Sunday, February 1st, 2015/World Finance

With the realisation that Nigeria’s GDP is far ahead of what was previously thought, Africa’s most populous nation has recently become its biggest economy. What’s arguably more important, however, is that investors, both international and local, are capitalising on a number of new opportunities, and, bolstered by a growing non-oil sector, the country is fast-becoming a leading investment destination. World Finance spoke to Nicholas Nyamali, CEO and Managing Director of Investment One Financial Services, about the major ways in which the nation has changed, and what lies in store in the months and years ahead.

How has Nigeria grown to become Africa’s largest economy?
Primarily supported by its position as the largest producer of crude oil in Africa, Nigeria’s GDP has grown to be the biggest in Africa. The rebased GDP figures that place Nigeria as the largest African economy serves as an affirmation of the country’s economic size and value. Previous computations of the national output last carried out in 1990 had understated the contributions of a number of sectors, and the rebased figures showed a move from $96.9bn to $510bn.

In addition, relative to inflows in other African nations, the significant foreign capital investments made by supranationals and multinationals have also served as catalysts for the growth story of Nigeria.

Which industries have driven this growth?
Following the rebasing of the GDP, the contribution of services doubled to 51.86 percent, which represents the highest sectorial contributor, whereas agriculture and industries contribute 23.33 percent and 24.81 percent respectively.

The increased contribution of the services sector to GDP was partly due to the rise in the telecoms sub-sector to nine percent of GDP, coupled with the addition of a new sub-sector, ‘motion picture, sound recording and music presentation’ (known as Nollywood), which now accounts for 1.4 percent of the rebased GDP.

Other constituents of the services sub-sector include trade (8.91 percent), IT (5.96 percent), real estate (4.13 percent) and financial institutions (1.24 percent) – and contributions from crop production (11.65 percent), mining and quarrying (8.45 percent) and manufacturing (3.58 percent); as the primary drivers of the country’s economic growth.

What potential for investment is there for fund managers in Africa?
Pockets of opportunity present attractive investment prospects for fund managers; ranging from private equity to fixed income and equities securities. In the fixed-income market, bond yields mostly trade at a considerable discount to par with coupons for benchmark bonds yields, and present attractive returns in the treasury bills market. In the equities market, on the back of sustained economic growth rates at a five percent average, despite slowing global growth and threats of deflation in the eurozone and Japan, African markets appear preferable.

We expect the trend of reforms in key sectors across nations and development of necessary infrastructure to continue to drive economic growth internally. Global investment and equity firms have made large investments in Africa, which showed the assets met the requirements of the world’s top investors. In West Africa, more than 84 percent of the funds that invested in bi-global funds over the past 10 years were made in the past two.

There is greater political risk for particular sectors such as energy or resources; where having a local partner is critical. Stemming from the efforts channelled towards becoming the leading investment management firm in market insight, product innovation and service delivery in Nigeria, Investment One is on the path to becoming the preferred choice of investors seeking a partner in Africa to help them achieve their investment plans. Investing in companies operating within the continent portends a chance to partake of their expected earnings growth.

Which industries are seeing the most interest from investors?
As one of the top three destinations for Foreign Direct Investment (FDI) in Africa, Nigeria has seen investment flows in the power sector. In addition, the banking sector has also witnessed investment flows, given the recent M&A and capital raising activities currently in the sector, which has raised investors’ confidence. Other areas attracting foreign investments include real estate, agriculture and telecoms.

How are businesses using the investment they’re receiving?
Many businesses are using the investment received for capital expansion, process optimisation and, where possible, in backward integration. For example, the recent investments by Investment Corp in Dubai put through the purchase of a $300m stake in Dangote Cement, where the funds are to be deployed in expanding business operations. Loans worth $1.5bn and $2bn from the African Development Bank and World Bank respectively have been channelled into the Nigerian economy.

A number of grants from the World Bank have been provided to support the on-going electricity reforms, while the likes of Total Upstream and Shell recently announced investments in ramping up gas production. The banks are also on-lending debt investments received from issued Eurobonds.

In what ways is the emerging middle class changing the economy of Nigeria?
Nigeria’s emerging middle class has witnessed decent growth over the years, prompted a transformation in the economy as disposable income increased. Business demand has also grown to meet the needs of new consumers, and there’s greater demand for luxury goods, investments, banking services and electronic commerce.

The middle-class population has also prompted differentiated products and increased their availability. Investment One is strategically positioned to provide investment management services to this emerging middle-class group as a result of its focus – channelling adequate manpower and technology – on retail investment products and services. Its products are avenues for this middle class population to channel their disposable income, as the firm urges those in the retail segment to set aside their savings by investing today to secure tomorrow.