through the publication of IT
Entrepreneurship guides; the facilitation of an IT Certification and
Career Development Forum; and the hosting of a website with
information on IT training, cer tification, careers and ICT for
development. Jidaw operates through membership of key
organisations such as the Nigeria Computer Society (NCS), which
has contributed to the growth and development of computer
technology in Nigeria, and the Computing Technology Industry
Association (CompTIA), a global association that works to develop
vendor-neutral standards in e-commerce, customer service,
workforce development and training certification.
Demand for connectivity
Essentially, however, Nigerian connectivity remains low so there is
plenty of work still to be done to more broadly connect Nigerian
citizens and businesses with each other and the rest of the world.
governments must play a key part in supporting growth through
investment in ICTs, investment in a 21st century infrastructure
nation’s clearing house for technological projects in the public
sector, suppor ting the national drive to bring government and its
services closer to the people through the effective implementation
and utilisation of information technology through an awareness
campaign, capacity building, the development of e-government, and
other initiatives. Ernest Ndukwe, Executive Vice-Chairman and
Chief Executive Officer of the NCC, revealed in October 2008, at
a presentation in Kaduna, that over $12bn was committed to the
development of Nigeria’s telecommunications infrastructure,
including the expansion of telecommunications facilities
and services.
The Nigerian Government continues to take a pro-active stance,
continues to work within the framework of a National Policy on
Telecommunications that offers a gradual and guided approach to
the development of information and communications technology
and services in the country. In March this year, for example, the
country's senate decided to amend its Telecommunication Act, to
continue effor ts at the deregulation of the ICT sector that started
in 1999. ICT policy development in Nigeria has delivered an
increasingly investment-friendly climate, built, par ticularly, on the
rise of mobile communications. Nigeria's ICT for Development
(ICT4D) Strategic Action Plan and policies have been designed to
ensure all areas of society benefit from ICT. Computing and
Telecommunications is Nigeria’s fastest growing sector as various
forms of mobile communication have grown exponentially, as for
example, cybercafés have been opened.
The Connectivity Scorecard 20092 , a study created by Professor
Leonard Waverman of the London Business School, and the
economic consulting firm LECG, was commissioned by Nokia
Siemens Networks to measure the availability of Information and
Communications Technologies (ICTs), and the extent to which
people, governments and enterprises put these technologies to
economically productive use. The Connectivity Scorecard shows that
Nigeria has the lowest ICT penetration, usage, potential and
accessibility of 50 countries surveyed.
Nigeria, however, continues to represent one of the fastest-growing
mobile subscriber bases, not only in Africa, but globally. The
International Telecommunications Union (ITU) recently revealed
growth in subscriber numbers, for Q308, that were more than
double the figure achieved by any other African nation. As long as
the provision of infrastructure continues to lag behind the demand
for mobile and other telephony services in Nigeria, the opportunity
is great for those who seek to serve the market for connectivity.
Information and communications technologies can enable
economies to grow; governments must play a key par t in
supporting growth through investment in ICTs, investment in a 21st
century infrastructure. Nigeria has a long way to go, but the
country has bright prospects, and is already establishing a sound
record of investment. Key to growth, as much as anything, is its
status as one of Africa’s largest telecommunications markets. Key,
also, is the way in which the population continues to embrace
the Internet.
2009 | INVESTING IN NIGERIA | 21
ICT
Nigeria is the largest telecommunication market in Africa. The
Government is committed to suppor ting technologists, examples
of best practices, and ongoing development within its borders and
across the region. All stakeholders – whether they be operators,
manufacturers or investors – are finding a climate conducive to
dialogue and oppor tunity.
1 New Media and Development – Nigeria. Professor Anne Nelson,
Columbia School of International and Public Affairs.
http://www.columbia.edu/itc/sipa/nelson/newmediadev/Nigeria.html
Connectivity Scorecard 2009. Professor Leonard. Waverman.
