Nigeria’s relevance waning among foreign investors

The old saying among foreign investors that “if you are not in Nigeria, you are not in Africa” is increasingly being confined to the past.

Perhaps some government officials are the only ones still in denial that Nigeria’s stature in the foreign investor community is shrinking.

The many challenges with doing business in Nigeria is responsible for spooking foreign investors away from Africa’s most populous nation. That has coincided with the race by other African countries to attract investment. These smaller countries relative to Nigeria are offering investors more than Nigeria is willing to and are therefore stealing a march on the “giant of Africa”.

It’s still unthinkable that the Japanese car maker, Toyota, chose Ghana over Nigeria in 2021 to set up its first and only West African assembly plant. For context, Nigeria is about 10 times the size of Ghana, yet it was the small country that got the nod for the plant. Never mind that Nigeria will be the prime target market for the Ghanaian operations.

To be fair, Nigerian President Muhammadu Buhari also did ask Ichiro Kashitani, president and chief executive officer of Toyota Tsusho Corporation, at the 7th Tokyo International Conference on African Development (TICAD 7) in Japan, to establish an assembling plant in Nigeria.

Buhari has however found out that it takes more than simply asking to get an investor to commit to an unstable economy that has been in and out of two recessions in five years (an unforced one in 2016 and a rather predictable one in 2020 due to COVID) and is unable to keep policies stable enough to ensure predictability.

This minute, you are in business in Nigeria, and the next minute you could be out by the stroke of the pen of a clueless government official who seeks to protect his ego more than the jobs of thousands of people.

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Other times a government policy is enough to frustrate foreign investors and send them packing. The upside for these investors is that there are growing options in other African markets.

Take the case of Shoprite, Africa’s largest grocer, which packed its bags from Nigeria to double down on its home market in South Africa last year after 16 years of operations in Nigeria.

Exiting Nigeria would have been unthinkable for a company keen on building a brand as the biggest supermarket chain on the continent. How do you achieve that without being in the continent’s largest economy? Its home market is afterall only about a third of the entire population of Nigeria. These days it is very possible.

This week, the grocer published its first financial statement since exiting Nigeria, where trading profit rose by 14 percent to 5.4 billion rand ($358 million) in the six months through January 2, 2022, with trading margin improving to 6.0 percent from 5.7 percent six months prior.

Trading profit at its South African supermarket business rose 16 percent to 4.9 billion rand ($319 million) in the period, which means it contributed 90.7 percent to the total profit reported by the group.

Headline earnings per share also jumped 25 percent to 519.3 cents while sales increased by 10 percent to R91 billion rand ($6 billion), with its South African supermarket business, which accounted for 80 percent of the group’s sales, leading the charge with an 11 percent jump. Safe to say Shoprite is not missing Nigeria as some would have expected.

Even the traditional oil and gas firms from ExxonMobil to Shell that have flocked into Nigeria for its oil are gradually pulling back on account of the various challenges in the country whether it’s insecurity or the allure of other markets with better fiscal terms than Nigeria.

There’s compelling evidence that a Nigerian play is no longer as vital to doing business in Africa and investors are taking note. The African Continental FreeTrade Agreement (AfCFTA) also reduces the importance of being physically present in Nigeria to succeed in Africa.

Nigerians will pay the ultimate price of the country becoming less of an investment destination particularly in the form of jobs. For a country whose population will surpass that of the United States by 2050 to become the third most populous nation globally, jobs are critically needed.

The current numbers make for ugly reading. An unemployment rate of 33 percent ranks Nigeria as the country with the second highest unemployment rate after Namibia. As unemployment surges, foreign direct investment (FDI) into the country is shrinking.

The National Bureau of Statistics reported that FDI fell to the lowest level since it started collating the data last year with a total of $698.78 million. Even Ghana now comfortably attracts three times that amount.

A lack of reforms which has culminated in weak economic growth, foreign exchange volatility and a harsh business environment, are some of the reasons Nigeria has struggled to attract sufficient foreign investments since 2015.

The next government sure has its work cut out on how to make Nigeria a top investment destination not only in Africa but in emerging markets for foreign investors.