Africa by numbers A focus on Nigeria Special report issued for: World Economic Forum on Africa 2014
Introduction 1 Africa by numbers A focus on Nigeria
Over the past 3 years, EY s Africa attractiveness reports have highlighted the continent s steady rise. Our research, which includes both investor surveys and analysis of greenfield and brownfield FDI trends, has helped to provide some quantitative substance to the growing perception that African markets offer an exciting growth and investment opportunity. What our research has also highlighted, however, is a lingering perception gap between those companies already doing business on the continent and those with no business presence. We have recently completed our 4th annual survey, and the perception gap continues to persist those respondents with an established business presence in Africa are more positive than ever about the continent s prospects, and, for the first time, have also ranked Africa as the most attractive regional investment destination in the world today. In stark contrast, respondents that have not yet invested remain negative, rank Africa as the least attractive regional investment destination in the world. The reality In many respects, Nigeria epitomises this almost bi-polar view of Africa: for many of us already doing business on the continent it is an exciting, dynamic, high octane growth market; for some others, often on the outside looking in, it seems chaotic, unstable, and uncertain. The reality is obviously less cut and dried than either of these extremes and in many respects depends on the perspective that one chooses to adopt. Nevertheless, we certainly believe that the facts support the more positive perspective on Nigeria and its prospects as an investment destination. The numbers tell us that Greenfield FDI projects into Nigeria have grown at a compound rate of close to 20% since 2007, positioning it among the 10 countries with the highest growth rates in Africa. Nigeria has also attracted the most FDI capital and the 2nd most FDI projects in Sub-Saharan Africa over that period, making it one of the star performers in a period in which FDI flows into the region have been fairly robust. What is equally positive is the increasingly diversified nature of the investment. Although more than 50% of the FDI capital invested into Nigeria since 2007 has been into the capital intensive resource sectors (primarily oil), nearly 50% of FDI projects are service-orientated. There has been particularly strong growth in investment into telecommunications, with the sector attracting 23.9% of FDI projects between 2007 and 2013. Growth in investment into other service sectors like financial services, consumer products, tourism and business services, further highlights the growing opportunities emerging in these sectors. A key driver of growing levels of investment has been Nigeria s robust and sustained economic growth. Over the past decade, the economy has consistently registered high single digit growth rates. The recent rebasing of Nigeria s GDP now makes it the largest economy in Africa, and one of the 30 largest economies in the world. Nigeria s economic performance is still somewhat dependent on oil, and remains susceptible to changes in the oil price. However, as the FDI trends indicate, it is the non-oil sector that has been the main driver of growth in recent years, led by agriculture, services, and wholesale and retail trade. However, like most emerging markets, Nigeria will continue to face its fair share of challenges. Corruption, threats to physical security and poor infrastructure are among those often cited as constraints to investment and doing business. Arguably though, power shortages have been the biggest constraint to expanding investment and doing business. Nigeria has one of the lowest per capita national power supplies in the world, and most businesses rely on fuel-powered generators for reliable power. Besides the cost this adds to doing business (estimated to be as much as 40% in some sectors), it also significantly hampers broader industrial development. Recent progress made in the privatisation of the power sector should significantly increase levels of investment into electricity generation and distribution, and could transform the business environment in Nigeria. Nigeria has also attracted the most FDI capital and the 2nd most FDI projects in Sub-Saharan Africa Africa by numbers A focus on Nigeria 2