Nokia Siemens Networks. www.connectivityscorecard.org
2
Case study 1: GiCell Wireless
New operator rolls out infrastructure
Suppor ted by the World Bank, GiCell Wireless is currently building a sixty thousand (60,000) subscriber network to Provide
UA Services along Yola to Biu routes. The Network has a transmission backbone component for voice and data services in
405 named communities. The Network is designed to cover the geographical territories of four local government areas in
Adamawa State and two local government areas of Borno State, five local government areas of Cross Rivers State, four local
government areas of Kwara State and two local government areas of Oyo State. Altogether, the UA Pilot Project is expected
to reach approximately 20% of the total population of the states, covering about 2 mn people.
Case study 2: Sokoto
Opportunities to Invest in ICT infrastructure and service delivery
Region: Sokoto, Nigeria
Sector: ICT - Information and Communication Technology
Summary: The Sokoto State Government is looking for private sector participation to provide information communication
technology (ICT) infrastructure and services in the state. Investors can get involved in various areas such as establishing digital
resource centres, installing network infrastructure, digitalising systems and ICT training. Each proposal will be judged individually
with the level of government par ticipation depending on project details.
ICT objectives for Sokoto State
• Establish essential ICT infrastructure for achieving a knowledge society and improving governance in the state.
• To build capacity for the various arms of the state government to harness ICT for socio-economic development and the
improvement of the delivery of public services.
• To create job oppor tunities and skills by developing a critical mass of youth with technical ICT capabilities.
• To use ICT as a platform on which to promote the economic potentials of the state.
• To improve health care delivery systems.
• To improve the revenue generation of the state.
• To promote mass literacy by modernising public libraries.
Reasons to invest in Sokoto State
Labour: Sokoto State has an abundant supply of affordable skilled and unskilled labour.
Incentives: The Sokoto State Government is willing to extend a number of incentives to serious investors. These include the
provision of land and infrastructure, tax holidays and assistance with obtaining financing.
Stable political climate: Since its return to civilian rule in 1999 Nigeria has made significant gains in establishing democracy.
Besides a few localised problems in the Niger Delta area, the country is safe and secure to do business.
Nigeria continues to represent one of the fastest-growing mobile
subscriber bases, not only in Africa, but globally.
22 | INVESTING IN NIGERIA | 2009
Energy
An attractive country for investing in
hydrocarbons resources
S
Moin Siddiqi, Economist
igning a preliminary agreement worth US$16bn to develop
oil and gas infrastructure in Niger Delta, Sultan Ahmad Bin
Sulayem, head of Dubai World Corporation (DWC), whollyowned by the Government of Dubai, said: “Nigeria is a land of
opportunities.” Africa’s No.1 oil-exporter for many decades
remained a hotspot destination for the ‘supermajors’ (Royal
Dutch Shell, Total, ExxonMobil and ChevronTexaco), as well as
project financiers, engineering, procurement and construction
companies and general services providers. As much as US$570bn
has been exported from the Delta since the 1970s. Nigeria,
viewed as one the of the world’s most exciting exploration areas,
boasts the potential to rank among the top-five energy
producers over the medium-term. Its fledgling gas sector has yet
to be fully developed.
The World Bank estimates Nigeria’s proven and probable reserves
of natural gas and crude oil at 57bn barrels of oil equivalent and
55bn barrels respectively. The extent of hydrocarbons strength
becomes apparent when compared with depleting reserves of the
North Sea in Europe. The latter possesses just 12.9bn barrels of
crude oil and 167.3 trillion cubic feet (tcf) of natural gas, according
to the BP Statistical Review of World Energy, June 2008 – representing
35% and 89%, respectively, of Nigerian proved reserves.
The future of the Nigerian oil sector lies in optimal exploration
and the development of the ‘frontier areas’ – as the Nigerian
National Petroleum Corporation (NNPC) calls them – including
the deep offshore and the inland basins of Anambra, Benin
(Dahomey) and Benue. A Washington DC-based Global Energy
Practice of PA Consulting Group noted: “There is a sentiment in
the exploration and production industry that if you go deeper, you
will find even bigger prizes. After all, the Niger river has been
dumping sediment in the ocean for millions of years.” About 200
mostly offshore fields are known to exist and boast huge potential.
