Agusto & Co sees real estate, power, automobile others driving economy

Real estate, power, automobile, dairy and poultry sectors have been identified as key drivers of economic growth and job creation over the next decade by Agusto & Co.

The company’s “2014 Industry Reports” highlight several challenges facing these sectors of the Nigerian economy and identifies investment opportunities as well. Other sectors covered by the reports include fast food, telecommunication, pasta and noodles.

Agusto & Co. identified the vast opportunities in the power sector for intending investors, given the wide demand-supply gap and the country’s market size.

“As at March 2014, electricity supply from the national grid stood at 4,306MW, far below the estimated demand of 12,800MW. This implies that currently Nigeria is only generating about 34 percent of the country’s requirements, and this provides an enormous potential for new and existing players in the Industry. The demand for electricity in Nigeria has been upheld by strong economic growth and increasing urbanisation. ”With annual economic growth estimated between 7 percent and 13 percent, as well as urbanisation rate of 3.8 percent, electricity demand in Nigeria is projected at 15,730MW, 41,133MW and 88,282MW by 2014, 2015, and 2020, respectively,” it stated.

It stated that the poultry industry, a sub-segment under Nigeria’s agriculture sector had recorded an average annual growth of about 6 percent both in chicken (broiler) meat and hen egg production since 2007.

“Currently, the size of Nigeria’s poultry industry is estimated to have reached ₦373.03 billion in 2013. Domestic rural production of poultry accounts for the bulk of the industry at about 85 percent with the balance attributable to local commercial poultry production and illegal imports of frozen poultry products,” added the report.

The report also showed that returns on investment for property developers in the Lagos real estate market remains attractive.
It added: “Our research showed that income from sales of properties accounts for up to 80 percent of revenue, followed by rental income, which accounts for up to 18 percent. Property developers may also earn some income from management fees. The key cost components include land acquisition, construction (driven by cost of building materials) and marketing/agency costs. Land acquisition is the single largest cost component, accounting for an estimated 50 percent (up to 60% in the prime markets) of total property costs.”

On the dairy industry, it stated that the dependence on imported raw milk powders will continue to expose industry operators to volatility in global milk prices and considerable exchange rate risks, particularly in an era of declining reserves.

“However, continuous growth in the demand for dairy products should increase operator’s ability to pass off an increasing share of costs to consumers. Overall, the Industry’s financial condition is expected to remain positive, supported by good profitability, low leverage and good operating cash flow. We thus believe the outlook for the Nigerian Dairy Industry is positive.”

Agusto & Co is a pan-African credit rating agency and a leading provider of research and credit risk management services. The company was licensed in 2001 by the Securities and Exchange Commission as Nigeria’s first rating agency. In 2013, Agusto & Co. was approved and duly registered by the Capital Markets Authorities of Rwanda and Kenya as a Credit Rating Agency.

HOPE MOSES-ASHIKE