Investing in Nigeria: Exploring the Investment Potential of One of Africa’s Leading Economies Oscar N. Onyema, OON Chief Executive Officer The Nigerian Stock Exchange 71 st CFA Institute Annual Conference Monday, 14 May 2018
Outline • Introduction 1 • Economy in Recovery 2 • Risks and Opportunities 3 • Accessing Nigeria through the NSE 4 • Nigeria in the Fourth Industrial Revolution 5 • Conclusion 6 • Q & A 7 The Nigerian Stock Exchange 71st CFA Institute Annual Conference 2
Introduction Nigeria: Africa’s Growth Story
Nigeria: Africa’s Growth Story • As the largest economy in Income level: Lower Middle Africa, Nigeria has Income increasingly come into the External Reserves: US$46.6 Nigeria today is… spotlight as a premier billion ( March’ 2018) …the largest economy in global investment External Debt: US$15.35 billion destination. Africa (September 2017) and the 24 th largest in the Total Population: 185.9 million • Five (5) years ago, growth (2016 est.) world ... was accelerating in almost all of Africa’s diverse economies, Resources : but recently their paths have Oil & Gas (1 st largest oil • diverged due to the 2014 reserves in Africa; 10th commodity down turn. largest in the world) • The year 2017 saw a reversal • Mining: coal, minerals, precious metals of fortunes for Nigeria and • Commodities: agriculture, many other African nations. timber, rubber The Nigerian Stock Exchange 71st CFA Institute Annual Conference 4
Nigeria’s Growth Economy Sustainable GDP Growth: On the road to recovery for Nigeria’s GDP 1 (%) – 1960 to 2020F • After decades of volatility, Nigeria’s GDP growth has been more stable since the early 2000s. • Nigeria suffered its 1 st recession in >two (2) decades due to the global commodity downturn. • The economy continues to recover with greater focus on diversifying major drivers of growth. Steady growth forecasted in 25 Stable GDP GDP Growth % the medium Growth Phase term 15 2.8 5 -5 60 65 70 75 80 85 90 95 00 05 10 15 20F -15 1960 – 2002 2003 – 2017 Standard Deviation % 9% 3.2% 1. Data are from prior to the rebasing exercise. Rebased data, available from 2010 onward, includes additional economic sectors, making comparisons unreliable. The Nigerian Stock Exchange 71st CFA Institute Annual Conference 5
Nigeria’s Economic Diversification Profile Nigeria’s Economy: Not Entirely Dependent on Crude Oil • Albeit crude oil exports accounts for a significant portion of Nigeria’s Federal Government income and total exports (i.e. >75% respectively), Nigeria’s economy is ~ 90% Non -Oil based. • According to Nigeria’s National Bureau of Statistics, Services accounts for the largest portion of GDP, followed by the Agriculture sector. % OF OIL & NON-OIL SECTORS % TO REAL GDP 22.56% 10.04% 48.29% 89.96% 29.15% Non-Oil Oil Services Agriculture Industries The Nigerian Stock Exchange 71st CFA Institute Annual Conference 6
Economy in Recovery An In-Depth Assessment
Fall in Global Oil Prices Affects FX Regime 1 3 • As a primary source of 2 Nigeria’s crude New oil Capital imports to Nigeria’s Monetary FX inflows, order oil output falls Nigeria declines following lower federal revenue from oil production, Nigeria’s foreign exchange market Lower export earnings/ FX underwent sustained volatility. receipts • FX supply side constraints, Reserve constrained were exacerbated by geopolitical tensions which Lower FX sales lowered domestic output. • This led to constraints on the FX scarcity nation’s foreign exchange reserves, FX volatility and a FX Market decline in foreign investment Crisis flows. The Nigerian Stock Exchange 71st CFA Institute Annual Conference 8
Return of Nigeria Oil Production Domestics Oil Production on the Rise Highest level of domestic Mbpd oil production since Q1’16. 1.94 1.86 1.78 1.76 1.76 2 1.59 1.57 1.54 1.51 1.42 1 0 2014 2015 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Source: OPEC • As global oil prices fell, domestic production also fell since 2014, as a result of geopolitical tensions and attacks on oil infrastructure in the country. • Negotiations between the government and factions of Nigeria’s leading oil production regions (i.e. Niger Delta) have been successful as oil production is steadily recovering to its pre-commodity shock levels. The Nigerian Stock Exchange 71st CFA Institute Annual Conference 9
