This article was produced by the IFC.
By David Lawrence
Although the health effects of the pandemic in Nigeria were limited compared to many other countries, the economic burden of Covid-19 has been challenging. In the first quarter of 2020, the slowdown in the global economy triggered by the pandemic resulted in a collapse in oil and gas prices, which account for nearly 90% of Nigerian exports and more than half of tax revenue.
Lockdowns and movement restrictions designed to slow the spread of Covid-19 have hampered businesses, slowed trade and disrupted supply chains, creating significant uncertainty for Nigeria’s business community and investors. As a result, the 85 million Nigerians living in poverty are just as vulnerable as Nigeria’s 41 million small and medium-sized enterprises, which account for three-quarters of employment.
Even so, the longer-term prospects for economic growth in Nigeria look promising, according to many observers, who rate the country’s population (the largest in Africa) as well as its abundant natural resources such as fossil fuels, minerals and farmland. Nigeria also has the continent’s highest nominal GDP. In some sectors, the crisis could even open up new opportunities, experts say, especially with the launch of the African Continental Free Trade Area (AfCFTA) agreement.
“When you look at Nigeria in the short term, you may see the challenges rather than the opportunities,” said Eme Essien, country manager for the IFC Nigeria office. “But when you have the strength to see past the short-term bump, Nigeria looks very interesting. All the basics come into play: the size, the dynamism, the opportunities. There are many investors who see this in Nigeria, but nowhere near enough. “
Two reports released in 2020 – the World Bank Group’s Country Private Sector Diagnostic (CPSD) for Nigeria and a complementary report, the Covid-19 Rapid Assessment – examine the impact of the pandemic on the Nigerian private sector and identify several promising areas of investment.
“Nigeria is an attractive investment destination with many prospects and should be an integral part of any Africa strategy,” said Yewande Sadiku, CEO of the Nigerian Investment Promotion Commission (NIPC). She noted that the country is the 14th largest economy in the world with a “large population of young, energetic, tech-savvy people with entrepreneurship and skill”.
In response to the impact of Covid-19, in June 2020 the government approved the $ 5.9 billion ($ 2.3 trillion) one-year economic sustainability plan for Nigeria to boost the country’s economy, sourcing goods locally and to promote services and protect the most vulnerable.
This has helped Nigeria strengthen some sectors hit by the pandemic, although more investment is needed to support the country’s robust recreational and employment needs. Investors are realizing that agricultural and information and communication technology (ICT) are two sectors with unique potential.
Maturation potential of the local farmers
Agribusiness accounts for about 23% of Nigeria’s GDP and employs 45% of the workforce. With 82 million hectares of arable land – more than 40% of the country’s total water supply – and a favorable climate, Nigeria could develop numerous crops such as cassava, citrus fruits, cocoa, sesame seeds and tomatoes. In addition, by developing agricultural processing, Nigeria can reduce its dependence on food imports and increase its food security.
Since 2019, the government has put restrictions on some agricultural imports to help smallholders. (Most farmers fall into this category.)
However, the supply chain disruptions caused by Covid-19 have encouraged some manufacturers to cut costs and move closer to where sources come from, complimenting government policies to curb imports and increase local production. There are many options for import substitution.
“As global supply chains collapsed, companies began to think a lot more about local sourcing, which is good for the local economy in many ways,” said Danladi Verheijen, managing director and co-founder of Verod Capital Management, a West African private equity firm.
Folasope Aiyesimoju, CEO of United Africa Company of Nigeria, one of the leading consumer-facing conglomerates in Nigeria, agrees that now is the time to move forward with the development of the domestic supply chain. “Before the pandemic, we found that the better the supply chain is for us and the easier it is to have domestic input into our supply base,” he said. “We want to invest in companies that specialize in supporting small local suppliers in the agricultural value chain. We have accelerated these efforts due to Covid-19. “
The World Bank Group’s CPSD and Covid-19 Rapid Assessment recommend building closer links between agricultural supply chains and smallholders and digitizing supply chain management to improve smallholder opportunities. Agricultural infrastructures such as warehouses and transportation systems funded through public-private partnerships could also improve food transportation.
Alluvial, a Nigerian agricultural company, is using digital solutions to help local farmers seize this opportunity to develop the local supply chain. The company uses block breeding in the community to bring farmers together into cooperatives that give them more competitive access to equipment, supplies, finance and vital services. In addition, an agricultural advisory service is being developed with which farmers can use chatbots to query weather and soil information in order to optimize the use of fertilizers.
“The solution, to a large extent, is to bring farmers together so that they can access the inputs at more competitive prices,” said Dimieari Von Kemedi, Co-Founder and General Manager of Alluvial. “Together they are as valuable a customer as any commercial farm – much more, in fact. This will help increase farmers’ productivity. “
However, some observers note that switching to local suppliers is not a panacea – while manufacturers are looking to source locally due to the pandemic, local producers can be more expensive. In response, some companies are developing closer partnerships with their supply base by guaranteeing acceptance from suppliers or providing assistance with business planning, financing, or equipment.
Use a tech-savvy generation
Globally, the ICT sector has been indispensable at a time when mobility has been restricted by Covid-19 restrictions, and Nigeria is no exception. The country’s active corporate culture and $ 12 billion worth of e-commerce market, which includes 87 Nigerian platforms employing 2.9 million people, position the sector to meet the growing demand for ICT services during the pandemic and in addition to use.
“Nigeria has a large and young population, many of whom are digital natives,” said Sadiku of the NIPC. “We need to make sure that government policies adequately support ICT, the digital economy and innovation – that runs through all aspects of life.”
The country’s ICT sector has achieved several great successes, attracting investment from both domestic and foreign financiers who are contributing to regional growth.
For example, Kobo360, an African logistics company headquartered in Nigeria, has created an app that connects truck drivers with companies looking for freight services. The system lowers the cost of moving goods in Africa, where truck drivers face challenges such as poor transportation infrastructure, security issues and difficulty finding cargo for transportation. Kobo360 now operates in 16 African countries including Burkina Faso, Ivory Coast, Ghana, Kenya, Togo and Uganda.
Another Nigerian start-up, Paystack, offers secure payment services that enable entrepreneurs and businesses to accept online payments using mobile money or credit and debit cards. In October 2020, Paystack announced that it had been acquired by Stripe, an international payment processing platform. Paystack’s digital strategy has positioned it well to facilitate business and commerce despite the global economic downturn triggered by the pandemic.
ICT can empower other sectors such as financial markets through digital financial services. It already makes a difference for farmers – especially in rural areas – by providing them with vital information on prices, markets, weather and funding.
Look behind the pandemic
While the Covid-19 pandemic has resulted in economic upheaval in the short and medium term, the long-term prospects for businesses and investments in Nigeria are considerable, according to experts.
“The focus must be on the long-term opportunities for investors in Nigeria – this is where the opportunity lies,” said IFC’s Essien. “If you can develop a product or service that meets people’s needs, you can create a very vibrant business where you can have solid market share and overcome short-term volatility.”
Others encourage observers of Nigeria’s investment potential to look beyond today’s statistics.
“There may be difficulties investing in Nigeria now, but nobody invests anymore,” says Sadiku. “Everyone invests because of the future prospects. What kind of relationship would you like to have with a country that will be the third most populous in the world by 2050? It is a question that we need to ask ourselves now and not in the future. Many possibilities that do not currently exist will then be very visible. “