The privatisation of the power sector should significantly increase levels of investment into electricity generation and distribution, and could transform the business environment in Nigeria. A robust economy Despite these challenges, and while many other emerging markets are suffering from the consequences of global monetary tightening, the Nigerian economy has remained remarkably robust. EY recently developed a heatmap to illustrate the economic vulnerability of a group of 25 different emerging markets, drawing on previously published research into currency and banking crises, and ranking each country under seven indicators of risk (current account balance, government debt, inflation, currency volatility, etc.). According to these indicators, Nigeria has the 3rd highest overall ranking among all these emerging markets (and is also well ahead of the aggregate ranking for the US, Japan and Germany). This strong macroeconomic management coupled with progress in the political domain, provides us with confidence that overall growth rates will continue in the 5-6% zone for the foreseeable future. Given these continued growth rates and the recent GDP rebasing, an improving business environment, a portfolio of active infrastructure projects with a value close to $100b, and, of course, a population of about 170m people, Nigeria s billing as a powerhouse in a dynamic, high growth region is certainly justified. As a result, we anticipate that Nigeria will continue to be a key hub for investment into Africa, and is likely to emerge as one of the most attractive developing market investment destinations in the world in coming years. 3 Africa by numbers A focus on Nigeria
Economic vulnerability heatmap Overall score Current account External debt Government debt Inflation Growth in credit to GDP Import cover Currency change over year Turkey 20 26 19 13 21 26 16 21 Argentina 19 14 16 14 24 24 17 24 Ghana 19 25 13 20 26 10 22 16 Vietnam 18 13 22 18 18 23 25 8 India 17 22 6 19 25 17 13 20 Egypt 16 19 5 23 23 5 23 18 Czech Republic 16 20 21 15 6 18 21 10 Brazil 15 17 4 22 17 25 3 19 Poland 15 23 24 21 5 16 15 1 Indonesia 15 12 9 7 20 21 11 23 South Africa 14 18 11 12 15 1 20 22 Advanced* 14 10 26 24 3 6 14 15 Ukraine 13 24 25 10 1 3 24 4 Colombia 13 21 8 9 9 20 9 14 Mexico 13 15 7 11 14 19 18 6 Chile 12 16 18 2 7 13 12 17 Thailand 11 11 12 8 10 22 7 11 Kazakhstan 11 5 23 4 16 4 19 9 Malaysia 11 4 15 17 8 15 8 12 Russia 10 6 14 3 19 12 4 13 Korea 9 8 17 16 4 7 10 3 UAE 8 3 10 1 2 8 26 4 Qatar 8 1 20 1 12 11 5 4 Nigeria 7 7 1 6 22 2 6 7 China 6 9 2 5 11 14 2 2 Saudi Arabia 5 2 3 1 13 9 1 5 *Aggregate measure of Germany, Japan and the US. What is displayed in each column 1. Overall scores are based on the addition of the seven rankings. We have then normalised the total rankings from 1 to 20. The highest figure indicates the highest risk. 2. Current account balance shows the strength of the current account balance in 2013. 3. External debt shows the level of external debt over GDP in 2012. 4. Government debt shows the level of government debt over GDP in 2012. 5. Inflation shows average inflation in 2013. 6. Growth in credit market shows the average growth of credit markets as a share of GDP fro 2010 to 2012. 7. Import cover shows the ratio of foreign exchange reserves to imports in 2013. 8. Currency change over year shows the change in the currency against the US Dollar over the 12 months to mid-december 2013. Legend of colours used in first column (overall score). For each indicator, we have marked: In red: the eight countries with the highest risk In orange: the nine ountries with medium risk In green: the nine countries with the lowest risk Africa by numbers A focus on Nigeria 4