Export Earnings Increase From Recession Levels Export earnings fall as oil prices fall • Oil exports account for an average of 77% of the nations export 18 Export earnings earnings. reach 2-year high 16 at N13.6 trillion • The combination of low prices and 14 4.41 (US$37.7 billion)* 2.44 reduced output had a significant 2.57 12 Trillions’ (N) impact on the nation. 10 • Nigeria saw 42% decline in crude 2.78 8 1.53 oil earnings in 2015. 6 11.89 11.81 11.03 • In 2017, crude export earnings 4 7.00 6.95 recovered strongly, rising over 57% 2 to end close to its pre-recession 0 levels. 2013 2014 2015 2016 2017 *Exchange rate: N360/$ Crude Oil Non-crude Oil Exports The Nigerian Stock Exchange 71st CFA Institute Annual Conference 10
Foreign Reserves on the Rise Nigeria Emerges from FX Scarcity • Capital inflows fell and foreign exchange reserves were strained. • On the back of a change in monetary policy and improving macroeconomic conditions, foreign capital flows improved with the largest portion coming via portfolio investors. Steady accretion to FX reserves through Capital Inflow - US$'Bn 8 50 out 2017 to ensure FX stability. As at Foreign Reserves Mar’18 reserves at US$46 billion 40 6 34.7 US$Bn 30 4 20 2 10 0 - 2013 2014 2015 2016 2017 Foreign Reserves Foreign Direct Investment Portfolio Investment Other Investment The Nigerian Stock Exchange 71st CFA Institute Annual Conference 11
Monetary Policy changes Stabilize Exchange Rate Monetary Interventions stabilize FX market • The CBN continues to ensure liquidity via capital injections at ~ US$200 million/injection. • Nigeria’s new FX windows remain transparent, credible and attractive to foreign investors. The CBN continues to CBN begins market Introduction of Investors intermittently intervene in the interventions with over & Exporters (I&E) window in Apr’17 and US$40 Bn various markets to ensure FX $4.45bn injected commencing from Feb’17 traded a s at Mar’18 liquidity and stability 600 500 US$ Million 450 Naira/$ 400 300 300 150 Relative Scarcity of FX 200 0 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Parallel Market Rate (N/$) Official exchange rate I&E market rate CBN Interventions (USD 'Mn) The Nigerian Stock Exchange 71st CFA Institute Annual Conference 12
Stable Recovery Expected to Continue Nigeria’s Real GDP Growth (%) – 2014 to 2017 • The economy exited recession with a marginal growth of 0.83% in 2017 and is expected to grow by 2.5% in 2018 based on the World Bank’s projections. • Growth has been driven by strong agriculture sector and recovery in global oil prices. Economy exits GDP Growth Avg Oil Prices 8 120 recession in Q2 ’17 GDP Growth (%) 6 100 as oil prices begin US$/barrel to recover 4 80 2 60 0 40 -2 20 -4 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 2017 The Nigerian Stock Exchange 71st CFA Institute Annual Conference 13
Risks and Opportunities How Smart Investors Assess Nigeria
Nigeria… on the Precipice of Greatness? Some key challenges Undiversified fiscal revenue sources with heavy concentration on oil High unemployment levels (especially youth unemployment). Low tax to GDP ratio Quality and quantum of infrastructure Quality of education High Income Inequality The Nigerian Stock Exchange 71st CFA Institute Annual Conference 15
…but Opportunities exist cognizant of Challenges Sizeable youthful and active labor force Favorable demography Abundant natural resources Gov’t commitment to enhancing "WE RECOGNIZE THE PRIVATE SECTOR AS THE favorable business environment ENGINE OF GROWTH AND A VERITABLE Economic visibility and PARTNER IN OUR ECONOMIC AGENDA, AND WILL THEREFORE GIVE THE FULLEST SUPPORT attractiveness TO FOREIGN AND DOMESTIC PARTNERS." Strategic location — hub of West PRESIDENT MUHAMMADU BUHARI and Central African Markets Internally supported growth The Nigerian Stock Exchange 71st CFA Institute Annual Conference 16
Ease of Doing Business • In the midst of the economic recession, the government set up a presidential committee to look into the ease of doing business. The reforms by this committee have seen Nigeria move 24 places to 145 th in the World Bank’s • 2018 Ease of doing business report. Specific areas of reforms ▪ Improved speed of business registration by allowing electronic Starting a Business stamping of registration documents ▪ Increased transparency by publishing all relevant regulations, fee Dealing with schedules and pre-application requirements online construction permits ▪ Improved transparency by removing the sworn affidavit for certified copies of the land ownership records, and by Registering Property publishing statistics on land transfers. ▪ Improved access to credit information from the credit bureau and Getting Credit established a modern collateral registry The Nigerian Stock Exchange 71st CFA Institute Annual Conference 17
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