Following the return of democracy in 1999, Nigeria has embarked upon a series of economic reforms, which look set to be yielding fruit. Her banking, retail, agriculture and oil and gas sectors are heralding dramatic changes, leading to substantial growth. Ayo Akinfe reports.


Long regarded by the rest of the world as black Africa’s biggest hope, Nigeria with its population of 140mn is seen as the motor of the continent’s economy. Over recent years, Nigeria has witnessed significant economic growth as the recent availability of credit is allowing the hitherto shackled private sector to blossom.

Since independence in 1960, Nigeria’s economy has been dominated by the state, with primary products like cocoa, palm oil and crude oil sold via government parastatals and the majority of the workforce being civil servants. This monolithic economic structure led to the emergence of huge state monopolies, which had little regard for customer service, had no incentive to improve the quality of their products and did not have to live with the pressure of competition which would have forced them to expand their portfolios or venture into new markets.

Since 1999 when Nigeria returned to democratic rule, however, there has been a cultural sea change with the state-owned boards being dissolved or privatised, shares in government corporations sold to the private sector and the economy enjoying a surge in private investment. Oil blocks are now auctioned off to private companies, foreign multinationals have been invited in to compete with state-owned monopolies like the Nigerian Telecommunications Company and Nigerian Airways and banks have been encouraged to lend out money to domestic private investors.

Banks targeted

In 2005, Nigeria embarked on a massive banking consolidation exercise, which consolidated her 89 banks into 25 in an attempt to increase liquidity and today that exercise is beginning to yield results. Together with the increased investment from South Africa and China, where investors are not as fussy as those from Europe and America who draw up impossible lists of demands before parting with their cash, the combined effect of this has been economic growth of about 4% a year.

More pleasing for the economic purists is the fact that this growth is mainly taking place outside the oil sector, which itself is enjoying its best times ever with world prices standing at about US$80 a barrel. Back in the 1980s crude oil prices were as low as US$12 a barrel and Nigeria’s export earnings were as little as US$10bn, compared with today’s figure of about US$50bn.

In recent years more than 100 South African companies including the likes of telecommunications giant MTN, Nando’s , Shoprite, Game, Naspers and Johncom have entered the Nigerian market. Others are also on the way, with Mvelaphanda Resources said to be eyeing the under-developed Nigerian minerals sector, along with bigger players such as BHP Billiton.

Of these companies, MTN has enjoyed the most obvious success, accounting for 45% of market share with revenues of R14.9bn (US$2.15bn) last year.

MTN has been one of the main reasons why Nigeria has the world’s second fastest-growing telecommunications market behind China.

Coface, the credit rating and investment risk agency, says that Nigeria has a lot of potential and the structural reforms taken since 2003 have helped immensely.

Joe Blenkinsopp, head of London Markets, Coface, UK and Ireland, says that these reforms, which resulted in debt relief under the auspices of the Paris Club, have established a solid foundation for Nigeria’s economic and social development.

Moving rates

Investment has been aided by official market rates moving closer to those of the parallel market. A unified exchange rate, which has been a long-standing demand of the International Monetary Fund, was one of the goals of former president Olusegun Obasanjo’s government and this has helped too.

This means that money, which was previously laundered and invested outside the country, is now being ploughed legitimately into Nigerian companies. Despite these obvious successes, however, South African companies still face major challenges in Nigeria, as often the regulatory environment is unpredictable, with import bans on certain items creating difficulties for big retail groups.

South African investor Ian Taylor, a regional director of brand-activation agency Exp, says: “The import bans can cover anything from toothpicks to imported furniture.” He adds that Woolworths opened a store in Nigeria, but had to close it when a ban on imported clothing took effect.

Despite being a major energy producer, Nigeria has very erratic electricity supply. Taylor adds: “Wherever you go, you have to put in private power sources. Most of these are diesel-driven. As fuel prices have increased since deregulation, this is a considerable additional cost.

“Despite all these problems, the potential here is unbelievable. The question is how do you get the product to the people

He points out that understanding the market is important, as is living with what he terms inefficiencies. “We came in with certain standards because of the way we were brought up but 90% of Nigerians have never been exposed to anything outside Nigeria,” Taylor adds.