Projections of untapped deepwater reserves range between 820bn barrels. The state-owned NNPC aims to boost recoverable
oil reserves to 40bn and 50bn barrels by 2010 and
2020. respectively,
Nigeria is reputed to possess some of the world’s largest
untapped gas reserves. Wood Mackenzie, Scotland-based energy
consultants, remarked: “There is a saying that Nigeria is actually a
gas province which has some oil.” NNPC claims that ‘ultimately
recoverable reserves’ could be 18.7 trillion cubic metres (m3) or
660 tcf. That figure, if cer tified by independent agencies like SSIBaker Hughes, would make Nigeria the world’s four th-largest
natural gas holder, after Russia, Iran and Qatar. The bulk of
reserves is stranded or associated gas off Niger Delta. Russia’s
Gazprom intends to invest US$2.5bn in developing Nigeria’s gas
reser ves (Africa’s largest) – wor th significantly more in energy
terms than oil and sufficient for well over 100 years as a domestic
fuel and a major expor t.
2009 | INVESTING IN NIGERIA | 23
Energy
Superior quality
Nigerian output is critical in today’s tight supply capacity of ‘light’
and ‘sweet’ crude oil, which is easier to distil into high-spec road
fuels than heavier crude and therefore preferred by refiners in key
US and European consuming markets. About two-thirds of
Nigerian oil reserves are either sulphur-free or have low sulphur
content. The US expects to source about a quar ter of its oil
impor ts from Nigeria in the next decade.
Actual output at 1.94mn barrels per day (bpd) in 2008 was
significantly below potential. The Energy Information Administration
(EIA), the statistical arm of the US Energy Department, estimates
sustainable productive capacity at 3mn bpd, if shut-in production in
the Niger Delta is restored. Last year, Nigeria’s oil-exports fetched
about US$70bn, according to the Organisation of the Petroleum
Exporting Countries (OPEC) figures.
The NNPC hopes to expand production capacity to 4mn bpd
between 2010 and 2012 aided by new output from deepwater
fields – namely Shell’s Bonga, Total’s Egina and Chevron’s Agbami
(see Table 2). The majors have invested about US$10bn in 11
newly discovered offshore fields. Achieving a milestone target of
downstream industries, such as aluminium, cement, iron-steel and
petrochemicals. NNPC estimates that US$15bn in private sector
investment is required to meet all gas development goals. Further,
it hopes to increase earnings from gas expor ts to 50% of oil
receipts by 2010. Achieving this ambitious target could, however,
take longer. Business Monitor International projects annual output
of 70bn m3 by 2012, up from 40bn m3 in 2008.
NNPC explained: “Comprehensive and integrated gas utilisation
Master Programmes have been embarked upon, in which LNG and
Independent Power Plants (IPP) developments are being given
priority. The expected increased export earnings from LNG, coupled
with adequate domestic power supply from IPPs, will strongly
support and broaden economic expansion and urbanisation, and
increase the income generating capacity of Nigerians. It will also
further reinforce the Government’s efforts towards integrating the
Host communities into the mainstream of national development and
growth.” The Government wants foreign companies to invest
US$20bn on building new pipelines and processors.
Nigeria aspires to foster an industrialised economy powered by
natural gas. Fabiyka Amakiri, Head of Gas and Power at NNPC
expects gas demand for electric generation and industrial use to
Nigeria’s potential as a formidable 21st century energy producer
is not in doubt
4mn bpd would put Nigeria level with Iran as the world’s fourthlargest crude producer. The country should in future demand a
higher OPEC quota, commensurable with its rising excess capacity.
However, the multinationals see Nigeria’s OPEC membership as a
hindrance to increased production at several deepwater fields. The
oil sector’s investment outlay over 2005-08 totalled US$67bn
compared with US$80bn between 1990 and 2004.
surge more than fivefold from 12bn m3/year at end-2007 to 64bn
m3/year by 2011, in order to fire a projected 14.7 gigawatts (GW)
of new gas plants across the country. Gas-fired power generation
will be expanded to 15 GW by 2012 (from zero in 2007), requiring
at least 6bn cubic feet per day by 2011, according to NNPC.
Meanwhile, foreign and local firms are expected to invest US$8bn
in the construction of power stations.
