This week I am going to be investigating four nations that I think have intriguing investment opportunities that are part of the World Cup 2010 in South Africa. Today, we move to one of the most inspiring emerging markets of the Cup – Nigeria. Tuesday, we looked at the Eastern European nation of Slovenia. Yesterday, we investigated the political hotbed Honduras, and we will finish up with Chile. These reports will talk about the nation, its history, its economy, and why it is an interesting investment moving forward. This will help us get into the spirit for the World Cup and connect it to investing! The Nigerian national team is on the left.
Nigeria is one of the most inspiring African economies, and among the four investigations that I am doing, it has the most potential to become a true economic leader in the world. It is listed as one of Goldman Sachs "Next 11" nations, which are in its opinion the next eleven countries that pose potential emergence after the BRICs. The country has a rich history that dates back to 9000 BC, and it is the second largest economy in Africa behind South Africa. Located in the West of Africa on the Atlantic Ocean, Nigeria has begun to establish itself as a truly enticing emerging market.
Nigeria is celebrating its 50th Anniversary of official independence from Great Britain this year, which is part of its great history – colonialism. Nigeria was a colony of Great Britain from the beginning of the 20th Century onwards; however, the nation had been used for slave trade and had other spheres of influence from Britain, Portugal, Spain and other European nations since the 17th Century. The nation, after independence, sought a democratic government, but the nation was sharply divided among ethnic lines that had been extinguished during colonialism. The nation fell into civil unrest throughout the 1960s, ending in a bloody civil war from 1967-1970. The nation began its democratic regime in 1999, and it has been successful up until this point; however, it is criticized for unfair elections and corruption still.
Despite its infancy, Nigeria’s economy is surprisingly well off due to its rich natural resources that the nation has been able to develop and market. The nation has the world’s 37th largest economy at $315 billion. It is the most populated nation in Africa, and it, therefore, has a GDP per capita of only $2,200 as of 2009. The nation is ranked 140th in the world. While having a massive economy, it is highly centralized in a small upper class. The nation has 57% of its population in poverty.
The nation, though, has grown exceptionally. Since 1999, the GDP has grown nearly 480%. The country’s GDP per capita since that time has grown from $285 to $2,200 – an increase of over 650%. The nation is getting much more wealthy. So, what is the cause of this wealth and success. The nation is the sixth largest producer of oil in the world. The nation’s Niger Delta is rich in oil and natural gas. There are over 60 multinational oil corporations in Nigeria, including Chevron (CVX), ExxonMobil (XOM), Sinopec, and Texaco to name a few.
The nation has an unbelievable amount of its oil revenues coming into the government at 80%, but the nation still has extremely low standards of living and high poverty. The nation has been unable to funnel its vast resources into success – "the resource curse." The nation has begun to attempt to attack the discrepancy between economy and lack of development. In 2003, the country created the NEEDS program to address education, water cleanliness and distribution, and other basic 
needs of individuals. It was attempting to create 7 million jobs and invigorate the country. The nation has begun to see some signs of growth, as the nations GDP per capita nearly doubled between 2008 and 2009, but much work is still needed to be done.
For Nigeria to become the market that some think it can be, it needs diversification and to stop corruption. The nation has launched full fledge attacks with the help of the World Bank and United Nations to arrest corrupt officers and take a stand on corruption.
The nation has potential in its agricultural sector as well. It is rich in cocoa, palm oil, poultry, and is the largest agricultural producer in Africa. With its top trading partners being the USA and United Kingdom, Nigeria has the backing of two vastly rich nations. The nation also has worked hard to reduce its external debt, which is at $11.2 billion – down nearly 70% from its 1999 debt levels. The nation has very high inflation rates, which are troubling for the nation’s growth. Yet, the nation really needs its internal diversification. The nation imports a great deal more than it exports, and it is strictly an oil producer.
Nigeria will for the time to come continue to see vast amounts of income from its oil production, and as the nation has taken a stand on its developmental and corruption issues, it seems to be on the right path towards more prosperity.
One of the best signs that this is a for-sure investment is that former executive at Goldman Sachs Olusegun Aganga is now the Minister of Finance. I like that…
If you want to get involved in Nigeria. The nation has its own stock market, the Nigerian Stock Exchange (NSE). The African
ETF done by Market Vectors (AFK) actually has 32% of its stake invested into Nigeria, which is a larger holding than in South Africa. As Nigeria blossoms, this fund should really start to take off. The nation has a couple depository receipts of Nigerian-based companies on the London Stock Exchange. The Diamond Bank (BK) and the Guaranty Trust Bank (GRTB) are the two largest financial institutions in Nigeria and are listed on the LSE.
Those are the most direct ways to invest strictly in Nigeria. Like I said before, though, oil is key in Nigeria. The nation has a significant amount of oil corporations in the country. XOM, CVX, and many others all have plays in Nigeria as well. Yet, the nation doing well does not necessarily means these companies will do well, so taking the direct route would be more beneficial.
As for the Cup, Nigeria is participating in its fourth World Cup. The nation has had success in the past making it to the Round of 16 in the 1994 and 1998 games. In the 2002 games, the team lost two of three and tied one and did not make it out of Round 1. The team looks very good this year, though, as they went undefeated in their group to qualify, going 6-0 with only one goal scored against them. The team plays their first game on Saturday against Argentina. They are in a group with Greece, South Korea, and their Saturday foe.
Good Investing,
David Ristau