Blenkinsopp comments: “Oil production in 2007, like in 2006, was 60% below capacity output due to persistent tensions in the Niger Delta but nonetheless, economic growth should nonetheless reach 5.5% in 2007, driven by a very dynamic farm sector and could climb to 7.5% in 2008 thanks to the start-up of offshore oilfields and the farm sector’s continued dynamism. The central bank’s restrictive monetary policy and good harvests should make it possible to maintain one-digit inflation in 2008.

“Nigeria has continued to run large public and external account surpluses but the US$18bn in debt relief granted by the Paris Club in October 2005 and the repayment in petrodollars of the residual debt have significantly improved the country’s financial ratios. Excluding hydrocarbon revenues, however, the public sector and current account balances have nonetheless been showing troublesome deficits, representing respectively a negative 45% and negative 36% of GDP excluding oil in 2007, reflecting an insufficiently diversified economic fabric.”

Boom times

In spite of all these problems, those companies that get the market right are printing money. Shoprite’s first supermarket opened in Lagos at the end of 2005 and was profitable within the first year. Its deli section, where cold meat is sold, reputedly makes more money than any other deli in the group.

Nando’s, which has entered into a partnership with local company UAC, opened its sixth restaurant in Lagos in September and puts its instant success down to UAC’s knowledge of the local market.

Marc Schreuder, a director of UAC Franchising, says his company doubled its share value in the past year and it has 230 franchise applications now, the same number as its existing number of restaurants.

With Famous Brands and St Elmo’s now present in Nigeria, South African companies now dominate the fast food market. Apart from the fast food sector, South African companies are also very dominant across the retail and entertainment industries.

Domestically, there is also a lot of money available for investment, helped in part by high oil prices. According to the country’s National Bureau of Statistics, oil and gas was responsible for 21.5% of Nigeria’s gross domestic product in 2006. Oil also accounted for 95% of foreign exchange earnings and 65% of budgetary revenues.

Desperate diversification

However, Nigeria is desperately trying to break away from its over-reliance on oil revenue and an economy characterised by a tiny manufacturing sector, an endemic lack of skills and high poverty rates. The astronomical growth of the mobile phone market, which now has 30mn users, is testimony to this.

In its May monthly economic report, the Central Bank of Nigeria (CBN) reported that the nation’s 25 banks had total capital assets of N7.609tn (US$61.6bn), representing a rise of 4.4% compared with the preceding month.

According to the CBN, the rise is due to the increase in Nigeria’s reserves to N776.3bn from N564.9bn in April, which was also reinforced by a 9.6% increase in foreign assets.

Nigeria’s commercial banks are the main facilitators behind this growth in the financial services sector and their increasing granting of finance to other sectors of the economy is fuelling expansion. Earlier this year, the International Finance Corporation (IFC) conferred Access Bank with the Innovation in Trade Structures Award in acknowledgement of the bank’s innovative approach and creativity in trade products and solutions.

Access Bank is one of the over 150 members of IFC’s US$1bn Global Trade Finance (GTF) programme which extends and compliments the capacity of member banks to deliver trade financing by providing risk mitigation on a per-transaction basis in challenging markets where credit lines are limited.

This GTF programme guarantees the payment risk of approved financial institutions in emerging markets across the world and enables local financial institutions establish working partnerships with a vast number of major international banks with a view to broadening their access to finance.

With vibrant membership of the IFC GTF network and the recent award acknowledging the bank’s innovativeness in trade structures, Access Bank has enhanced its global reach, gained familiarity with new markets and built relationships with quality counterparty banks in other markets around the world.

This has clearly demonstrated the bank’s leadership role in trade services across Nigeria and its commitment to continue offering services to its trade customers across the country.

Through its strategic partnerships with ANZ Bank, HSBC, UBA London, Citibank, US Ex-Im Bank, etc and trade lines in excess of US$500mn, Access Bank is positioned to adequately support economic activities through global trade finance. Its role in this regard was acknowledged by KPMG, which presented it with the third best customer-focused bank in Nigeria award in February 2007.

Banks awaken

Like Access Bank, other Nigerian financial houses are getting increasingly involved in the rest of the economy, with activities ranging from infrastructure investment to trade finance.

Earlier this month, Oceanic Bank International and Platinum Habib Bank committed themselves to entering into a partnership with the federal government in the development of infrastructure in the water sector.

