Tuesday, January 20, 2015

Nigeria at top spot for most-watched frontier market

Nigeria has maintained its top spot as the frontier-market economy that is attracting the most attention from American and European multinationals for potential future investments.

This is according to the latest Wall street journal (WSJ) frontiers and frontier strategy group (FSG) frontier market sentiment index.

Despite February election causing jitters among investors, corporations are still watching the country.

Nigeria has held the top spot since the index was launched in June 2014 despite having endured a rough ride for the past few months.

The study was based around 200 multinational companies, the index, created exclusively for WSJ Frontiers by Washington-based consultancy FSG and tracks which frontier markets are targeted the most by major European and American firms.

The index also reveals trends in corporate thinking by tracking the rate of change in corporate sentiment among FSG’s clients such MasterCard and Cisco.

Corporate sentiment is calculated as the percentage of companies that include a country on their watch-list. If 50 of the 200 companies are watching a particular country, the sentiment index score would be 25 percent.

Nigeria’s travails have primarily been caused by its heavy reliance for foreign exchange and tax revenues on crude oil, whose price has slumped by more than 52 percent since June 2014.

Presidential elections are due in less than a month, and the outcome is still too close to call.

According to Nnamdi Chiekwu, a partner at New York-based corporate finance advisory firm Namdex Group, foreign companies are taking a long view on Nigeria. “The political uncertainty is putting everything on hold,” he says, “but companies that can afford to wait it out will find great opportunities there.”

Recent attacks by Boko Haram continue to have a negative impact on perceptions of Nigeria.

But for corporations looking beyond the short-term turmoil, the country’s problems may provide an opportunity to buy into Africa’s biggest economy at a discount. “Nigeria is about to enter a world of hurt but these are the times when you can really make a difference – both from investors’ point of view and corporates’,” says Matt Lasov, FSG’s global head of advisory and analytics.

Lasov argues that the sharp devaluation of the Naira will push up prices of imported products, encouraging Nigerians to buy more locally produced goods. “Companies that produce locally will capture a huge amount of market share,” he says.

At the same time, the Naira’s decline will make it cheaper for foreign firms to acquire Nigerian assets. “The reason the country is gaining more attention while other oil exporters’ appeal to corporations is shrinking is because companies are opportunistic,” Lasov adds.

Vietnam, with a gain of 1.98 percentage points, climbed to second place on the list. Like Nigeria, the country is a perennial favourite among frontier investors but has seen some turmoil over the past year.

The trends in corporate attention illustrate starkly the impact lower oil prices are having on other oil-dependent frontier markets. The three worst performers in terms of change in sentiment in this quarter’s survey are all oil exporters: Angola, Saudi Arabia and Venezuela.

Although lower oil prices are arguably beneficial for a significant proportion of frontier markets, the confusion and anxiety over the impact of the precipitous fall in prices hit the sector’s equities hard.

Dan Ojabo & Josephine okojie

Business Day

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