A wave of multinational exits from Nigeria raises the stakes in the hunt for new emerging market investors.
After a year that saw Guinness Nigeria swing to a loss of N18.16bn from a profit of N15.65bn in 2022, British drinks giant Diageo decided to offload its stake in the company in 2024. Economic headwinds – including the surge in inflation and borrowing costs – forced several multinationals such as GlaxoSmithKline, Procter & Gamble and Unilever to either leave the country or scale down their operations.
Some of the headwinds were generated by President Bola Tinubu‘s financial reform, his showpiece being the free float of the naira, which was intended to unify exchange rates and restore long-term currency stability. While much of this was achieved, it triggered a currency crisis, wiping out over two-thirds of the naira’s value within eight months and left multinationals struggling to access dollars and repatriate profits.
At the same time, foreign direct investment (FDI) inflows into the country declined by 42.3% last year to $1.08bn, while the capital brought in by portfolio investors jumped by 106.5% to $13.35bn, according to data from the Central Bank of Nigeria (CBN).
“FDI is not coming in the way the government promised because of the security issues we face in Nigeria,” Akpan Ekpo, a former director-general of the West African Institute for Financial and Economic Management, tells The Africa Report. “Right now, foreign portfolio flows come to exploit the exchange rate. Foreign investors don’t come in to build factories,” he says.
Tajudeen Ibrahim, director of research and strategy at Lagos-based Chapel Hill Denham, says that the economy “is gradually getting better”.
“If we take out the external shock that hit us from [US President Donald] Trump‘s tariffs, we are, broadly speaking, getting it right on the stability of the exchange rate. But the reality is that we went through pain to achieve that stability,” he says.
“The second indication for consideration is inflation; we are seeing signs of a reduction in the rate of inflation.”
Emerging-market firms filling gaps as locals step up
In the oil sector, several indigenous operators have snapped up key assets offloaded by international oil companies in a wave of divestment that started in 2022 – the culmination of the delayed Petroleum Investment Act (PIA), years of pipeline sabotage, oil theft and the shift in global energy strategy.
Oando acquired Nigerian Agip Oil Company from Italian energy company Eni; Renaissance Energy Africa Company – a consortium comprising four local firms and a foreign operator – bought Shell Petroleum Development Company of Nigeria; and Seplat Energy bought ExxonMobil’s subsidiary Mobil Producing Nigeria Unlimited.
But in other sectors, amid the exodus, there has been a flurry of interest from businesses in emerging markets. Companies from Singapore, Brazil and China have been testing the waters in Nigeria, filling some of the gaps created by the exit of international household names.
This month, Italy’s Guala Closures inaugurated a greenfield manufacturing facility located in the Lagos Free Zone that “will serve West African markets and supply anti-counterfeiting safety” closures for spirits bottles. “The country’s growing spirits and other beverages markets, fuelled by an expanding middle class with increasing disposable income and a demand for premium products, creates significant opportunities for Guala Closures,” the firm said in an 18 April statement.
Tolaram, a Singapore-based conglomerate with interests in consumer goods, digital services, energy and infrastructure, acquired Diageo’s stake in Guinness Nigeria last year. The company is also investing more in a large export processing zone in Lekki, east of Lagos. It sits next to a new deepsea port built in part by China’s port engineering giant CHEC.
Revealing the depth of Chinese corporate interest in Nigeria, Huaxin Cement said in December that it had agreed to buy an 83.8% stake in Lafarge Africa, Nigeria’s third-largest cement producer, from Holcim in a $1bn deal expected to be completed this year.
In February, the world’s biggest protein producer, JBS of Brazil, said it was investing $2.5bn in Nigeria’s livestock sector, according to Ogun State Governor Dapo Abiodun. It dwarfs a recent announcement from France’s Danone, for a 300 cow milk production venture in Oyo State.
