• Thursday, March 28, 2024
businessday logo

BusinessDay

RMB profiles sectors with pressing need of FDI

rand merchant bank

Rand Merchant Bank Nigeria has outlined the sectors of the economy that are with relatively more pressing needs for Foreign Direct Investment (FDI).

Such sectors include Oil & Gas, Infrastructure (Rail, Power, Roads), Transportation, Telecoms (4g infrastructure, maintaining existing network infrastructure), Agriculture, Haulage and Logistics.

However, key factors that are likely to impact new investment decisions according to Kemi Owonubi, head corporate finance, RMB Nigeria, include regulatory uncertainty across a number of sectors, currency outlook, security, and consumer purchasing power.

RMB Nigeria recently held a private equity and venture capital association forum in Lagos, where the stakeholders linked the key challenges to PE dealmakers over the next year to currency outlook and valuation, looking at how to protect those precious returns in foreign currency terms, as most funds were raised in foreign currency.

Looking at economic growth is a strong indicator for deal opportunities, Owonubi said.  “I think this may be one of the points where we question the top-down approach and note that there are growing examples of local funds, who are potentially closer to the market, with boots on the ground, and gradually building the capacity to better identity and understand the local nuances of the deal opportunities available.”

She said the sectors most impacted by economic downtown include mid-market consumer goods, manufacturing, oil & gas, while the most resilient include value-focused consumer goods, services sector, and technology enabled businesses.

For savings rate, disposable income and dwindling middle class, she said not a great story to tell here. Average real wage growth for Nigeria (over the last 5 years to 2018) is negative, compared with a selection of African countries including Uganda, Kenya, Tunisia, South Africa and Egypt.

The Rand Merchant Bank Nigeria Stockbrokers Research team said in a note last year that the number of days needed to buy an iPhone X in select cities including Nairobi, Lima, Beijing, Moscow and Johannesburg, Lagos was the longest at 133 days, compared to Joburg at 36.4 and Zurich at 4.6

Consumption patterns show that low and lower middle class spends 57 percent of their income on Food and Beverages (key consumer buckets), compared to the middle class at 35 percent and upper class at 15 percent.

“We observe shifts in consumption patterns: measuring across a scale of 100 percent, shows that the portion of low-income consumer goods has increased from about 32 percent to about 60 percent by December 2018 and we expect even more as at 2019/2020. Interestingly Luxury/Premium consumer goods, increased from about 17 percent to about 23 percent, with middle -income consumer goods portion losing significant ground,” they said.

Another data point for measuring changing consumption patterns is the market share of the value segment across a variety of products, which has reportedly increased from 15 percent in 2010 to 58 percent as at 2018, according to the team.