While addressing the audience at The Economist's Nigeria Business Summit on March 19, 2013, Nigeria's Finance Minister, Mrs. Ngozi Okonjo-Iweala, told potential foreign investors that if they were not in Nigeria, then they were not in Africa.
Well, if you're a foreign investor looking to start or support a business in Nigeria, then this article is for you.
You're probably already familiar with the bad (mostly real) and ugly (mostly perceived) side of Nigeria. The good thing about this country of 167 million people is that there's hardly any sector of its economy bereft of entrepreneurial opportunities.
Still, you should be careful where you invest. Many businesses are unattractive because they are fiercely competitive, have low barriers to entry, are threatened by emerging businesses, or just don't create much value for customers. Such businesses, like GSM recharge card vendors and pure-play "cyber" cafes, won't be around for much longer.
Conversely, based on my on-the-ground observations, the following businesses are primed for the big times in the next few years:
- Mobile Money
- Mobile Applications Development
- Agricultural Produce Storage/Warehousing
- Plastic Waste Recycling
- Securities Investment Services
1. MOBILE MONEY
Mobile money is an African innovation rooted in Kenya, where more people now have mobile money accounts than bank accounts.
In Nigeria, less than 30% of the population have bank accounts but over 60% have mobile phones, so the potential for mobile money is just huge. In January 2013, Minister for Communications Technology, Mrs. Omobola Johnson, predicted that the value of mobile money transactions will increase from USD1.2 million currently to USD1 billion in 2015.
The Central Bank of Nigeria (CBN) officially introduced mobile money in November 2011, through the issuance of licenses to a wide array of providers, including retail banks, independent financial transaction providers, and micro-finance banks. Unlike in Kenya though, the CBN excluded GSM providers to avoid a "cartelization" of mobile payments - GSM providers can still forge partnerships with license holders.
Currently, there are 16 licensed mobile money operators and not all have commenced operations. Therefore, opportunities exist for financial service providers to partner with these licensees to roll-out services.
You may also want to become a mobile money agent, which is a potentially lucrative point-of-sale representative of a mobile money provider. Mobile money agents will be crucial to the success of mobile money in rural Nigeria, where half the population live.
2. MOBILE APPLICATIONS DEVELOPMENT
App development is no longer just for geeks or nerds. It's now an industry that was growing at around 15,000 apps per week in 2011. Furthermore, the average smartphone now houses 41 apps.
Gone are the days when technological revolutions like app development took years or even decades to reach Africa. Africa now leads tech revolutions, like the aforementioned mobile money, which is transforming banking and payments worldwide.
From the regional tech strongholds of Kenya and South Africa, tech hubs are now springing up all over Africa. In Nigeria, innovation centers like the Co-creation Hub in Lagos have emerged to support the nascent app development industry.
Although banks and telecommunications firms have taken the lead in launching apps for their customers, app usage in Nigeria hasn't yet hit critical mass. Therefore, as an investor you could build, or support indigenous developers to build, locally relevant apps.
To get up-to-speed on Nigeria's burgeoning app development industry, your best bet would be to plug into innovation networks like the Co-creation Hub. This interview with one of Nigeria's earliest voyagers into app development is captivating, insightful and informative.
3. AGRICULTURAL PRODUCE STORAGE/WAREHOUSING
Nigeria is not a huge agricultural exporter partly because it lacks modern storage facilities for its exportable produce.
Last year, while in my ancestral hometown of Ijebu-Ode in Ogun State, i had an insightful conversation with a middle-aged woman who sold roasted corn by the roadside. She told me that due to lack of proper storage facilities she had to do two things everyday: in the morning she had to go directly to a farm to buy corn cobs, and in the evening she had to dispose of all unsold fresh cobs by any means necessary.
Rural farmers in Nigeria usually store popular grains like rice and red beans in jute sacks, baskets, or barns made of bamboo, where microorganisms easily infest the grains. To avoid overage and minimize loses, farmers try to cultivate just enough produce that they can safely sell without a need for prolonged storage.
Rice is the most widely consumed grain in Nigeria. According to the Ministry of Agriculture and Rural Development, Nigerians consume about five million metric tonnes of rice annually, almost half of which is imported at a cost of N356 billion (about USD2 billion). By 2050, Nigerians will consume 35 million metric tonnes of rice annually.
Obviously, the cost of rice importation is unsustainable. Therefore, there's a strong drive at the federal and state levels to massively boost local rice production and reduce imports.
To this end policy makers have touted strategies and incentives to enhance the rice value chain and attract private investors. However, they've paid more attention to the cultivation of rice than to its storage and transportation to markets, which remain the weakest links in the value chain.
This has created opportunities for private investors in the provision of modern storage facilities for seeds and grains, rice and beans in particular.
4. PLASTIC WASTE RECYCLING
Sachet water, popularly known as "pure water", is the biggest commodity in Nigeria. Over 70% of Nigerians reportedly consume at least one sachet of pure water everyday. That's about 120 million sachets daily!
While the pure water business has helped many Nigerians move up the socioeconomic ladder, it has now become an environmental nuisance. Everywhere you go in Nigeria empty pure water sachets litter streets, block drainages and canals, stuff dried-up water wells, and crowd-out landfills. Add to pure water sachets other plastic waste like used tires and water (PET) bottles, and you see that Nigeria has a huge plastic waste disposal problem.
Although there are other types of waste to battle, the explosion in pure water consumption seems to have compelled policy makers to prioritize plastic waste disposal.
In the past few years many states have commissioned more plastic waste recycling facilities than any other waste recycling facility. However, the scale of the waste disposal problem is now so huge that state governments are keen to involve private sector participants, especially in a Public-Private Partnership (PPP) context.
Both large and small private investors have become increasing active in plastic waste recycling, yet the business remains profitable. Lagos and Ogun states have been very aggressive in pushing PPPs, perhaps because they have large and growing industrial bases. You could begin your investigations into potential ventures in these two states.
5. SECURITIES INVESTMENT SERVICES
The growing interest of portfolio investors in Nigerian equities has encouraged the Nigeria Stock Exchange (NSE) to expand its product offerings, boost liquidity on its trading platform, and make trading more sophisticated.
In December 2011, Absa Capital of South Africa listed the first Exchange Traded Fund (ETF) on the NSE. The bourse says five more ETFs would be listed this year and that plans are advanced to introduce options and futures trading.
Although foreign investors still dominate trading on the NSE, domestic investor interest has picked up from the low levels reported after the 2008 global financial crisis, which wiped out more than half of the NSE's equity value as foreign investors pulled their "hot money" out of Nigerian equities.
Going by discussions on popular fora like Nairaland, domestic investors are very much interested in owning and trading foreign securities. With the NSE flood gate now open to ETFs, opportunities exist for investment service providers to offer ETFs that invest primarily in foreign-based companies and foreign securites.
This type of ETF will give domestic investors international exposure, enhance diversification of their portfolios, and generate more domestic interest in the NSE. The Director-General of the Securities and Exchange Commission (SEC), Mrs. Arumah Oteh, has in the past alluded to this sort of ETF, so regulators will likely welcome it.
Nigerians invest more in real estate than in stocks. Therefore, domestic fund managers have expressed interest in Real Estate Investment Trusts (REITs).
One of Nigeria's leading property development companies, UACN Property Development Company PLC (UPDC), is about to list a N30 billion REIT on the NSE. This IPO will be a real gauge of domestic investor interest in REITs. It will also serve as a signal to foreign investment services providers interested in offering Nigerian investors REITs.
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