As Nigeria’s economy unravels, citizens feel the heat
IN A FOUR-DAY sweep through Nigeria early last year, Aberdeen Asset Management’s Kevin Daly detected trouble. Yes, the country was a rising African power and, yes, it had become the world’s fastestgrowing major economy, but things weren’t quite right.
An Islamic insurgency was heating up in the north and there were early signs that a nasty presidential campaign was brewing. Then, financial disaster struck. Oil, the lifeblood of the country, collapsed in a breath-taking freefall. Daly had seen enough. By November, he had sold all of his Nigerian government bonds.
Back in Lagos again last month for a fresh look, Daly found a country ravaged by crisis from all sides: the bloody clashes with Boko Haram insurgents had intensified; the violence had spurred authorities to postpone elections the president was in danger of losing; and the plunge in oil prices had depleted government coffers and triggered back-toback currency devaluations.
Nigeria’s benchmark equity gauge is the second-worst performer in the world this year – only wartorn Ukraine’s has fallen more – and the government’s local bonds have posted the biggest losses in emerging markets.
“Nigeria is very high risk right now,” Daly said after returning to London, where he oversees $13 billion (R153bn) of emerging-market bonds at Aberdeen, Europe’s largest publicly traded fund manager. His only investments left in the country are bank bonds.
That Daly, 54, has soured to such an extent on the west African nation is telling in itself. He considers himself a long-term Nigeria bull, at- tracted by the economic growth potential, booming population and natural resources (in addition to being rich in oil, the country’s savannas and mountains are fertile agricultural land and are lined with metals and precious stones).
Nigeria will become, he said, “the capital” of sub-Saharan Africa, if not all of Africa. “There’s significant upside if Nigeria can address a lot of its shortfalls.”
Right now, the shortfalls are all that most investors see.
The currency, the naira, has slumped nearly 20 percent over the past six months, touching a record low last month. Even when compared with other oil-producing nations, the declines are stark: No other major exporter’s currency is down as much this year. Foreign investors in naira-denominated bonds have been saddled with losses of 9 percent this year once they convert their money back into dollars.
Restrictions
After burning through $5bn of international reserves in the fourth quarter, policymakers tried a more heavy-handed tack to arrest the naira’s slide, imposing restrictions on Nigerians’ purchases of dollars. Those measures throttled trading in the currency market, with daily volumes shrinking to as little as $10 million a day. Before December, they regularly topped $300m and a 9.9 percent growth.
In January, the International Monetary Fund cut its 2015 forecast for Nigerian growth to 4.8 percent. That may not seem like much of a slowdown, but compare it to the country’s average annual expansion over the past 15 years: 9.9 percent. Nigeria has a predominantly poor, fast-growing population (the UN sees it climbing to the third biggest in the world by 2050) that is consuming ever-greater quantities of food staples, clothing and whatever else can be found on store shelves. Those dynamics have fed the country’s spectacular growth rates – figures not even matched by China.
Nigeria’s gross domestic product swelled to over $520bn, edging out South Africa for the top spot on the continent, after government statisticians overhauled the data last year to include more industries.
South African executives have started taking notice.
Miles Dally, the chief executive of RCL Foods, said he was looking for an opportunity to expand in Nigeria after bigger rival Tiger Brands bought a flour mill company in 2012.
Dally summed up his view of the country like this: “It’s a very challenging place to do business” but it’s also “the big prize” in Africa.
A key part of that challenge – perhaps bigger than dealing with con- stant power outages and rampant corruption – is doing business in Boko Haram-controlled areas. Tiger Brands has found that out, citing the violence as one of the reasons it has struggled to turn a profit so far.
Aberdeen’s Daly also got a firsthand feel for the tension during his travels last year. As he arrived in the capital city of Abuja in central Nigeria, authorities were on high alert.
In a single day last year, Boko Haram, whose name roughly translates to western education is a sin, killed 75 people commuting into Abuja and abducted 276 school girls. The group’s targeting of the capital is part of a broader ratcheting up of the insurgency that claimed at least 1 600 lives in January and more than 4 700 last year, twice the toll of 2013.
Earlier this year, in a market in Boko Haram’s stronghold of northeastern Nigeria, a girl who onlookers described as about 10 years old detonated explosives hidden under her veil, killing herself and about 20 other people. Days earlier, in a succession of attacks on towns in the north, Boko Haram militants killed hundreds of residents. Troops from Chad, Cameroon and Niger, as well as Nigeria, are fighting the rebels.
To understand Boko Haram’s growth, just take a good look at how impoverished many parts of the country are. “When you have a system in which 90 percent lives in poverty, 70 percent in absolute poverty, you’re likely to have one problem or another,” Sanusi Lamido Sanusi, the central bank governor, said during a meeting in Abuja with Daly weeks before he was driven out of his post. Now the emir of Kano, the main city in northern Nigeria, Sanusi has been focused on initiatives to alleviate poverty. One of those involves tomatoes.
Factory
Sanusi found they were mostly being left to rot in the fields, while imports of tomato paste – a staple ingredient for suya meat sticks flavoured with hot chilli and ground peanuts and sold on every main street – costs $360m a year. A lack of storage facilities or food processors meant that tomato farmers would take whatever price they could get – or leave the fruit to decay.
Sanusi teamed up with industrialist Aliko Dangote, Africa’s richest man and a fellow Kano native, to build a $25m tomato paste factory that bought tomatoes at a fixed price from 8 000 farmers. With a contracted income, farmers were able to borrow to buy their seeds.
The factory’s output enables Nigeria to cut tomato paste imports by a third, Sanusi says, and ease the deprivation that has made the north fertile ground for Boko Haram recruiters. – Bloomberg