With global gas demand projected to rise by one-third by 2015,
Nigeria is gearing up to become a major player in the gas
processing market, which will underpin both expor t and non-oil
industrial growth in the coming years. But in a 2007 league table,
Nigeria ranked only 23rd worldwide with output at 35bn cubic
metres (m3) . This proves many oilfields lack the utilisation
infrastructure to produce ‘associated gas’ (gaseous by-products of
oil extraction). Concurrently, Nigeria flares some 34bn m3 of gas
each year – more than any other countr y (except Russia) –
according to the Nigerian Gas Association (NGA).
The Nigerian Liquefied Natural Gas (NLNG) project, Africa’s
largest capital project, is among the fastest growing endeavours of
its type in the world. The facility (on Bonny Island) – owned by
NNPC, Shell,Total and ENI-Agip – operates six liquefaction trains
with a total nameplate capacity of 25.32bn m3 (10% of global
supply), plus 4mn tonnes/year (t/y) of liquefied petroleum gas
(LPG). The complex is presently supplied from dedicated (nonassociated) gasfields, but within a few years half of the input
feedstock will comprise associated (currently flared) gas from
inland Akri/Oguta, Otumara, Utapate and various offshore blocks.
NLNG operates 24 char tered vessels with an average size of
138,000 tonnes delivering the LNG to European and US utilities.
Major long-term buyers are Shell (5.7bn m3/y), Spain’s Gas Natural
(4.3bn m3/y), Italy’s Enel (3.5bn m3/y), Por tugal’s Transgas (3.4bn
m3/y), and British Gas (3bn m3/y).
Gas monetisation
In November 2007, Nigeria unveiled a new industry strategy aimed
at changing pricing rules and building infrastructure, in order to
expand output, reduce flaring and supply more gas as feedstock
for Liquefied Natural Gas (LNG) plants, power stations and
24 | INVESTING IN NIGERIA | 2009
LNG expansions
Energy
Nigeria has moved rapidly up the global league table by becoming
the third largest producer (on a par with Malaysia), surpassed only
by Qatar and Indonesia. In 2003, LNG output was only 8.8mn
tonnes. Its growth ambitions show no signs of abating with
advanced plans for an 8.5mn t/y ‘seventh’ train – with an option
for another train of the same size. Ifeanyi Mbanefo, NLNG
spokesman, said: “There is a brown-field plot available for the
expansion of the Bonny Island plant to eight trains. This would
require an extension of the existing complex, but not a material
alteration of the existing facilities.”The new train (expected online
in 2013) will lift total production to nearly 34mn t/y. NLNG has
signed Sales-Purchase Agreements with BG Group, ENI, Occidental,
Shell and Total. The target market is North America. The SevenPlus
venture (costing over US$12bn) would provide some US$1bn/year
to government revenues “at modest LNG prices,” according to
Chris Haynes, NLNG Managing Director.
Two other Greenfield projects are awaiting final investment
decision – the Olokola LNG and Brass LNG. The former is backed
by Shell, BG Group and Chevron – in par tnership with NNPC –
and involves building four trains (5.5mn t/y each) with the first two
trains commissioned by 2012. The US$12bn venture will also
produce large quantities of natural gas liquids (NGLs) as a byproduct for cooking. The US$8bn Brass venture, which groups
NNPC, ConocoPhillips, ENI, and Total, envisages building the
world’s first offshore LNG plant in Bayelsa state, with an initial
10mn t/y capacity from two trains by 2013. Vincenzo Di Lorenzo,
Managing Director of Brass LNG Ltd, said Nigeria stands to gain a
whopping US52bn during the project’s life time – broken down as
US$27bn in taxes/royalties and US$25bn in NNPC’s net cash flow.
Other benefits include much-needed new jobs from increased
economic activity.
If these proposed ventures and NLNG’s SevenPlus expansion are
implemented and continue along the timetable, Nigeria, within few
years, should hold a total expor t capacity of 65mn t/y of LNG,
second only to Qatar. The country is well placed to meet robust
demand for cleaner fuel, projected by the Paris-based International
Energy Agency to increase at 9% per year into the next decade.