Nigeria Abuja Ibadan Lagos Port Harcourt Country overview Western Sahara Cape Verde Senegal Gambia Mauritania Morocco Mali Algeria Burkina Faso Guinea Nigeria Bissau Benin Guinea Togo Equatorial Guinea Sierra Leone Liberia Sao Tome Côte d Ivoire Gabon Congo Ghana Niger Tunisia Libya Egypt Chad Sudan Eritrea Central African Republic Cameroon Angola Democratic Republic of Congo Burundi Zambia Zimbabwe Namibia Botswana South Africa South Sudan Ethiopia Uganda Kenya Rwanda Tanzania Malawi Mozambique Swaziland Lesotho Djibouti Somalia Seychelles Comoros Madagascar Mauritius Reunion Opportunity indicators GDP (current)* Population growth (annual) 2.56% Population (m) 171.3 Mobile penetration (% of population with mobile access) US$262.61bn 58.58 % Risk indicators Ease of doing business overall rank out of 184 countries (17th in Africa) Transparency International Corruption Perceptions Index (0=highly corrupt, 100=very clean; ranked 38th in Africa) Strength of investor protection index (0 =unfavorable, 10=favorable; ranked 12th in Africa) Logistics Performance Index: overall rank out of 155 countries (25th in Africa) Urban population (% of total) 49.62 % Democracy score (0=lowest, 10=highest) 4 Real GDP growth (compound average growth rate): 5-year forecast (2018) Real GDP growth (compound average growth rate): 10-year historical (2003) GDP per capita (US$): 5-year forecast (2018) Country wealth (1=low income, 2=lower middle, 3=upper middle, 4=high income (non-oecd), 5=high income (OECD)) 5.38 % 6.62 % US$2,652 2 Mo Ibrahim Index of African Governance (rank out of 52 countries) Perceptions of governance rule of law: percentile rank (0=lowest, 100=highest) Perceptions of governance regulatory quality: percentile rank (0=lowest, 100=highest) Quality of overall infrastructure (1=extremely underdeveloped, 7=extensive and efficient by international standards) Literacy rate (total population %) 61.3 % Corporate maximum tax rate (%) 30% Source: The World Bank; OECD National Accounts; United Nations Population Division & World Urbanization Prospects; Oxford Economics; ITU International; Transparency International; International Bank for Reconstruction and Development; Polity IV Project; Mo Ibrahim Index of African Governance; Worldwide Governance Indicators; WEF Global Competitiveness Report; Worldwide Corporate Tax Guide This is Nigeria GDP as per World Bank statistics. This is before recent rebasing of Nigerian economy by the Nigerian Bureau of statistics. 131 27 5.7 121 43 25.82 20 3.2 Henry Egbiki EY West Africa Regional Leader Tel: +234 8023145694 Email: henry.egbiki@ng.ey.com 5 Africa by numbers A focus on Nigeria
FDI trends in Nigeria Nigeria s inflow of investment of FDI since 2003 Nigeria received 6% of Africa s total FDI for new projects and 11% of capital invested since 2007. Nigeria has seen strong compound growth in FDI projects of close to 20% since 2007. Although the average value of projects has declined, this reflects the growing diversification of investment (and the Nigerian economy). 23059 60 58 % CAGR (2007 13) New projects Capital invested Jobs created 19.4% 10.4% -9.6% 41 43 50 14257 35 13543 34 6531 19 4656 11664 25 10447 4906 3303 20 12069 5145 7293 9249 9441 3768 8480 4811 7613 5983 6581 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Capital invested FDI (US$m) Jobs created by FDI New project FDI Top sectors Nigeria s top 5 investors for FDI capital invested since 2007 (total = US$55,318m) 45 43 7293 oject FDI 9249 60 Investments into Nigeria have 58been rapidly diversifying 50 in the period since 2007. Although the oil sector still attracts the most capital, there has been significant growth of FDI in 34 telecommunications, consumer products, construction and business services. 9441 8480 4811 Nigeria s 3768investment into top sectors (2007 13) by most projects (Total = 306) Other sectors 47% Coal, oil and natural gas 8% Business Services 8% 7613 6531 Nigeria s investment into top sectors (2007 13) by most capital invested 19 5983 6581 009 2010 2011 2012 2013 % CAGR (2007 13) 4656 Technology, media and New projects Capital invested Jobs created 19.4% 10.4% -9.6% telecommunication 35 14257 24% 11664 25 10447 4906 Retail and consumer products 21% Capital invested FDI (US$m) Jobs created by FDI New project FDI 3303 20 Other investors (40%) Canada (31%) South Africa (6%) UK (7%) Nigeria s top 5 investors for FDI new projects since 2007 (total = 306) 12069 23059 41 13543 Other investors (49%) France 9441 (5%) 3768 Nigeria s top 10 project investors since 2007 Countries are ranked by most new projects (2007 13). 