Nigeria's richest plow money in Africa's largest economy

Nigeria’s richest plow money in Africa’s largest economy

Nigeria’s billionaires and big corporations are plowing money into Africa’s largest economy, even if foreign investors shy away from a country in the middle of the second recession in five years.

Bank-to-power millionaire Tony Elumelu said he would soon hit a $ 1 billion oil bloc deal while flour and cement billionaire Abdulsamad Rabiu’s Bua Group ran a 200,000 barrels a day oil refinery Build in oil will be rich Akwa Ibom State.

This project will compete against a $ 12 billion a day mega-refinery being built by Africa’s richest man Aliko Dangote on the outskirts of Lagos. Food Concepts, the company that owns Chicken Republic, the country’s largest fast food chain, will open another 30 restaurants by the end of the year.

“At a time like this, rational investment behavior would lead to a slowdown. . . But we are investing even more, ”said Elumelu, chairman of Transcorp, noting that Transcorp Power should invest $ 300 million in a state power plant.

The trust of local entrepreneurs contrasts with the caution of foreign investors. Foreign direct investment in Nigeria this year follows Ghana, a country with an economy and population one-seventh the size. Foreign direct investment was only $ 148.6 million in the three months to June, down about a third from a year earlier. Portfolio investors have also fled, looking for safe havens in the global turmoil. Inflows declined to $ 385.3 million for the period, down 91 percent year over year.

The economic picture is bad. GDP declined 6.1 percent in the second quarter and 3.62 percent in the third quarter, while unemployment and inflation rose and food prices rose. Small local investors don’t invest in the way larger companies are. This shows a greater lack of trust, said Amaka Anku, head of Africa practice at Washington-based consultancy Eurasia Group. “You can’t get foreigners to invest if domestic investors are careful,” she said.

Still, local investors understand “how this economy works, we know these temporary challenges will pass,” said Elumelu, who is also chairman of the pan-African United Bank for Africa. “Some foreign investors. . . at this point you may not be too ready and excited to invest. But the local, domestic investors. . . nobody slows down. ”

Tony Elumelu: ‘[Local investors] When we understand how this economy works, we know that these temporary challenges will slip past Getty. ‘© Pius Utomi / AFP

Aliko Dangote’s group is expected to benefit from Nigeria’s efforts to boost domestic fuel production. © Justin Chin / Bloomberg

According to analysts, some local companies have taken steps to boost domestic production. The Nigerian central bank has banned fuel importers – along with rolled steel sheets, cement and rice, and dozens of other products – from accessing foreign currency through official channels in order to boost domestic production. This will provide “a trapped Nigerian energy market” for Dangote Group and Bua, said Ose Anenih of Eagle Badger Consulting in Abuja.

The government’s power purchase agreements with projects like the Azura Power Plant and Transcorp make such investments “virtually risk-free,” he said.

However, Mr. Anenih warned that these types of investments are not the type that will build an economy or create the environment for sustainable, long-term investment that Nigeria needs.

“Essentially, the only investors in Nigeria seem to be those who are full of patriotic hope or have received assurances that their investments will be protected,” he said. “If history has taught us anything, then blind faith and crony capitalism are a recipe for economic catastrophe.”

The recent large investments came as companies struggled to access US dollars due to a widespread currency crisis caused by the oil price crash when the coronavirus pandemic hit global demand.

While even Dangote struggled to get access to dollars for its refinery, Devakumar Edwin, the group’s executive director, said his local knowledge made it confident to invest in such a complex project. “This project would have dragged on and on for someone coming as a foreign investor,” he said.

“They all view Africa as a greater risk – and Nigeria in particular as a greater risk. They are concerned about guidelines, challenges, and issues in the community, ”he said. “Whereas… We [have] In this factory construction business for 30 years, we know the rules [and] how we can reduce the risk and meet the challenges. “

The administration has been deemed by some to be anti-private enterprise and fined MTN, the country’s largest wireless operator, of $ 10 billion in 2018. This move was seen as overzealous and technical. But the Covid-19 pandemic and wider economic crisis had given Mr Buhari’s government a “sense of urgency and renewed vigor and a better sense of policy formulation,” Edwin said.

Foreign Direct Investment (USD Billion) line chart with transparencies for investing in Nigeria

The government has announced that it will remove a fuel subsidy, reform the electricity tariff and expedite a reform law for the petroleum industry that has been in the works for two decades.

These steps are preliminary, however, and Nigeria previously faced major reforms only to stall execution and implementation.

As SBM Intelligence, a Lagos-based consultancy, recently put in a press release, many companies remain uncertain and may “make alternative plans that anticipate another lengthy delay in the reforms that have become too common”.