The US, where gas reserves are dwindling, is also seeking to secure
reliable supplies from the Atlantic basin as demand for LNG there
continues to rise. NLNG aims to capture one-third of total Atlantic
LNG trade by 2010.
Nigeria is now a major regional expor ter of piped gas. The
1,033km West African Gas Pipeline – online in October 2008
costing US$635mn – carries 1.8bn m3/year of natural gas from the
Niger Delta across Benin, Togo and Ghana. Its peak capacity is
projected to reach 4.7bn m3/year. Nigeria will also begin gas
expor ts to Equatorial Guinea.
By 2013, expor ts from
existing/planned LNG facilities and the WAGP could exceed 2mn
barrels of oil equivalent per day.
Nigeria’s potential as a formidable 21st century energy producer is
not in doubt, however, the realisation of vital energy projects
depends on vastly improved security in the Niger Delta, stable
upstream financings and higher private investments in downstream
processing industries. The energy sector driven projects could
contribute 60% towards doubling the country’s GDP by 2018.
The ‘full-capacities’ of hydrocarbons exports would generate the
windfalls required for investing in industrial development, thereby
helping to make Nigeria a modern diversified economy.
Key facts
• Crude oil was first discovered by Shell-BP, at the time the sole concessionaire, at Oloibiri in the Niger Delta after half a
century of exploration. Nigeria joined the ranks of oil producers in 1958 when its first oilfield came onstream producing
5,100 bpd.
• Huge reservoirs of hydrocarbon are found in seven sedimentary basins – the Niger River Delta, one of the world's largest
wetlands (extending across 75,000 sq km of territory), Anambra, Benin, Benue Trough, Chad and the Deep and Ultra-deep
offshore basins of Nigeria.
• Major oilfields: Bonga, Cawthron Channel, EA, Edop, Ekkulama, Escravos Beach,Yorki, Jones Creek, Meren, Nembe, Okan, Oso,
Ubit, Forcados.
• Producing oil wells (end-2008): 2,524.
• Premier blends: Bonny Light, Forcados, Brass River crudes and Qua Ibo. According to the International Crude Oil Market
Handbook, Nigeria's expor t blends are light, sweet crudes, with gravities ranging from API [29-36] degrees and low sulphur
contents of (0.05 to 0.2%). Bonny Light sells at a premium to Brent and West Texas Intermediate on global markets as does
Forcados, which is considered one of the best gasoline-producing blends in the world. Nigeria's production cost per barrels
is among the lowest worldwide.
• Net oil exports (2006): 2.15 mn bpd – the world's 8th-largest oil-exporter.
• Export terminals: Brass (operated by ENI-Agip); Escravos & Pennington (Chevron); Forcados & Bonny (Shell); and Qua Iboe
(ExxonMobil).
• Major refineries: Port Harcourt, River State (150,000 bpd); Port Harcourt, Alesa Eleme (120,000 bpd);Warri (125,000 bpd);
Kaduna (110,000 bpd).
2009 | INVESTING IN NIGERIA | 25
Energy
Table 1: Nigeria's hydrocarbons resources
Proved Oil & Gas Reserves
Crude Oil (Billions barrels)1
As percent of Africa's total
OPEC Total
1987
1997
2007
(%) change
1997-2007
R/P*
ratio 2007
16.0
27.20
2.30
20.80
27.60
2.50
36.20
31.00
4.00
74.00
-
42.10
31.20
72.70
Natural Gas (Trillion cubic metres)2
As percent of Africa's total
2.410
32.60
3.480
32.70
5.300
36.30
52.30
-
100+
76.60
Oil production (000' bpd)3
As percent of Africa's total
OPEC total
1,353
25.00
7.00
2,316
30.00
7.50
2,356
23.00
6.70
1.70
-
-
N/A
-
5.10
5.00
35.00
18.40
586.30
-
-
Natural gas output (Billion cubic metres)
As percent of Africa's total
Key: *Reserves-to-production ration, measured by years of exploration and
productiion activity. 1Oil reserves are second-highest in Africa after Libya.
