Last year, Bloomberg ranked Nigeria as the biggest economy in Africa and named the Nigerian Stock Exchange (NSE) the best-performing stock market of the 93 equity indexes it tracked globally. Its major industries attract millions of dollars in foreign and local investments annually. The fall in oil prices and OPEC production cuts have also made the government pay more attention to the development of non-oil sectors.
With a large, young, and urban population and a growing middle class, the Nigerian economy is projected to experience significant growth, especially in consumer-focused industries. Although challenges with security, political instability, and corruption threaten the burgeoning economy, Nigeria is the largest market in Africa and continues to attract foreign and local investors.
With the easing of the lockdown and the discovery of vaccines, commercial activities have resumed and the economy is starting to recover. Despite the pandemic, some industries have experienced significant growth and are projected to experience further growth. While some of these industries are tightly regulated, others are quite easy to get into. They benefit from government subsidies, fiscal incentives, and the involvement of private equity firms, venture capitalists, and angel investors.
Agriculture and Agribusiness
Agribusiness encompasses farming and farming-related commercial activities and includes all the steps in taking farm produce from the farm to the table. It provides employment, directly or indirectly, for more than half of the workforce in Nigeria and is capable of reducing unemployment. The past few years have seen an increased global emphasis on the impact of food security on the development of countries. With an estimated population of 200 million, Nigeria is the 7th largest food market globally. The National Bureau of Statistics (NBS) reports that agriculture contributed 30.8% of the Gross Domestic Product (GDP) in the third quarter (Q3) of 2020.
The Federal Government offers incentives to encourage private sector participation in the industry. There are fiscal and policy incentives as well as favourable international investment treaties. They include grants, soft loans, income tax relief (for pioneers), no import duty on agricultural and agro-processing equipment, and increased tariffs and levies on food imports to promote domestic production and local content. Other incentives are the exemption of interest from tax on loans granted to agricultural activities, Value Added Tax (VAT) exemptions, access to the Agricultural Credit Guarantee Scheme, and elimination of double income and capital gains tax through double taxation agreements.
Investment opportunities in agriculture across value chains include mechanized crop production, food processing and preservation, beef processing and packaging, fruit juice/canned fruits, beverages and confectionery, cash crop processing, exploitation of timber, wood processing, livestock cultivation, horticulture, agricultural input and machinery supply, water resources development (for irrigation), flood control infrastructure, commodity trading and transportation, design and production of small-scale mechanized technologies for on-farm processing and secondary processing of agricultural produce, production of improved seeds, agro-chemicals, veterinary drugs, vaccines, feed, and feed ingredients, and market research. Some publicly traded agribusiness companies are FTN Cocoa Processors Plc. (listed as FTNCOCOA), Livestock Feeds Plc. (LIVESTOCK), and Presco Plc. (PRESCO).
While the industry has good prospects, it is not without challenges. Nigeria faces two key gaps in agriculture: an inability to meet domestic food requirements and an inability to export at the quality levels required for market success. Other challenges include difficulties in land acquisition, lack of improved input and equipment, poor attitude towards agriculture, inadequate storage and processing facilities, and poor infrastructure.
Before investing in agriculture, you need to know the legal and regulatory framework guiding the type of agribusiness you have chosen to invest in and the type of business entity you want to create or invest in. You also need to choose the area of agriculture you want to invest in, get funding, a suitable site, quality inputs, and make plans for supplying your produce or products. All these should be informed by rigorous, independent research.
Technology
In the last few years, hundreds of tech startups have taken off in Nigeria, attracting massive support and funding. They raised US$120.6 million, with over 99% from foreign sources. Most Nigerian tech startups are aimed at filling gaps not covered by traditional financial institutions. In 2020, Paystack, a fintech startup, was acquired by global payments leader Stripe in a deal reportedly worth more than US$200 million. Flutterwave, another fintech startup, raised US$35 million in a funding round.
The city of Lagos is fast becoming Africa’s hub for tech startups and incubators. Tech has been driving the growth of the services industry, which is the bedrock of the Nigerian economy. Despite the pandemic and consequent lockdown, tech earnings still grew. According to NBS, Information and Communications Technology (ICT) contributed 17.83% to the GDP in Q2 last year, despite the economic slowdown. It also contributes more to the GDP than the oil and gas sector, the major source of revenue for the country.
Due to their ability to quickly provide unique solutions and answer questions, tech startups are favoured by founders, investors, and users. Tech incubators like Co-Creation Hub, Spark, and Itanna are churning out great startups. These cut across sectors like finance, health, banking, agriculture, ICT, retail, education, environment, oil & gas, and law enforcement. The vast reach of technology, its potential multinational reach, cashless policy drive, and unlimited market size create lots of prospects for tech in Nigeria. Although there are efforts to get some tech startups on the NSE, strict listing and reporting requirements discourage many.
While the tech industry is not particularly difficult to break into, tight regulation of some related sectors, policy lacunae, licensing costs, import duties, taxes, poor electricity supply, high data cost, brain drain, poor data access, low ease of doing business, police harassment of tech staff and investors, installation costs, and high tariffs are some of the challenges facing prospective founders and investors. As most tech startups prefer private equity funding, they may not be ideal for investors who prefer publicly traded stocks.
Financial Services
The financial services industry reported a GDP growth rate of 28.41% in Q3 last year, one of the fastest in the economy. Financial services are a broad industry that includes banking, financial advisory, wealth management, mutual funds, and insurance. Its consistent growth rate, despite the economic downturn, is a clear indication of steady growth and great resolve.
While banking and credit institutions dominate the industry, there are still gaps in the services rendered. Tight regulations, licensing costs, poor service, low technology adoption, lack of rural penetration, and red-tapism are challenges facing traditional financial services institutions. Fintech startups are exploiting the gaps and creating e-wallets, payment processing, savings, wealth management, crowdfunding, retail lending, and personal finance solutions. As a result, investing in tech startups is now a way to get into the financial services industry.
While the high-risk, high-reward startup ecosystem may appeal to some investors, others will prefer the stability of older, more established companies. With about 52 listed companies, financial services form the largest class of publicly traded companies on the NSE. This provides ample opportunity for investors who prefer stocks to invest in the industry.
Some of the listed financial services companies are Access Bank Plc. (ACCESS), AIICO Insurance Plc. (AIICO), ValueAlliance Value Fund (VALUEFUND), United Capital Plc. (UCAP), Nigeria Energy Sector Fund (NESF), Royal Exchange Plc. (ROYALEX), Jaiz Bank (JAIZBANK), and DEAP Capital Management & Trust Plc. (DEAPCAP).
The above industries have performed well, despite the pandemic and lockdown, and have been projected to keep growing. The slump in oil prices, production cuts, and subsequent loss of oil earnings are forcing the Nigerian government to focus on and take steps to develop other sectors of the economy. Regulatory bodies, policymakers, and professional bodies are taking a keen interest in these industries and making efforts to improve regulations and policies to develop the industries.
Are there any other industries you know that provide great investment opportunities?
Let me know in the comments.
Disclaimer: This article is not intended as financial or legal advice. You should do your research and/or consult a finance expert before any investment.
