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“Its
challenges notwithstanding, the outlook for Nigeria financially remains
positive and investors should see most of them as opportunities, as
they reflect significant underinvestment in the past.

“Most
of the challenges Nigeria face can be seen as opportunities.
Infrastructure spending would clearly be a strong gateway to unlock
substantial economic development opportunities, and we believe this is
a strong case for seeing the economic environment as an enabling one
for private sector investment,” Afrinvest, an investment banking firm,
said in its assessment of the nation.

It
says the government’s willingness to improve its economic management
can be seen from the reforms targeted at various sectors.

“Power
reform is a key priority for the present administration, according to
its latest economic action plan. We believe the execution of this
detailed reform plan will result in the revival of the country’s power
sector.”

Other
positive initiatives, Afrinvest said, include the Asset Management
Company of Nigeria, the Nigerian Local Content Programme, the Petroleum
Industry Bill, and electoral reforms (with the appointment of a
credible respected electoral head, a drive for credible voter
registers, and biometric machines for accurate vote counting).

“Our outlook for Nigeria remains positive from a political standpoint, as we expect successful elections in 2011.”

A long way to go

However, the firm says the nation has a long way to go.

“Nigeria
is still battling acute infrastructure deficiencies, particularly with
power supply (where it remains one of the lowest-ranking countries,
with insignificant urban and rural penetration), the lack of good
roads, poor health and education systems, low broadband penetration,
low air penetration, high corruption levels, and high import levels.

“However,
the country has great potential yet to be unlocked, and a wealth of
natural resources yet to be explored. Even though corruption remains a
major concern, we have seen a noticeable improvement, as illustrated by
the Corruption Perception Index.”

Fundamentals remain strong

The
overall economy grew 6.7 percent in 2009, while non-oil growth was 8.3
percent. Growth has been largely underpinned by the agriculture sector,
which accounted for 43 percent of Nigeria’s GDP. While oil is a major
contributor to government finances, it only accounts for 17 percent of
GDP. The average inflation rate peaked at 13.7 percent in August 2010,
up from 12.4 percent in 2009, and 11.6 percent in 2008. Although it was
primarily driven by exogenous factors, such as food inflation,
expansionary fiscal policies have yet to translate into serious
inflationary pressures.

Foreign
and domestic debt remain relatively low, following the write-off of a
significant amount of external debt by the Paris and London Clubs of
creditors in 2005 and 2006 – although domestic debt is on the increase,
rising to 12.4 percent of GDP in 2009 from 9.3 percent in 2008.
Nigeria’s external debt in 2009 was 2.0 percent of GDP.

Putting into perspective where Nigeria was and where Nigeria is today, Afrinvest concluded that the time to invest is now.

“Now is the time, time to buy Nigeria, time to buy Nigerian banks. The
Nigerian market remains very cheap from a valuation stand point when
compared to its emerging market peers. The capitalisation of the
Nigerian Stock Exchange is back to 2006 levels, despite its GDP being
1.5 times bigger in 2009. After peaking at 62 percent of total market
capitalisation, the banking sector ended 2009 with a contribution of
only 42 percent.”