2 Gas reserves are the highest in Africa. 3 Includes condensates and natural
gas liquids (NGLs).
Source: BP Statistical Review of World Energy June 2008.
Table 2: Major upstream projects in Nigeria
Fields
Akpo
Ofon Phase 2
Bosi Oil
Agbami
Gbaran/Ubie Phase 1
Usan/Ukot/Togo
H Block
Egina
Bonga SW/Aparo
Capacity ('000 bpd) Online Start-up
225
2008
70
2008
120
2008
250
2008
120
2009
230
2010
140
2010
160
2012
150
2012
Operator
Total
Total
ExxonMobil
ChevronTexaco
Shell
Total
Shell
Total
Shell
Environment
Deepwater
Offshore
Deepwater
Deepwater
Offshore
Deepwater
Offshore
Deepwater
Deepwater
Sources: OPEC estimates and Company reports.
Table 3: Nigerian LNG export projects
Existing facilities
NLNG Trains 1&2
Year-online
Oct-99
Operator
Nigeria LNG
Capacity Bn m3
7.22
NLNG Train 3
Nov-02
Nigeria LNG
3.70
NLNG Trains 4&5
Jan-06
Nigeria LNG
8.80
NLNG Train 6
Jan-08
Nigeria LNG
5.60
Planned facilities
SevenPlus
2013
Nigeria LNG
8.5
Brass LNG
2013
Brass LNG
10.0
Olokola LNG
2012
OK-LNG
22.0
Source: Petroleum Economist LNG Data Centre.
m3= cubic metres.
26 | INVESTING IN NIGERIA | 2009
Shareholders (percent of project equity)
NNPC 49%; Shell Gas 25.6%;Total 15%;
ENI 10.4%
NNPC 49%; Shell Gas 25.6%;Total 15%;
ENI 10.4%
NNPC 49%; Shell Gas 25.6%;Total 15%;
ENI 10.4%
NNPC 49%; Shell Gas 25.6%;Total 15%;
ENI 10.4%
NNPC 49%; Shell Gas 25.6%;Total 15%;
ENI 10.4%
NNPC 49%; ENI 17%;Total 17%;
ConocoPhillips 17%
NNPC 49.5%; Chevron 18.5%; Shell 18.5%;
BG 13.5%
States
Investing in Nigerian States
Introduction
Nigeria’s modern process of state division began at independence
in 1960, when there were just three regions, to the present day
where Nigeria is comprised of 36 separate states plus the Federal
Capital Territory (FCT). Each state, headed by a governor, has its
own legislature, and a group of commissioners who oversee
various key aspects of political and economic life. The states are
key players in the implementation of the Federal Government’s
development plans such as Vision 2020 and the 7-point Agena, the
National Economic and Environmental Development Strategy
(NEEDS), and the state and local strategies (SEEDS and LEEDS).
The states have strong identities, with varying natural resources,
from the oil-rich states in the south to the traditionally more
agricultural states in the north. States have their own revenueraising powers, but also receive grants from the Federal Capital
Account (FCA), and are responsible for transfers from the FCA
to local governments within the state.
Anambra – The Light of the Nation
Anambra state, located in the south of Nigeria is one of the
country’s most densely populated states, headed by HE Peter Obi.
The capital city is Akwa, but recent population movements have
swelled cities such as Onitsha into major urban areas. Anambra
has over 70% arable land, and therefore a large proportion of the
population is engaged in agriculture. It has natural mineral
deposits of crude oil, bauxite and natural gas, although these are
far from being fully exploited at the present time. It has a GDP
of approximately US$6.7bn or roughly US$1,500 per capita with
its current population of just over 4m.
Orient Petroleum selected Anambra as the location for its refinery
in 2008, in a move to access and maximise the state’s untapped
natural resources. The project will not only increase the state’s
revenues from increased trade, but will also create many jobs in the
state, boost infrastructure and develop the economy generally
through increased spending power and subsequent industrial
growth. The full conversion Orient Refinery with capacity of 55,000
bbls/day shall process Anambra Basin and Nigerian Brass River
crude oil, primarily for the production of gasoline, domestic
kerosene, jet fuel, diesel fuel and LPG from 2009.