Cecilia Ibru, chief executive of Oceanic Bank, says: “Nigerian commercial banks have the necessary strong capital base to finance micro and macroeconomic businesses. We also have the capacity to finance capital projects of government at various levels, especially when such projects are people-oriented and have much to do with development of physical infrastructure and the building of human capacity.”

Ibru is one banker who always handsomely rewards her shareholders to ensure their continued investment in the bank. She continuously pays them remunerative dividends to secure their patronage. Oceanic’s recent public offering was oversubscribed, indicating investor loyalty.

With each passing year, the bank has recorded tremendous growth, making it the fifth largest bank in the country and the third most profitable financial institution in Nigeria. This is no small feat, when one considers the fact that Oceanic was only created 17 years ago.

Oceanic Bank was recently rated among the top 1,000 banks in the world and has also received positive ratings from renowned financial agencies. One of its most effective strategies has been to establish many subsidiaries. Through these subsidiaries including Oceanic Registrars, Oceanic Trustee, Oceanic Custodian, Oceanic Insurance, Oceanic Mortgages, Oceanic Securities and Oceanic Asset Management, the bank has become a financial supermarket.

Local leaders

Zenith Bank, the largest financial house in Nigeria, posted 2006-07 audited results showing a total assets plus contingents of N1.2tn representing a 67% growth on the previous year. Not only is it the most capitalised bank in Nigeria but Zenith is also the most capitalised company on the Nigerian Stock Exchange, with total market capitalisation of N612.82bn as of at June 2007.

Foreign investment firms including Emerging Markets Investors USA are shareholders within the bank and have invested a sum of up to US$165mn in Zenith. Ambitious and set on expanding its international reach, in March this year Zenith opened a wholly-owned UK subsidiary, Zenith Bank UK in London, which trades like any other UK commercial bank and is supervised by the country’s banking watchdog, the Financial Services Authority.

In this regard, Zenith appears to be following in the footsteps of First Bank, which opened a wholly-owned subsidiary in the UK called FBN Bank UK on November 1, 2002. Prior to that, the bank had a London branch but with the setting up of a wholly-owned subsidiary, FBN Bank London has now assumed all the assets and liabilities of the old First Bank London branch.

Christi Fashogbon, FBN Bank UK’s executive director of business development, says: “We are the London bank for Nigerians, either resident in the UK or simply visiting. We also offer our expertise in all West African countries. We began trading in November 2002, having received the relevant authorisation from the Financial Services Authority and the approval of the courts under the Financial Services and Markets Act 2000.

“First Bank has continued to be a leader in financing the long-term development of the Nigerian economy. Ever since 1947, when it advanced the first long-term loan to the government, it has kept broadening its loan and credit portfolios to various sectors of the economy.”

In Nigeria today, First Bank remains the most operationally efficient bank in converting revenue to profit with a profit after-tax/gross earning ratio of 22%. Total assets plus contingents grew by 47.87% to N1.084tn in 2007 from N732.785bn in the previous year.

Foreign friends

Most Nigerian banks have now entered into some sort of alliance or partnership with foreign partners as part of their drive to boost liquidity, improve professionalism and expand their reach. This internationalisation of their operations is generally seen as the last stage of a gradual growth plan.

Diamond Bank for instance, began as a private limited liability company on March 21, 1991, became a universal bank in February 2001 and launched a private placement share offer in January 2005. In May 2005, the bank was listed on the Nigerian Stock Exchange and today it has a host of international partners.

These international banking partners include Citibank, HSBC Bank, ANZ Banking Group, ING BHF Bank AG, Standard Chartered Bank, Deutsche Bank, Commerzbank and Nordea.

Nigeria’s state governments are aware of this and are looking to get in on the act too. Nigeria’s 19 northern states collectively own Unity Bank and are seeking to use it as an instrument of economic empowerment through the provision of loans to agricultural producers.

Babangida Aliyu, the governor of Niger State and chairman of the Northern Governors’s Forum, says: “We must find ways of strengthening institutions like Unity Bank, which are well positioned to help accelerate the economic growth of the northern states.” He adds that Unity Bank is already actively involved in financing hundreds of agricultural projects and other small medium enterprises scattered throughout the north and intends to increase the tempo in the months ahead.