2008 The US, South Africa and the UK are the top 3 investors into Nigeria. In terms of capital investment, there is still a strong bias towards the oil sector. However, there is a marked shift, with investors from South Africa, the UK, and India, for example, leading the way in investing in sectors like telecommunications, consumer products and automotive. 2004 2005 2006 2007 2009 2010 2011 2012 2013 Financial Services 9% 5145 43 7293 9249 34 50 8480 4811 7563 60 7613 58 5983 6581 United States (8%) Mauritius (8%) United States (14%) South Africa (12%) UK (11%) India (9%) (Total = US$55,318m) 43 Other sectors 7% 38 35 Chemicals 3% Retail and consumer products 4% Coal, oil and natural gas 52% 4613 5775 3111 5595 3963 5447 2708 27 14 13 2870 1978 561 327 642 11 2516 9 9 8 1441 2761 986 915 835 293 13 11 9 9 8 2516 561 642 7 Real estate, hospitality and 986 835 construction 8% 1441 2761 Technology, media and 915 telecommunication 25% rmany Japan South Korea Singapore Switzerland 43 ject FDI 38 35 4613 5775 5595 5447 3963 293 27 7563 United States South Africa UK India France Germany Japan South Korea Singapore Switzerland Capital invested FDI (US$m) Jobs created by FDI New project FDI Source: All diagrams on this page have been sourced from fdi Markets and EY analysis. Africa by numbers A focus on Nigeria 6 3111 2708 14 13 2870 11 9 9 8
Nigeria s top investors by their top sector FDI investments since 2007 Investor countries are ranked by most new projects 2007 13. These top investors contribute to 56% of all project activity and 44% of capital invested into Nigeria since 2007. 11 9 6 4 3 13 9 6 4 4 8 5 5 4 4 7 4 4 3 2 4 3 2 2 1 TMT RCP Business services Financial services Coal, oil and natural gas RCP Financial services TMT Business services Real estate, hospitality and construction TMT Business services Coal, oil and natural gas RCP Financial services TMT Life sciences Healthcare Business services Automotive Coal, oil and natural gas TMT Real estate, hospitality and construction Financial services RCP 1224 953 243 1491 58 154 45 160 1862 710 256 1980 99 194 2239 1887 16 67 410 845 1540 488 34 101 1125 619 409 760 44 76 1246 1593 47 492 11 109 24 639 189 1776 2190 690 19 88 616 1000 22 126 4 20 United States South Africa UK India France 14% projects/8% capital 12% projects/6% capital 11% projects/7% capital 9% projects/5% capital 5% projects/5% capital Capital invested FDI (US$m) Jobs created by FDI New project FDI Source: fdi Markets; EY analysis. Nigeria s FDI outlook FDI outlook 2000 2013 2018 Comments Natural resources Labor Market size Infrastructure Bureaucracy Political environment Overall outlook for FDI Nigeria's oil and gas sector attracts a large proportion of total FDI, and its oil reserves will continue to attract substantial capital. A rapidly growing working population, but relatively low levels of education remains a hindrance. Largest population and now the largest economy in the region, with rising GDP per capita levels, makes this an increasingly attractive consumer market. Remains a challenge, but improvements have been made over previous decade, and there is a substantial number of currently active infrastructure projects. Significant levels still remain, which hinders economic activity. However, Government is increasingly open for business. Democratic institutions and processes have improved substantially, but social tensions remain a concern. Natural resources and a growing consumer market are strong pull factors for FDI. Investment in infrastructure and improvements in the overall business environment will boost FDI levels going forward. Very unattractive Unattractive Average Attractive Very attractive for FDI Source: Oxford Economics; EY analysis 7 Africa by numbers A focus on Nigeria