Ambra Investicorp Trust Ltd, floated an offer in March of this year,
for subscription of 4.9 billion shares by way of private placement.
The offer will see the company raising about N1 trillion through an
offering ordinary shares of 50 kobo each at N2 per share. This,
according to the company, will facilitate the industrialisation and
modernisation of Anambra state, with the capacity to attract and
retain specialised skilled labour. According to the offer prospectus,
N1.21bn or 13% of the offer proceeds will be used for extraction
of raw materials; N1 bn or 10% will be used for manufacturing
(computer and Electronics Assembly plant); N2bn or 21% for
AMBRA IPP project. N1.926 billion or 20% will be used for financial
services; N1.325 bn or 14% will be for developments of model
secondary schools; 14% or N1.848 bn will be for real estate
development and other services and N333.2mn or 3% will be used
for branding, marketing and AMBRA management.
Onitsha is perhaps an example in microcosm of the challenges faced
by Anambra. Dramatic urbanisation has swelled the city’s
population significantly, thus placing enormous demand on
infrastructure and public services. The city holds what is probably
the largest market in West Africa, engulfing the majority of the city
in some form or another. In coming years there will need to be
major investment in the city’s infrastructure if it is going to be able
to manage the growing demand on its services. Key areas will be
transport, water, sanitation and housing.
Gombe – The Jewel of the Savannah
Gombe State is located in the centre of Nigeria, and describes
itself as the ‘Jewel in the Savannah’. It has a population of roughly
2.5m people and is led by HE Danjuma Goje. The state has a mix
of strong agricultural activity and mineral deposits such as
uranium, gypsum and limestone. Its GDP is roughly US$2.5bn or
just over US$1,000 per capita.
Investment in Gombe State is overseen by the Gombe State
Investment & Proper ty Development Company (GSIPDC),
established in 1999 ‘to serve as a vehicle for the commercial and
industrial development of the state by creating a world class
organisation that is focused and responsive to the challenges of the
business environment nationally and globally’. GSIPDC works to
ensure that the state is able to access federal funds as far as possible;
to liaise with national and international investors to encourage them
to invest in the state and to develop housing projects to meet the
needs of citizens in the state.
Although relatively low in the ranking of states when it comes to
federal allocations, there have been a number of areas of recent
investment. N1bn has been committed to developing hospitals in
the state, both in terms of new buildings but also equipment and
maintenance. The federal government has awarded the contract for
the development of the main road between Gombe City and Yola,
which will have positive effects on trade and quality of life in the
state. Gombe International Airport was completed in 2008, which
will facilitate trade as well as opening up tourism opportunities with
associated development of hotels and other facilites.
The European Union (EU) has recently chosen Gombe to be the
regional centre in the north east of Nigeria for receipt of EU funds.
France is one of the leading investors in Nigeria, and the EU decision
2009 | INVESTING IN NIGERIA | 27
States
was led by the French Ambassador to Nigeria, Michel Dumond.
Lafarge, the French company, invested over N5bn in the Ashaka
cement plant in Gombe, through a subsidiary Ashakacem Plc, and is
also focused on other fuel technologies and industries. Significant
coal reserves have been found in the state, and utilising these in an
effective, sustainable way will be key to the state’s development in
coming years.
Kano – The Centre of Commerce
Kano State was created in 1967 and is located in the north of
Nigeria. It is led by HE Ibrahim Shekarau, with a population of
around 9.5m. Its GDP is roughly US$12.5bn which equates to
around US$1200 per capita. Kano is the leading hydroagricultural state in Nigeria which enables it to produce significant
quantities of groundnuts, sorghum and cultivate livestock. It also
traditionally has a strong craft and textile industry. With the
largest population of the Nigerian states, Kano takes the largest
share of the federal allocation, roughly 10%.
The state’s economic development is covered by a 2008-2011
roadmap, designed to provide a framework to reduce poverty, create
wealth and boost employment. One of the key areas in the roadmap
relates to massive investments in education in order to prepare the
state for future prosperity and development. In the Governor’s 2009
budget speech, encouraging investment was specifically identified as
a key priority for the coming year, with governmental reforms in
efficiency and transparency designed to support this.