Nigeria remains a prime market
“Nigeria’s population is huge and relatively young, with an average age of around 18 years. Nigeria is a frontier-market economy. So, there are a lot of investment opportunities in the country ranging from agriculture to food processing and infrastructure,” says Tajudeen Ibrahim, director of research and strategy at Lagos-based Chapel Hill Denham.
“I believe they are coming into the country with a long-term view of doing business in Nigeria … and are beginning to recognise that there are enormous opportunities in the Nigerian economy.”
As Danladi Verheijen, co-founder and CEO of Lagos-based investment firm Verod Capital Management says, these new entrants into Nigeria are more agile, understand the local terrain and have a much lower cost structure.
“Mark my words, they will be back in Nigeria. They’ll come and acquire the same companies they sold at 10 times the price,” Verheijen says.
Boosting investor sentiment
On 17 April, the country pushed ahead with its drive to lure foreign capital at an investment forum hosted in New York by the CBN in collaboration with the Nigeria Exchange (NGX) Group, JP Morgan and the African Private Capital Association.
Officials, including central bank governor Olayemi Cardoso, highlighted the reform efforts including the adoption of a market-driven exchange rate policy, the return to orthodox monetary principles and the clearing of forex backlogs.
“We’ve been investing in Nigeria for 15 years. And this has been our core market – 40% of the deals we’ve done have been in Nigeria,” Isaac Marshall, a senior investment professional at London-based TLG Capital, tells The Africa Report. “I don’t think we’ve seen a better opportunity to buy and enter Nigeria than right now.”
He said the CBN Governor Cardoso has done “a fantastic job of stabilising the banking sector”.
“There are so many stabilising measures that were put in place that I think in 20 years we’ll look back on as an incredible feat of a central bank to achieve it as a case study of how central banks and emerging markets can control problems that are happening in the country,” he adds.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise says: “The reform is bearing some fruit. Our forex market, which is a major pillar of the reform, is now much more transparent. Our correspondent banks now have a lot more confidence in our letters of credit.
Reflecting the change in sentiment towards Nigeria, Fitch Ratings lifted the country’s long-term foreign-currency issuer default rating to ‘B’ from ‘B-’ – the first upgrade since December 2019.
Global trade turmoil poses risks
Nevertheless, challenges remain. Borrowing costs have ballooned in recent years – the decline in consumers’ purchasing power due to high inflation and unreliable grid power continues to hamper business development and investment in the country.
”Vietnam just crossed 70GW of national grid capability for a population of 100 million people. As a result, they just surpassed India in goods exports. Vietnam is exporting more goods than India. Nigeria has 13GW in capacity and a transmission capacity of only eight gigawatts for a population of over 200 million,” says Marshall.
“More needs to be done to improve the security situation and power supply in Nigeria,” he says.
Low oil prices may also begin to take their toll as OPEC+ plans to boost output by 411,000 barrels per day (bpd) in June, bringing total supply growth over two months to more than 800,000 bpd during a time of weaker demand.
Oil exports account for around 90% of Nigeria’s foreign exchange earnings and up to 70% of government revenue. Any sustained decline in oil prices risks weakening the naira, stoking inflation and widening the fiscal deficit. It also threatens to exacerbate debt vulnerabilities: several oil-backed loan deals signed in recent years — including a $3.3bn facility from the African Export-Import Bank (Afreximbank) — could become costlier to repay, as lower oil prices would require Nigeria to allocate more crude to service the debt.
According to the latest available data on the National Bureau of Statistics website, Nigeria’s debt stock for Q2 2024 was N134.30trn ($91.35bn), an increase of 10.4% compared to Q1.
Nevertheless, against the backdrop of elevated global risk sentiment and lower oil prices, the International Monetary Fund (IMF) said on 18 April that since 2023, Tinubu’s reforms “have put the Nigerian economy in a better position to navigate this external environment”.
“Maybe there’s some concern about the fiscals,” says Verheijen. “But I am extremely positive going forward. We’re seeing just a lot more macroeconomic stability. We’re seeing far better macroeconomic policies as we have returned to orthodox monetary policy by the central bank.” (The Africa Report)
