Nigeria: To Invest Or Not To Invest? That Is The Question

The best way to get corporate heavyweights in the same room is to host an event based on something close to their hearts—making money.

This is why investors from across South Africa flocked to the Michelangelo Hotel on September 14, for the Nigeria Business Opportunities Roadshow. The speakers, all dressed to the nines, wooed the crowd with words like ‘high returns’ and ‘economic growth’.

The roadshow was hosted by two Nigerian-based companies, AiQ Capital Management Limited and Detail. AiQ Capital offers financial and management advisory services as well as a hospitality and retail fund. Detail is a legal consulting firm specializing in cooperate and commercial law. It aids businesses in areas such as structuring partnerships, due diligence, as well as regulatory and corporate compliance.

According to Uzoma Nwankwo, CEO and MD of AiQ capital, Nigeria’s progressive economic climate is ripe for investors.

In 2011, Nigeria’s GDP was $247 billion with a growth of 7% driven by non-oil production. Industries including agriculture, manufacturing and services contributed to this growth. The Nigerian informal sector is the greatest employer of Nigeria’s workforce but is not reflected in GDP data.

“That is why you’ll find a street vendor with three children, two houses and a car, and wonder how he’s able to sustain his lifestyle when the country’s GDP per capita is $1,600,” says Nwankwo.

Almost all of Nigeria’s sectors need investment. The power sector may be one of the most needy, as production is dependent on it. Nigeria needs 10,000MW yet produces a mere 6,000MW.

The country loses $500 million annually to medical tourism as medical care is poor. Last year, 250,000 Nigerians traveled to India for medical care and each paid at least $30,000 on transportation, accommodation and hospital bills.

Then there’s the hotel industry. According to a biannual study by Hogg Robinson Group (HRG), hotels in Lagos are ranked as the second most expensive in the world; they charge an average of $341 per night, behind Moscow, Russia, where they charge $407. Debbie Peters, who heads the AiQ Capital Hospitality and Real Estate Fund, says that there is a desperate need for quality branded hotels in the middle market.

“The 20-year-old four star hotels are below international standards and charge very high rates,” she says.

“The middle class, roughly 40 million people, is the fastest growing market in Nigeria forming the biggest market for hotels,” says Peters.

According to the website howwemadeitinafrica.com, the risks involved in investing in Nigeria include: choice of partners, corruption, poor legal systems, difficult logistics, poor infrastructure and insufficient power to name a few. A common mistake investors make is partnering with corrupt people. Although it is vital to have a local partner for logistical reasons, local knowledge and market penetration, many potential partners claim to have connections in government, false credentials or undisclosed interests, which could affect one’s reputation.

On the upside there’s a population of 160 million people which has potential for a consumer boom. This year the country’s estimated GDP growth is 8%—placing it in the same league as India, China and Indonesia.

Investors at the Michelangelo Hotel appeared enthused by Nigeria. Patrick Katabua, from AfRES (African Real Estate Society), said that he had been to Nigeria and knows the need for affordable accommodation.

“There are so many overseas companies coming to invest in Africa. The potential in our countries is booming and if we do not invest we will lose out,” says Katabua.

Sandile Mabuza, CEO of Mbuza Capital & Maika Holdings, was attracted to the possibility of high returns and is looking to invest in infrastructure and property. Mabuza’s main concern is the lack of strong institutions to protect investors.

The Nigerian minister of trade and investment, Olusegun Aganga, recently reported that 18 of the 20 countries he visited in the last year had shown interest in investing in the country. Among those countries were the United States and Japan. This gives testament to Vision 20:2020 made by former President Olusegun Obasanjo to make Nigeria one of the 20 largest economies in the world by 2020.

Whether one should invest or not isn’t the most significant question at this time. Rather ask how to go about investing, who to partner with and understand the risks involved. The ball is ultimately in your court.