A man counts the Nigerian naira at a near currency exchange market district in Lagos.

JOHANNESBURG - Allan Gray said last week that Nigeria’s equity market had surged 42% in US dollars since the bottom at the end of April 2017, while market confidence had rebounded following the introduction of a new foreign exchange regime.

With South African companies increasingly looking at the rest of Africa to boost their profits margins, Nigeria has proven to be a two-edged sword for entities looking at investing in Africa’s most populous country, presenting both significant opportunities and risks.

Nick Ndiritu, a portfolio manager for the Allan Gray Africa ex-SA Equity Fund and Africa ex-SA Bond Fund, said last week: “The notable high volatility in Nigeria’s stock market has offered investors greater opportunities to generate superior returns - by patiently buying stocks that thrive when political or economic prospects appear dim; and selling the popular stocks when other investors are overly optimistic.”

He said Nigeria’s challenges would not be resolved overnight, but the outlook was promising and investors were coming back. The country’s oil production was on a steady recovery path and US dollars were more readily available. But he said the investment case for Nigerian equities had been quite bleak at the beginning of this year after Nigeria’s oil production had slumped to the lowest level in more than 26 years as militant attacks in the Niger Delta crippled key pipeline installations.

Last year proved to be particularly hard for South African companies with a presence in Nigeria. “Policymakers had imposed capital controls and were rationing scarce dollars. Inevitably, rent-seeking replaces most productive activities when an economy has 11 to 13 different rates for buying a US dollar. Foreign investors, unable to repatriate existing funds, shunned Nigerian equities,” Ndiritu said.

Hotel and gaming group Sun International pulled out of Nigeria citing weak economic growth and clashes with regulators in the country.


Retailer Truworths exited the country, blaming stringent regulation of stock imports, foreign exchange controls and rising costs that made it difficult for the South African retailer to operate in the country.

Clover Industries also ended its operation in Nigeria last year, citing the financial crisis caused by the fallen oil prices.

Mobile giant MTN had endured a love/hate relationship with Nigeria in the recent past after it posted its first loss in 20 years early this year due to a huge fine and currency challenges in its key markets. The Nigerian authorities had slapped the group with a multi-billion rand fine in 2015 over its failure to disconnect unregistered mobile accounts in the country as the laws stipulated.

Nigeria is also investigating the telecoms giant over allegations that it illegally repatriated $14bn (R184.05bn) from its operations in the country in the past decade.

MTN has, however, indicated its plans to remain invested in the country and is currently finalising plans to list its shares on the Nigerian Stock Exchange.

Retailer Shoprite is one of the South African companies that have weathered the storm in Nigeria and are doing fairly well. A recent study by Nigeria’s National Bureau of Statistics (NBS) reported that Foreign Direct Investment (FDI) in the first quarter of 2017 was estimated to be $908m in the first quarter of this year, the lowest in ten years. When compared to the $1.5bn that the economy attracted in the fourth quarter of last year, the figure represents a decline of $640m, a sharp decline of 41.3%.

The Ernst & Young Africa Attractiveness Index released in May said Nigeria had been hit by a scarcity of foreign exchange, impacting businesses that were already grappling with issues, including insufficient power supply and complexity in paying taxes.

“Nigeria’s business environment is in urgent need of improvement, considering the country’s 169th ranking on the World Bank’s Ease of Doing Business Index 2017.“On a more positive note, the sheer size of the Nigerian market, and its diversification initiatives have led to a significant shift in the nature of FDI to the country,” the report said. It ranked Nigeria at number 17 in its attractiveness index.

The International Monetary Fund (IMF), in its World Economic Outlook report released in July, projected that Nigeria’s economy would grow at a faster pace than South Africa’s next year.

The IMF projected that the West Africa country would grow by 1.9% next year, while it projected South Africa’s growth to be 1.2%. Its projection for this year put South Africa’s growth at 1%, against Nigeria’s 0.8%.