By Abel Inabo Obaka
Recently, Nigeria’s second quarter GDP fell by more than two percent compared to last year’s, after slipping by 0.4% in the first quarter. Two consecutive quarters of decline mean Nigeria has now slid into recession. A combination of power shortages, a fuel crisis and a currency that has lost half of its value meant that suddenly everyone became much poorer in international comparison.
While this sounds like doom and gloom for Nigeria, there are some positive takeaways out of the current climate. And the flood of people around ATM machines and the speed at which rams sales outlets sprung up before Sallah like no man’s business attest to the fact that things are not all that bad. Yet, Nigerians groan and scream about being in an economic recession! Well, maybe the explanation is that most people are spending from their savings or there is a very wide, informal social security net stretching across boundaries. The resilience of Nigerians is unique indeed. This is, indeed, the right time to invest in Nigeria as would shortly be shown in this piece.
Despite Nigerian economy sliding into recession in the second quarter of 2016 and the naira continuing to suffer setback in the money market in spite of the flexible foreign exchange policy by the Central Bank of Nigeria, CBN, I strongly believe this is just the right time to invest in the country’s economy. It is trite to state that investors who pay much attention to the macro negativity of the economy will miss out on enormous opportunities available in the country.
Nigeria is the largest and fastest growing economy in Africa as well as the largest population in Africa. Empirically, one in every seven black persons is a Nigerian. Now, imagine selling your products to over 173m people. We are not just populous, but we are the happiest, most friendly and warm people with over 250 ethnic groups who are united in diversity and we have the best weather. Nigeria is also the biggest oil exporter in Africa, with the largest natural gas reserves on the continent.
An anatomical diagnosis shows that all the negative narratives about the Nigerian economy are at the macro level and do not affect the micro-economy where most economic activities are taking place and opportunities remain unchanged. There is a disconnection between the performance of macroeconomic indicators and microeconomic activities in Nigeria.
In other words, the economic changes, do not necessarily negatively impact the needs for some kind of goods and services. In some instances, the worst economies actually make the needs greater. So, investors could invest in companies that serve the micro-economies. What we hear is a macro data of unstable exchange rate, inflation rate, etc, which is macro negativity. But there is micro positivity. At the micro level, nothing is going to change. There is no doubt that some investors are pulling back because they are becoming more cautious because of what is happening in the macro-economic environment.
While I agree that in the last one year, the situation in Nigeria economically has become significantly worse, it isn’t all that terrible. The good news for foreign firms operating in the country is that because their capital comes from outside the country, the dollars they have will now be reaching much, much further.
For example, a salary they used to pay of N200,000, which was $1,250 before devaluation, will now be costing just $570. So, foreign firms would now be able to achieve much more with their capital. Consequently, the foreign firms can now expand their hiring and add more people to do more work, because they can achieve a lot more now with this. This, no doubt, means more jobs for the teeming unemployed Nigerians.
Similarly, for companies who export software, the production costs have dropped significantly, so it has made more sense to hire people in production and development. Software sold abroad now is generating significantly more returns locally. So, the opinion in the business community is that with prices dropping, this is the right time to invest in production and building.
For clothing and fashion, local patronage has increased due to the exchange rate and shipping costs which made Nigerians to now look inwards to purchase items they would otherwise have gotten from other countries. In addition, a lot of companies that import corporate souvenirs (such as bags and folders) would rather produce them here in Nigerian local factories. They are aware that the quality of locally produced souvenirs is also great but have ignored that until now when it is too costly to import.
I am aware that many companies who produce locally are doing quite well. You find all of a sudden that people can’t afford something foreign and they have to look inward. Examples are some food businesses, including honey, dried fruits, oats and cashews which are experiencing growth. Furthermore, there is a very strong creative movement happening in Nigeria now. Every young person is expressing themselves now instead of waiting for a job.
Now is the best time for foreign investors and even domestic investors to invest in Nigeria especially as we are moving away from total dependence on oil. Our agriculture, solid minerals, and tourism industry, to mention a few, are goldmines the investors can explore.
Obaka is a lecturer at NOUN, Jabi-Abuja