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Nigeria Could Beat South Africa As Continent’s Top Investment Destination

Nigeria Could Beat South Africa As Continent’s Top Investment Destination

From BusinessDay

Analysts say pundits’ harping on Nigeria’s perceived weakness of insecurity, terrorism and corruption are missing the big picture, as investors are more focused on generating outsized alpha – i.e. the risk-adjusted measure of active return on an investment.

“Global investors have plenty of experience investing in countries which mainstream media paint in a negative light. In particular, investors have learnt that terrorism has little to do with investment,” said Charles Robertson, global chief economist at emerging markets focused investment bank, Renaissance Capital.

“Investors have seen planes explode over Russia, hotels attacked in India, and banks targeted in Turkey; none have warranted a change of view by investors.  Nigeria has strong growth in a low growth world, great demographics in an ageing world, and good debt metrics in an over-indebted world; Nigeria remains attractive for global investors,” Robertson said in response to BusinessDay questions.

Nigeria’s demographic dividend can be seen in its 170 million people being Africa’s largest population and consumer market. Not surprisingly more babies are born every year in Nigeria than in Western Europe.

Nigeria will run a post rebasing current account (C/A) surplus this year estimated at 5 percent of GDP compared to South Africa’s estimated current account deficit of 4.5 percent.

The budget deficit to GDP and public debt to GDP is estimated at 1 percent and 11 percent respectively, compared to South Africa’s 4.2 percent and 40 percent.


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Slow growth may put the South African government’s fiscal targets beyond reach, while keeping the current-account deficit under pressure, another rating agency Standard & Poor’s S&P said in a June 13 statement.

Investors have tended to value countries running twin surpluses (current account/ budget), since the Fed warned of tapering in May 2013, leading to withdrawal of capital flows from countries deemed risky.

The South African rand was named as part of investment bank Morgan Stanley’s “fragile five” in August 2013 which describes currencies that are particularly vulnerable because of their dependence on foreign investment to fund current-account deficits.

The rand is down 1.2 percent against the dollar this year is one of the four worst performing currencies (including Indonesia’s rupiah, the Indian rupee and Turkey’s lira) out of 31 major currencies over the past month, according to Bloomberg data.

The naira has remained stable in the period supported by oil prices which have been climbing since early June as ISIL militants seized territory across Iraq, threatening to disrupt supply of the second largest OPEC member.

South Africa imports 70 percent of its oil needs, while Nigeria is a major oil exporter pumping about 2 million barrels a day.

Read more at BusinessDay