Osho: Nigeria’s Economy Offer Opportunities for Investors in 2024
Co-founder Comercio Partners Limited, a Lagos based investment bank, Steve Osho in this interview, said despite the challenges, there are several opportunities for investors in Nigeria. To capitalize on these opportunities, he advised investors to consider adopting strategic approaches that align with the prevailing economic conditions. He said sectors such as agriculture, technology, and manufacturing have the potential for growth and resilience against oil price volatility. He also urged investors to conduct thorough sectoral analyses to identify promising industries; targeting businesses with strong fundamentals, sustainable growth prospects, and resilience to external shocks. Excerpts
What is your assessment of the economy in 2023 especially in terms of projections on key macroeconomic indicators?
The year 2023 witnessed a deceleration in Nigeria’s gross domestic product (GDP) growth, dropping to 2.6 per cent from the 3.3 per cent recorded in 2022. This slowdown is a result of various factors, including the services sector’s performance and fluctuations in oil production. The services sector, a major contributor to GDP, has been a key driver of economic activities, while the rebound in oil production has been moderate, signaling ongoing challenges in the oil and gas sector.
Inflationary pressures significantly shaped the economic landscape in 2023. The average year-on-year inflation rate surged to 25.5 per cent in the third quarter, marking a substantial increase from the 20.3 per cent recorded in the same period in 2022. Recent data shows that the inflation rate increased to 28.20 per cent in November 2023, up by 0.87% points from October’s rate of 27.33 per cent. The food index is a significant contributor to the overall inflation, with a contribution of 14.61 per cent to the year-on-year inflation. This surge is attributed to the removal of fuel subsidies and the devaluation of the naira. The impact of these factors has been profound, affecting consumer purchasing power and overall economic stability.
The issue of exchange rate volatility and foreign exchange (FX) reserves has been a central concern in 2023. Despite efforts to liberalize the exchange rate, a persistent gap has emerged between the official and parallel exchange rates, with a premium of over 30% observed over the official rate. The Central Bank of Nigeria’s (CBN) net FX reserves declined to USD 33.2 billion in September 2023, indicating potential challenges in managing external liquidity.
FX shortages continued to pose challenges to economic activities, hindering foreign capital inflows. While the CBN lifted the ban on FX for certain imports, the gap between official and parallel exchange rates widened, reflecting uncertainties in the FX market. The challenges in achieving a more liberalized and stable FX market have implications for investor confidence and capital flow.
The recovery in oil production, albeit partial, has influenced the economic landscape. The sector recorded an increase to 1.57 million barrels per day (mbpd) in September 2023 from a low of 1.25 mbpd in September 2022. However, this remains below the pre-pandemic level of 2.09 mbpd in 2019. The budgetary impact of oil production dynamics, coupled with efforts to narrow the budget deficit, is critical for overall economic stability.
Fiscal policy measures, including the removal of fuel subsidies, aimed to address budgetary challenges. Fitch forecasts a narrowing of the budget deficit to 5.2 per cent of GDP in 2023, with an anticipated further reduction to 4.6 per cent in 2025. However, the overall structure of public finances and the reliance on oil revenue continue to be areas of scrutiny.
For 2024, Comercio Research Team projects a GDP growth rate of 3.5 per cent in, primarily driven by the services sector and improved oil production. Inflation is expected to moderate to 24 per cent in 2024, though still significantly above the international benchmark. The macroeconomic projections highlight the delicate balance between fostering economic growth and managing inflationary pressures.
The economic landscape of Nigeria in 2023 reflects a nuanced mix of challenges and opportunities. The interplay of factors such as inflation, exchange rate dynamics, oil production, fiscal policies, and monetary measures underscores the complexity of steering the economy towards sustainable and inclusive growth. Policymakers, investors, and market participants need to closely monitor these dynamics and adapt strategies accordingly to navigate the uncertainties in the Nigerian economic landscape.
Would you describe 2023 as a good or bad year for the investment community and what is the basis for your answer?
The assessment leans towards considering 2023 as a challenging year for the investment community in Nigeria. While initial reform measures were promising, the persistence of FX challenges, uncertainties in the oil sector, high inflation, and governance issues create headwinds for investors.
Backtracking on key reforms and the widening gap between official and parallel exchange rates contribute to an environment of uncertainty. Investors’ value stability and predictability, and any inconsistencies in economic policies can result in a cautious approach.
The nuanced macroeconomic landscape emphasizes the need for vigilance and adaptability. Investors must closely monitor policy developments, navigate FX challenges, and factor in the broader economic conditions when making investment decisions.
In summary, while certain positive measures were taken in 2023, the overall investment climate is marked by challenges that necessitate a vigilant and adaptive approach from investors in Nigeria.
A major source of the historic inflation that characterised 2023 was the persistent naira depreciation. Do you see this trend persisting in 2024, and what is the rationale for your projection?
