Nigeria’s richest plough money into Africa’s biggest economy

Nigeria’s billionaires and big businesses are ploughing money into Africa’s largest economy even as foreign investors shy away from a country in the midst of its second recession in five years.

Banking-to-power millionaire Tony Elumelu said he was set to close a $1bn oil block deal soon, while flour-and-cement billionaire Abdulsamad Rabiu’s Bua Group is to build a multi-billion-dollar 200,000 barrel a day oil refinery in oil rich Akwa Ibom state.

That project will compete against a $12bn 650,000 barrel 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 biggest fast-food chain, will open another 30 restaurants by the end of the year.

“You would think at a time like this, rational investment behaviour would be to slow down . . . but we are even investing more,” said Transcorp chairman Mr Elumelu, noting that Transcorp Power was to invest $300m in a state-owned power plant. 

Home-grown entrepreneurs’ confidence contrasts with the caution of overseas investors. Foreign direct investment into Nigeria this year trails Ghana, a country with an economy and population one-seventh the size. FDI was just $148.6m in the three months to June, down about a third from a year earlier. Portfolio investors have also fled, seeking safe havens amid global turmoil — inflows fell to $385.3m during the period, down 91 per cent from a year earlier.

The economic picture is dire. GDP contracted 6.1 per cent in the second quarter and 3.62 per cent in the third quarter, while unemployment and inflation are soaring and food prices are rising. Small local investors are not investing in the way bigger players are, evidence of a broader lack of confidence, said Amaka Anku, head of the Africa practice at Washington-based consultancy Eurasia Group. “You can’t get foreigners to invest when domestic investors are wary,” she said.

Still, local investors “understand the way this economy works, we know that these temporary challenges will pass”, said Mr Elumelu, who is also chairman of the pan-African United Bank for Africa. “Some foreign investors . . . at this point, might not be too willing and excited to invest. But the local, indigenous investors . . . no one is slowing down at all.”

Tony Elumelu: ‘[Local investors] understand the way this economy works, we know that these temporary challenges will pass’ © Pius Utomi/AFP via Getty
Aliko Dangote’s group is expected to benefit from Nigeria’s efforts to bolster domestic fuel production © Justin Chin/Bloomberg

Moves to boost domestic production have favoured some local companies, analysts say. Nigeria’s central bank has banned importers of fuel — along with rolled steel sheets, cement and rice, among dozens of other products — from accessing foreign exchange via official channels as part of President Muhammadu Buhari’s effort to bolster domestic production. That will give the Dangote Group and Bua “a captive Nigerian energy market at their mercy”, said Ose Anenih, of Abuja-based Eagle Badger Consulting.

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

But Mr Anenih warned that these types of investments were not the sort that build an economy or create the environment for sustained, long-term investment that Nigeria needs.

“In essence, the only investors in Nigeria appear to be those that are full of patriotic hope, or have received assurances that their investments will be protected,” he said. “If history has taught us anything it is that blind faith and crony capitalism are a recipe for economic disaster.”

The latest big investments come as companies have had difficulty accessing US dollars amid a widespread currency crunch brought on by the oil price crash as the coronavirus pandemic hit global demand.

While even Dangote has struggled to access dollars for its refinery, Devakumar Edwin, group managing director, said its local knowledge made it confident about investing in such a complex project. “This project would have dragged on and on for somebody who is coming as a foreign investor,” he said.

“They’re all looking at Africa as a bigger risk — and Nigeria especially as a bigger risk. They’re worried about policies, challenges, community issues,” he said. “Whereas . . . we [have] been in this construction business of factories for 30 years, we know the rules, [and] how we can mitigate the risk and manage the challenges.”

The administration has been seen by some as hostile to the private sector, imposing $10bn in penalties on MTN, the country’s largest mobile carrier, in 2018, a move seen as overzealous and based on a technicality. But the Covid-19 pandemic and wider economic crisis had instilled a “sense of urgency and a renewed vigour and a better sense of policy formulation” in Mr Buhari’s government, Mr Edwin said.

Line chart of Foreign direct investment ($bn) showing Investment in Nigeria slides

The government has said it would remove a fuel subsidy, reform the tariff for electricity and fast-track a petroleum industries reform bill that has been in the works for two decades.

Yet these moves are tentative, and Nigeria has been on the cusp of big reforms before, only for the execution and implementation to fall flat. 

As SBM Intelligence, a Lagos-based consultancy, put it in a recent note, for many companies the uncertainty continues, and they “may make alternative plans anticipating another extended delay to reforms that have become all too frequent”.

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