Nigeria s infrastructure project breakdown Nigeria s active* infrastructure projects up to July 2013 Nigeria ranks 2nd in Africa by number of projects and 2nd by capital allocation. Infrastructure s % contribution by number of projects Infrastructure s % contribution by capital value Construction sectors 7% Social and welfare 4% Power generation and transmission 22% Social and welfare 2% Power generation and transmission 23% Logistics sectors 66% Construction sectors 25% Logistics sectors 51% 46 16,475 13,782 12,600 10,500 24 7,015 5,288 11 2,848 7 5 2,470 4 3 2 2 103 Roads and bridges Power plants and transmission grids Airports Rail Industrial Ports Oil and gas construction pipelines Capital value (US$m) Project number Commercial construction Water *Active projects are categorized into three phases: 1. Conceptual to feasibility; 2. Financial closure to early implementation; 3. In progress and near completion. Source: Africa Project Access, Business Monitor International; EY analysis. Examples of some active infrastructure projects in Nigeria Project name Capacity and time frame Company involvement Other details Lagos Rail Mass Transit (PPP) Project Sponsored by the Lagos Metropolitan Area Transport Authority (LAMATA). Phase one: the 27.5km Blue Line from Marina to Okokomaiko; LAMATA's has envisioned a long-term plan of seven lines Completion of phase one is pushed out to end-2015 The China Civil Engineering Construction Corp. (CCECC) is the main EPC contractor on phase one. The project is sponsored by the Lagos State Government (LSG) and will be developed by LAMATA on behalf of LSG. This modern rail-based public transport system is the first of its kind in SSA outside of RSA. The railway equipment, including signaling, rolling stock and fare collection equipment, will be provided by the private sector. The project is also responsible for generating its own electricity. Detailed design and surveying for the entire project has been completed. Abuja-Kaduna Rail Modernisation (PPP) Project Upgrading to standard gauge. 186km rail modernization network will result in a track with 36 bridges and 9 fully developed stations In progress (brownfield); completion expected in 2014 China Exim Bank is providing a US$500m concessionary loan, the remaining US$374m comes from the Federal Government of Nigeria. China Civil Engineering Construction Corporation (CCECC) was awarded the main EPC contract. Track laying for the single standard gauge line was officially launched in July 2013. The railway modernization initiative in Nigeria aims at replacing the existing narrow gauge system with the wider standard gauge system, while allowing high-speed train operations on the railway network. Geregu II Gas-Turbine Power Plant Located in Ajaokuta, Kogi State. 434 MW The plant was turned over on schedule in mid-2013 Siemens won the turnkey EPC contract to build the power station for the Nigerian utility Niger Delta Power Holding Company (NDPHC). The project was commissioned under the National Integrated Power Project (NIPP) plan. Geregu II is now the third gas-turbine power plant to be constructed by Siemens in Nigeria as a turnkey project. By 2020, Nigeria plans to increase the country's generation capacity by five to eightfold from its current level of approximately 5 gigawatts (GW). Source: Africa Project Access, Business Monitor International; EY analysis. Africa by numbers A focus on Nigeria 8
EY in Africa One African executive team One African integrated operating model Cape Verde Senegal Gambia Guinea Bissau Mauritania Morocco Mali Algeria Burkina Faso Ghana Nigeria Benin Guinea Togo Equatorial Guinea Sierra Leone Liberia Sao Tome Côte d Ivoire Gabon Congo EY office Support available Niger Tunisia Libya Central African Republic Cameroon Egypt Chad Sudan Eritrea Angola Democratic Republic of Congo Burundi Zambia Zimbabwe Namibia Botswana South Africa South Sudan Ethiopia Kenya Rwanda Tanzania Swaziland Lesotho Uganda Djibouti Malawi Mozambique Somalia Seychelles Comoros Madagascar Mauritius Reunion Africa footprint includes 33 African countries 263 partners and employ over 5400 people Exceptional client service 164 years in Africa Building a better working world 9 Africa by numbers A focus on Nigeria