The Kano State Government has plans to develop itself into an
information and communications technology (ICT) hub for Nigeria.
Part of this is will involve the development of an ICT park which will
not only be a significant location for ICT businesses such as software,
hardware and outsourcing but will also be a major source of income
for the state. It will, through the provision of training for many
people, lead to higher employment which will in turn impact
positively on the state economy, and will also improve governance
through improved systems and processes and greater ICT literacy
amongst the population.
It has been very recently announced that Kano State will be linking
up with Oceanic Bank International Plc in the development of a
multi-billion naira business park, the Kanawa Trade Centre (KTC),
designed to be one of, if not the leading economic centre in west
Africa. It will comprise some 15,000 retail and business units
requiring the development of major infrastructure to support this.
The KTC will create many jobs in the state, and will contribute
significantly to the state economy. Oceanic Bank has also offered to
support Kano State in future development initiatives, for example in
micro-finance, energy generation, agriculture and mor tgage
financing.
As with many other Nigerian states, and indeed Africa as a whole,
the process of urbanisation is leading to significant increases in
population in major cities, with massive new pressures on city
administrations to deliver services to these swelling populations.
Kano city is a prime example of this, and the Governor has
discussed plans to upgrade Kano to ‘megacity’ status. This would
28 | INVESTING IN NIGERIA | 2009
also mean that there would need to be significant investments in
city infrastructure, for example road development to handle
increased traffic flows, and development of the Central Business
District (CBD). Many of these improvements would require publicprivate investment in order to make them practical and deliverable
in the proposed timescale.
Ondo – The Sunshine State
Ondo was created in 1976. Located in the south of Nigeria, its
state capital is Akure and the Governor is HE Olesegun Mimiko.
The population is just over 4m, with a GDP of around US$8.5bn,
working out to roughly US$2500 per-capita. Ondo is an extremely
fertile area and as a result the state economy relies heavily on
agriculture. It is the largest producer of cocoa in Nigeria, but also
produces large amounts of other crops including maize, rubber,
citrus, soya and cassava. Ondo has large natural resources, and its
offshore crude oil field has a capacity of some 20,000bpd or 700m
barrels in total. It also has significant bitumen deposits.
Ondo has been engaged in state-level planning for some time, and
from 2003-7 had a comprehensive work plan spanning each state
ministry and sector – the Roadmap to Progress. Since then, and
building on this, the State Government has been developing a
roadmap for 2008-2011 encompassing its SEEDS plan, with a focus
on ‘poverty alleviation; job creation; wealth creation; accountability;
transparency and good governance’. It is also important to note
that this strategy is not solely focused on public sector reform, but
in fact is centred on developing a strong private sector, working in
parallel with the public sector, to achieve sustainable development.
Part III of the Ondo SEEDS concentrates on developing the private
sector. Recognising that private sector presence in the state is
relatively weak at present it recommends measures to build a
framework in which business can operate more effectively, with an
environment that is attractive to investment. Loans and grants will
be sought from external sources which can be used to improve the
business infrastructure and climate, whilst the private sector will be
encouraged to par ticipate in the provision of public goods and
services e.g through public-private partnerships (PPPs).
The major investment initiative in the state at the moment is the
Olakola Free Trade Zone (FTZ), in partnership with Ogun State,
and with the suppor t of the Nigerian National Petroleum
Commission (NNPC). The project will be financed with public and
private money, with a maximum 40% public stake. The FTZ
comprises an export zone and the construction of a high-quality
deep water port. A 10,000 hectare site has been located with a
10km stretch of coast. The FTZ is designed to support the 54km
of coast that the two states have together which borders on 60%
of Nigeria’s offshore oilfields in the Delta. The inland agricultural
areas will significantly benefit from the improved export facilities
that the FTZ will offer, improving the states’ economies and the lives
of the people in their communities. As well as the core por t
facilities there are many linked opportunities in the development
of the infrastructure necessary to make the FTZ fully functional e.g.
roads, utilities, housing etc. $6bn has already been secured for this
development, which is likely to create some 50,000 jobs.