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Nigeria and Africa

By Nicholas Norbrook in Abuja
Posted on Thursday, 20 May 2010 13:35

Regional trade has not grown as fast as trade with Asia, but Nigerian

banks and energy companies are focused on continental expansion

Sheltering future South African President Thabo Mbeki during the years of apartheid, intervening in regional conflicts in Sierra Leone and Liberia, shaping discussions at the UN: Nigeria has been at the heart of many of the continent’s political dramas.

COMPANIES TO WATCH

FirstRand: ?A South African bank that has been interested in Nigeria’s ailing banks ?Glo?: Nigerian company that is connecting the region with fibre-optic cable and that operates mobile service in Benin and Ghana??Ecobank: ?Togolese bank with a Nigerian subsidiary that is investing in ‘Middle Africa’ and looking to play a role in Asia-Africa trade

It is fast becoming the economic heartbeat of Africa as well. For hundreds of years, the trading cities of Lagos and Kano have linked markets in the region. As an increasingly stable and prosperous middle class emerges, modern Nigerian consumers – all 150 million of them – are an unmissable target for African companies.

South Africans were the first to take the plunge into the Nigerian market in a meaningful way. Before 1999, there were just four South African companies active in Nigeria; there are now over 100. MTN launched mobile phone services in 2001 and its Nigerian subsidiary has fast become one of the most profitable. The supermarket chains were not far behind. In 2008, Shoprite announced that it would open 50 new stores across the country by 2013.

Trade between the two countries has risen from $16.5m in 1999 to over $2.1bn in 2008. Exports from Nigeria to South Africa are still dominated by oil – currently 98% of total exports – underlining the lack of progress Nigeria has made towards a more ?diversified economy.

In recent years, it is not just African investors coming into the country; increasingly Nigerian companies are going hunting abroad, with banks in the vanguard. Since the ‘big bang’ recapitalisation of the banks in 2005 and the subsequent successful cash-boosting initial public offerings that many of the newly built-up banks launched, ?Nigeria’s financial institutions have been heading out into the subregion.

Almost half of Nigeria’s 25 banks now have subsidiaries in other African countries, most often in anglophone countries like Ghana and Sierra Leone, with the most ambitious stretching far across the continent. United Bank for Africa (UBA) has opened branches in countries as far afield as Tanzania and Zambia.

It is also moving into the francophone world, with banks in Congo-Brazzaville, Gabon, Senegal, Côte d’Ivoire and Benin. UBA has regulatory approval to set up operations in Guinea and Mali. Ecobank is another example of companies which want to invest in Nigeria as part of a continental vision.

The recent bust in Nigeria’s capital markets, of which Nigerian bank shares make up two-thirds, has slowed this trend. Consolidation, rather than expansion, is expected for the next year or so. A looming clash is expected with Moroccan banks which are also expanding into West Africa, a battle that is going to be watched with great interest.

In the energy sector too, Nigerian companies are reaching the levels of capitalisation and professionalism that allow them to expand abroad. Oando made almost 20% of its $2.3bn in fuel sales in 2008 from distribution in Togo and Ghana. It also won a $1bn contract from the Ghana National Petroleum Corporation for a gas project associated with the offshore Jubilee field.

The Petroleum Industry Bill, which may be passed before mid-2010, will put even greater emphasis on local content, which should see Nigerian domestic energy players grow stronger just as other new prospects in the region emerge, such as Sierra Leone, Côte d’Ivoire and perhaps Guinea. The West African Gas Pipeline will eventually sell gas from the Niger Delta across the West African coast to Benin, Togo and Ghana. It is one more step, alongside the banks, leading Nigeria towards its rightful place as a regional economic integrator.

This article was first published in The Africa Report April-May 2010 edition

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