Africa Business Center TM Today, we are able to navigate through the complexity that our clients are experiencing across the geographies. We do this through our Africa Business Center. Its sole purpose is to help client make their investment and expansion decisions in Africa. Our Africa integration benefits our clients through: A network of people across Africa and the rest of the world, enabling us to coordinate our resources to provide clients with a single point of contact. Pre-eminent thought leadership and events such as the Africa attractiveness survey, the Strategic Growth Forum Africa and the Africa Tax Conference. The unique Growing Beyond Borders software an interactive map-based tool that visually maps data through the lens of the continent s geography. EY is a global leader in assurance, tax, advisory services and transaction advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY can give you a local and global perspective that is relevant to your sector. Across Africa, our principal focus is on: banking and capital markets; mining and metals; oil and gas; telecommunications; asset management; insurance; power and utilities; retail and consumer products; government and public sector; and government and infrastructure. A proven methodology for supporting the development of growth strategies for Africa. Publications Africa by numbers 2013/14 Whether entering into Africa or expanding across the continent, we believe it is critical to develop a structured analytical framework for prioritizing markets. This helps identify markets in which to expand and assess different strategic options. We stress the importance of having fact-based conversations about Africa, informed from a basis of rational analysis. Realizing potential. EY 2013/14 Sub-Saharan Africa talent trends and practices survey This report conveys optimism about Africa s enormous potential and our commitment to building a better working world. Acknowledging the importance of human capital as a key enabler of growth allows us to consider how its performance and contribution can be harnessed to create that better working world for all in Sub-Saharan Africa. EY Rapid-Growth Markets Forecast February 2014 Looking into the future of the world s rapid-growth markets (RGMs) could reveal some exciting opportunities. We expect our 25 RGMs to recover over the course of 2014, with growth of over 5% expected in 2015. However, should markets react negatively to the global monetary tightening that is expected this year, medium term growth prospects would be limited. Read EY s latest Rapid-Growth Markets Forecast to find out more. Africa by numbers A focus on Nigeria 10
World Economic Forum on Africa Abuja, Nigeria, 7-9 May 2014 EY contacts at WEF Africa 2014 Henry Egbiki Regional Managing Partner EY West Africa Tel: +234 8023145694 Email: henry.egbiki@ng.ey.com Michael Lalor Lead Partner EY Africa Business Center TM Tel: +27 83 611 5700 Email: michael.lalor@za.ey.com Adekunle Salau Leader Advisory Services EY West Africa Tel: +234 8112092999 Email: adekunle.salau@ng.ey.com Dayo Batatunde Assurance Lead EY Nigeria Tel: +2348023145695 Email: dayo.babatunde@ng.ey.com Claire Lawrie Partner EY Africa Advisory Oil & Gas Lead Tel: +234 (0) 703 909 7963 Email: claire.lawrie@ng.ey.com Emmanuel Idoko Business Development EY West Africa Tel: +234 8037868022 Email: Emmanuel.idoko@ng.ey.com EY s attractiveness survey Africa 2014 The fourth edition of the annual EY s attractiveness survey Africa 2014, will be launched on 15 May 2014. In our first edition of the Africa attractiveness survey 2011, we declared It is time for Africa! We also said that there was a window of opportunity to act before others woke up to the African opportunity. Today, that window is closing, and the cost of entering African markets is already beginning to rise. Companies with an already-established presence continue to expand and entrench their advantages. In our opinion, the risk of missing this window is likely to be far greater than any of the risks you will encounter in actually doing business in Africa. EY s attractiveness survey Africa 2014 Available 15 May. www.ey.com/za EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 2014 EYGM Limited. All Rights Reserved. ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com @ EY_Africa