Abba Dandogo, the head of corporate affairs at Unity Bank, adds that the financial house is in the process of investing N500mn, comprising a loan of N300mn and an investment of N200mn in the equity of Shonga Farm Holdings, the commercial farming company established by the Kwara State government in conjunction with Zimbabwean farmers.

He adds that Unity Bank has already established this kind of small-scale, agricultural development trust fund in Katsina State, with over 90% success in terms of loan repayments by the peasant farmers there. Not neglecting oil

As part of its two-pronged economic expansion programme, the current government is looking to diversify the economy by attracting investments into new sectors like agriculture, solid minerals, financial services, retail, tourism and telecommunications, while at the same time expanding the oil and gas sectors.

Despite being the mainstay of the Nigerian economy, the oil and gas sector has scope for a lot more investment as new oil wells are continuously being discovered and a lot of the existing infrastructure needs renewing.

Also, according to Stephen Hayes, president of the Corporate Council on Africa, Nigeria loses US$14bn a year to oil theft and this problem needs to be addressed. He adds that the supposed monetary losses incurred were calculated based on the estimated number of barrels of lost production due to corruption and crime.

Hayes says: “If you are losing 600,000 barrels a day on oil at US$70 a barrel, you are losing US$12m a day on oil theft.” Before the outbreak of recent hostilities by militant armed groups in the Niger Delta, which began in late 2005, Nigeria claimed to be producing about 2.5mn barrels of oil a day but since then, production has reportedly decreased by at least 20% or by even a third.

Apart from the ongoing upheaval in the Niger Delta, Nigeria’s other major problems include erratic power supply, security and corruption. Of late, a lot of effort has gone into combating these problems, with the Economic and Financial Crimes Commission recovering billions of stolen money and prosecuting high-ranking government officials.

Energy has also received a lot of attention with no fewer than 10 power stations being lined up for commissioning over the next decade. These include hydro-electric, nuclear, wind assisted and gas-fired plants. Under an ambitious expansion plan, the government hopes to increase generated power to 10,000MW by 2008 compared with the 2,000MW being generated at the end of military rule in 1999.

In September this year, Chevron Nigeria indicated that it is interested in building a 800MW power plant in Lagos. To be known as Agura IPP, the new plant will be 60% owned by the Nigerian National Petroleum Corporation and 40% owned by Chevron. It is expected to begin operating in 2011 with an initial capacity of 500MW in the first phase and a total installed capacity of 800MW when the last phase is completed.

With government revenue increasing as a result of high oil prices, this socio-economic expansion is expected to continue. At the end of August, Nigeria’s external reserves rose to US$45bn from US$43bn in July, providing the treasury with the necessary cushion to increase its budget for infrastructure projects.

Delighted at the development, Ignatius Imala, the director of banking supervision at the CBN, says that these gains will not be wasted as both the CBN and the commercial banks are aware of the responsibilities they face. He adds that the CBN has embarked on massive training on risk management in banks as part of measures to ensure that operators perform their duties effectively.

Imala explains that the increase in activities in the banking sector has led to the growth in the banks’s balance sheet by over 100%. He points out that a deal with foreign partners in respect of the management of the country’s reserve has been concluded, stressing that with the signing of the agreement, the foreign fund managers and Nigerian banks would now start working together.

He adds that out of the 250 bankers who participated in the first phase of the training exercise, 10 people were selected from each bank while 50 people came from CBN and Nigeria Deposit and Insurance Corporation. Imala also states that apart from the risk management training, the CBN would organise special training sessions for its directors to improve its efficiency.

Tunde Dabiri, managing director of Sterling Bank, says that human resource development is necessary in the industry to keep pace with the speed at which the banks were opening branches across the country. With more rapid growth expected in the Nigerian banking sector and these financial houses branching out into new areas such as mortgages, trade finance, treasury and cash letter clearing services, staff need to be trained very quickly.

On the whole, banking is proving to be one of the main catalysts driving the growth in the Nigerian economy, enhancing trade opportunities and helping to reduce the risk profile of the country. As reform and growth in the sector continues, Nigeria looks set to enjoy nothing but increased prosperity, which ultimately could enable it to achieve the government’s ambitious target of becoming one of the 20 leading global economies by 2020.