This Day (Lagos)

28 January 2014

Africa: Report - Investors Prefer Nigeria to Other African Countries

Investors in Africa have continued to choose Nigeria over most countries in the continent as the preferred investment destination because of the country's strong fundamentals.

In a report titled: "Sub-saharan Africa in 2014- Erosion of Buffers Raises Risks," Renaissance Capital (RenCap), a research and investment advisory firm listed a Current Account (CA) surplus and smaller budget deficit as some of the factors attracting investors to Nigeria.

The report however pointed out that the attractiveness of Nigeria over Kenya may narrow, as "Nigeria's shine is dulled by fiscal laxity due to preparations for the 2015 polls and the uncertainty of monetary policy post the tenure of current Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi." It anticipated that the Nigerian stock market would grow between 10 and 20 per cent this year, partially on account of inflation, as well as the market's relatively favourable fundamentals.

"On the naira debt front, as long as real interest rates remain above five per cent, we think local investors will put their money into fixed income products. We expect a slowdown in demand for one-year risk and see investors leaning towards debt of shorter maturity.

"Downward pressure on yields from rising interest from foreign investors may be countered by the dampening effect of tight liquidity on local investors. We do not see the liquidity situation easing at least until Sanusi leaves office," it added. Preliminary estimates suggest that Nigeria's rebased economy would be large and the country may be Africa's biggest economy post-GDP revision this year.

Agriculture's share of the economy is also expected to drop to 25 to 30 per cent under the new GDP series, from 40 per cent. Manufacturing's contribution to GDP is expected to edge up to between five and six per cent, from four per cent. In addition, the report showed that under the proposed rebased GDP, services would dominate as the country's biggest economic sector, led by trade, transport and telecoms.

"We expect growth in 2014 to improve to 6.9 per cent, from our 2013 estimate of 6.7 per cent, under the current GDP series. We expect an increase in government spending, due to election-related expenses that will help spur an increase in economic activity.

"Moreover, lower inflation should also support stronger household consumption. The upside risk to our growth projection, albeit small, is a significant improvement in oil production on the back of a slowdown in oil theft. "We believe an upward adjustment in the size of some fast-growing sectors - such as telecoms - will reveal that once activity in the sector is properly accounted for, its growth is not as strong as the 20 per cent + growth rates, under the current GDP series, suggest," it added.

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