Amundi: Currency crowds out Nigeria’s corporate growth stories as Kenya preferred

By David Whitehouse

Posted on Monday, 13 February 2023 06:00
In front of a shop belonging to telecom operator Airtel, in Nairobi. © AFP Photo/Tony Karumba

Strong corporate growth stories at Nigerian companies, such as MTN Nigeria and Airtel Africa, are not enough to drive the country’s equity market onto the radar of foreign institutional investors.  

Political and currency concerns in Nigeria are “more of a concern” to foreign investors than corporate growth prospects, and “keep me on the sidelines”, Deirdre Maher, head of frontier markets at Amundi in London, tells The Africa Report.

Amundi is Europe’s largest asset manager based on assets under management.

Foreign portfolio participation in Nigerian stock trading slumped to 16.3% in 2022 from 50.7% in 2018, figures from the Nigerian Exchange show. The country’s foreign-exchange restrictions make it difficult for investors wanting to get their money out of the country after an equity sale.

Foreign investors also have to factor in high inflation, political uncertainty as to the aims of the next government, and the risk of a heavy naira devaluation after the election – assuming it happens on time.

A fund manager, such as Amundi, has to be “mindful of liquidity”, which is lacking in Nigeria, Maher says. “Capital controls are a barrier. There have to be ways to get the investment out.” Greater participation by local pension funds, in Nigeria and other African markets, would increase liquidity, she says. While equity markets in South Africa and Morocco benefit from local pension fund involvement, there’s little sign of that spreading to Nigeria, she adds.

Nigeria’s large, young population means that equities in theory could achieve good long-term performance, but foreign investors have alternative growth stories to choose from. Maher is positive on Kenya, where the currency regime is more stable and relations with the IMF are “improving”.

The Kenyan market offers the chance to capture regional growth in sectors, such as financial services and telecoms, lifted by export potential to Democratic Republic of Congo (DRC), she says. “I am happy to be positioned there at present.”

MTN Nigeria, Airtel Africa

From a domestic Nigerian perspective, MTN Nigeria is among stocks with the best growth prospects, driven by the prospects for accelerating data demand. The company’s full-year 2022 data revenue growth of 46.9% beat Chapel Hill Denham’s forecast of 37.3% on better-than-expected data usage by customers. The company aims to double its active subscribers to 80m by 2025.

MTN Nigeria CEO Karl Toriola told a conference call on 1 February that the company is “continuing to see structurally sustained demand for data and fintech”, with growth outlasting the Covid-19 pandemic. Data and fintech revenue growth will progressively overtake that of voice services, but a “significant devaluation of the naira and heightened inflation are risks to medium-term guidance”, he said.

Significant devaluation of the naira and heightened inflation are risks to medium-term guidance

Nigeria is also Airtel Africa’s largest market. The company is more geared to voice rather than data growth. CEO Segun Ogunsanya told investors on 2 February that almost 90% of capital expenditure is now targeting growth initiatives. He is “very optimistic” on voice revenue growth, following an increase of 14% in the third quarter. Chapel Hill Denham director of research and strategy Tajudeen Ibrahim in Lagos rates both stocks as “buy”. He prefers MTN Nigeria on cheaper valuation and a “more compelling” margin at EBITDA level (earnings before interest, taxes, depreciation and amortisation).

Lack of macro-economic clarity means that the concerns of domestic and foreign equity investors in Nigeria are largely divorced. In essence, there is no realistic level of Nigerian corporate performance that would get foreign investors over the hurdle of the hostile investing environment. Maher agrees that there is “clearly growth” in MTN Nigeria and Airtel Africa. That’s not enough to tempt her into Nigerian exposure. “The challenge is not the company,” she says. “It’s on the macro side.”

Bottom line

Nigerian economic policies have left corporate executives high and dry in terms of attracting foreign investors.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options