While predicting currency movements is inherently uncertain, the persistent naira depreciation observed in 2023 is likely to remain a concern in 2024 if the structural issues in the FX market, reliance on oil revenues, and policy inconsistencies persist. The outlook will be influenced by a combination of domestic reforms, global economic conditions, oil market dynamics, and the effectiveness of monetary policy. Investors and stakeholders should closely monitor these factors to assess the evolving landscape and make informed decisions based on the prevailing economic conditions.
What opportunities do you see in 2024 for investors to make money and what strategies should they adopt to leverage these opportunities?
Despite the challenges and uncertainties highlighted in the economic landscape of Nigeria for 2024, there are several opportunities for investors. To capitalize on these opportunities, investors should consider adopting strategic approaches that align with the prevailing economic conditions. Here are key opportunities and recommended strategies: Diversifying investments beyond the oil sector presents an opportunity for stable returns. Sectors such as agriculture, technology, and manufacturing have the potential for growth and resilience against oil price volatility.
Investors should conduct thorough sectoral analyses to identify promising industries. Targeting businesses with strong fundamentals, sustainable growth prospects, and resilience to external shocks can be a strategic approach.
Nigeria has significant infrastructure needs, and government initiatives to address these gaps present opportunities for investors. Infrastructure projects, including transportation, energy, and telecommunications, can be lucrative.
Investors can explore partnerships with government entities, engage in public-private partnerships (PPPs), or invest in companies involved in infrastructure development. Due diligence on regulatory frameworks and project viability is crucial.
Furthermore, the global shift towards sustainable energy creates opportunities in the renewable energy sector. Nigeria’s potential for solar and wind energy projects positions it as an attractive market.
Investors can explore opportunities in solar and wind energy projects, invest in renewable energy companies, or consider partnerships with organizations involved in sustainable energy initiatives.
Also, the digital transformation wave sweeping across industries presents opportunities for technology and innovation investments. E-commerce, fintech, and digital services are areas with substantial growth potential.
Investors should identify tech startups, scale-ups, or established companies leading in digital innovation. Strategic partnerships, venture capital investments, or acquiring stakes in tech companies can be part of an investor’s strategy.
Urbanization trends and a growing population create opportunities in real estate. Residential, commercial, and mixed-use developments in strategic locations can yield attractive returns.
So, investors should conduct market analyses to identify areas with high demand for real estate. Strategic land acquisitions, partnerships with reputable developers, or real estate investment trusts (REITs) can be considered.
There are also opportunities in the consumer goods sector. Despite economic challenges, consumer demand for essential goods and services remains resilient. Fast-moving consumer goods (FMCG), healthcare, and education services are areas of potential growth.
Investing in well-established consumer brands, healthcare facilities, or educational institutions can be strategic. Identifying companies with a focus on affordability and quality can align with consumer preferences.
Government bonds and fixed-income securities can provide stable returns, especially in times of economic uncertainty. They offer a relatively low-risk investment option.
Investors can consider allocating a portion of their portfolio to government bonds and fixed-income securities to balance risk and return. Regularly monitoring interest rate trends and adjusting portfolio allocations accordingly is essential.
While navigating the investment landscape in Nigeria in 2024 requires careful consideration of risks, adopting a diversified and strategic approach can position investors to leverage emerging opportunities. Thorough due diligence, a focus on sustainable growth sectors, and flexibility in adapting to changing market dynamics will be key to successful investment strategies in the Nigerian context.
Additionally, it is important for foreign investors to collaborate with local partners. This is because collaborating with local partners can provide investors with insights into the Nigerian market, navigate regulatory complexities, and build relationships critical for success.
Seeking partnerships with reputable local businesses or establishing joint ventures can enhance market entry strategies. Local partners bring valuable knowledge about the business landscape, regulatory nuances, and customer preferences.
As a major player in the financial market, what were the highlights of 2023 for Comercio Partners in terms of KPIs and what is the vision for 2024?
In 2023, Comercio Partners experienced robust revenue growth, driven by strategic initiatives, diversified product offerings, and effective client engagement. Key performance indicators (KPIs) related to revenue, such as total income, fees and commissions, and net interest income, saw positive trajectories.
Comercio Partners successfully expanded its market share in various financial segments. This achievement was attributed to the effective deployment of marketing strategies, innovative financial products, and an emphasis on customer satisfaction.
The company witnessed substantial growth in assets under management, reflecting strong performance in investment management services. The increase in AUM is indicative of successful investment strategies, attracting new clients, and retaining existing ones.
In 2024, Comercio Partners aims to sustain its growth momentum and consolidate its position as a market leader in the financial sector. The company will focus on expanding its market presence through targeted marketing strategies, product innovation, and customer-centric approaches.
The vision for 2024 includes a strong emphasis on digital transformation and the integration of cutting-edge fintech solutions. Comercio Partners plans to enhance its digital infrastructure and leverage data analytics to provide personalized financial solutions.
