Constance Ikokwu
20 August 2008
Washington, D.C. — Nigeria's recent private sector-led growth and vibrant capital markets with potentials for investors have placed it in a league of eight sub-Saharan African countries (outside South Africa), heading towards emerging market status, a new International Monetary Fund (IMF) report has revealed.
The country is now a "frontier emerging market", according to the IMF - a position that will guarantee the Nigeria the emerging market status as soon as it matures.
Also, Nigerian banks raised about $12 billion in capital over 2006-07 mostly from offshore investors, using a variety of investment vehicles, the report noted.
In the new report titled "The Rise of Africa's Frontier Markets," IMF Senior Adviser Africa Department, Mr. David Nellor, said Nigeria, Botswana, Ghana, Kenya, Mozambique, Tanzania, Uganda and Zambia had met the criteria required of emerging market countries.
Emerging markets, the study explained, refer to countries that have financial markets and attract investment interest.
According to him, these eight countries in the sub-Sahara Africa region account for about 40 per cent of the region's population outside South Africa and almost one-half of its GDP.
He pointed out that Nigeria dominated trade in this group and had fared well because of lower debt burden.
The study also pointed out that since the country received Paris Club debt relief and bought back much of the remainder of its external debt, trade in Nigerian debt had been mainly domestic.
This placed Nigeria 21st on the global debt trade ranking at the end of 2007, which in his view "is equal to or exceeds many first-generation emerging markets."
Nellor said in the report: "The criteria for an emerging market set out here-growth, private sector-led growth, and investible markets-can be identified in eight sub-Saharan African countries: Botswana, Ghana, Kenya, Mozambique, Nigeria, Tanzania, Uganda, and Zambia.
"Emerging markets are attractive to investors because they offer rates of return that are high relative to mature markets and offer opportunities for investors to diversify risk. High GDP growth signals that there are opportunities for investors to 'buy' into the country's overall prospects or seek out opportunities by identifying undervaluation in specific sectors.
"Growth prospects in emerging market countries are likely to be based on technological catch-up, significant output gaps, young populations, and faster population growth than in mature markets. The processes that bring about growth may differ by country, but a track record of solid growth is common to emerging markets. The potential for risk diversification might arise at the country level when growth trends are not synchronised with mature market economies."
One way to assess the prospects of these countries, particularly resource-rich nations, was to compare their performance during previous oil boom periods to today and how they tried to avoid the boom-bust cycle, Nellor said.
Using Nigeria as an example, he argued that the country's performance was better since the current oil boom which started in 2004, compared to the booms of 1974-78 and 1990-94, measuring non-oil growth and inflation.
Good fiscal policy, budget oil price rule and saving oil revenues above the budget price all helped Nigeria perform better, he noted, warning, however, that Nigeria would have to adhere to strict fiscal rule in order to maintain strong growth.
These new developments, according to the study, would provide tremendous opportunities for African countries because access to capital markets was a key component of high and sustainable private sector led growth.
The study also noted that the term emerging market was coined by the International Finance Corporation (IFC) in 1980 to refer to developing countries with stock markets that were beginning to demonstrate the features of the mature stock markets in industrial countries.
It also gives investors the opportunity to make financial investments in a country. Before now, only South Africa held that status on the African continent. Access to capital had in the past been out of the reach of most African countries.
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Mind you, this unprecedented private sector-led growth rate reported by the IMF is for the period ending Fiscal Year 2007 (the end of OBJ's administration). we shall see what the IMF's growth rate report would be at the end of Yar Adua's first term, given his snail speed and efforts to scrap or reverse most of the reform policies of his vibrant predecessor. good luck!