BANKING

Foreign Direct Investment in Nigeria: Opportunities and Challenges

Published

1 year ago

Foreign Direct Investment in Nigeria: Opportunities and Challenges

Foreign Direct Investment (FDI) is a crucial driver of economic growth and development worldwide. It entails the allocation and investments of capital, technology, and expertise from one country to another to foster economic progress through various means. Nigeria, one of its largest economies in Africa, has a set of significant opportunities and unique challenges for foreign investors. Let’s take a look into the specific opportunities and challenges that foreign investors might face when contemplating FDI in Nigeria: Foreign Direct Investment in Nigeria: Opportunities and Challenges

Foreign Direct Investment in Nigeria: Opportunities and Challenges

Opportunities in Foreign Direct Investment in Nigeria

Let’s look into how foreign investors have leveraged Nigeria’s opportunities in various sectors.

Abundant Natural Resources

Nigeria is blessed with abundant natural resources like oil, gas, solid minerals, and arable land which makes it an attractive destination for foreign investors looking to tap into these resources. Nigeria is one of the world’s largest oil producers, and for decades, its energy sector has traditionally attracted significant foreign investment and companies like Shell, ExxonMobil, and Chevron that invest in exploration, production, and the development of oil and gas infrastructure. Its rich solid minerals, like gold, coal, limestone, and tin attracts companies like the Australian-based Kogi Iron involved in the exploration and production of iron ore.

Large Consumer Market

Nigeria offers a vast consumer market with a population of over 200 million people. Making it an ideal destination for consumer-focused industries which foreign companies can access to sell their products and services. The large population in Nigeria represents a substantial consumer base for Fast-Moving Consumer Goods (FMCG) companies. For example, Procter & Gamble has invested heavily in Nigeria manufacturing a wide range of products, from detergents to personal care items, to meet the demands of the local market. Companies like Jumia have tapped into Nigeria’s burgeoning e-commerce market by capitalizing on the expanding middle class’s purchasing power to provide platforms for both local and international products.

Economic Diversification Initiatives

Various programs have been initiated by the Nigerian government to diversify the economy away from its heavy dependence on oil. Incentives and support for sectors like agriculture, manufacturing, and technology provides FDI opportunities beyond the oil and gas sector. Examples of such FDI is Olam International, a Singapore-based agribusiness company’s investment in various agricultural projects like rice and cocoa production to help Nigeria diversify its economy. Nestlé has also established manufacturing plants in Nigeria for producing a range of food and beverage products locally. To cater for both the domestic market and an export hub to neighboring countries.

Infrastructure Development

Nigeria has invested in the development of infrastructures like transportation, power, and telecommunications. Foreign investors have also participated in these projects through public-private partnerships (PPPs) or direct investments. Example is the Chinese construction giant, China Civil Engineering Construction Corporation (CCECC), has been involved in building Nigeria’s modern railway infrastructure. They have undertaken projects like the Lagos-Ibadan railway and the Abuja-Kaduna railway to contribute to improved transportation links.

Trade Agreements

Nigeria is a signatory to several regional and international trade agreements, such as the African Continental Free Trade Area (AfCFTA) which has opened doors for foreign investors to establish businesses in Nigeria for not only accessing its market but also utilizing it as a base for serving the broader African market. For instance, companies like Dangote Industries are expanding their operations to cater to the increased demand under the AfCFTA.

The opportunities are vast but the challenges that hinders the success and sustainability of foreign investments in Nigeria are also enormous.

Challenges in Foreign Direct Investment in Nigeria

It’s essential to recognize the enormous challenges that hinders the success and sustainability of foreign investments in Nigeria. Below we will be taking you through these challenges.

Infrastructure Deficit

This is a significant challenge to businesses operating in the country. Despite all the efforts put in place to develop the infrastructures in Nigeria, the infrastructure is still inadequate. Power supply is one of the most significant challenges in Nigeria. The country faces frequent blackouts and power shortages. This poses operational difficulties and increases cost of running business for foreign investors. Hence, companies have to invest in expensive backup power solutions. For example, telecommunications companies like MTN and Airtel have to maintain extensive power backup systems to ensure uninterrupted services to customers. The roads and ports are also inadequate and poorly maintained which can lead to delays in the movement of goods and increased logistics costs. For instance, foreign companies involved in logistics and supply chain operations may experience significant challenges in ensuring timely deliveries.

Bureaucracy and Corruption

Nigeria’s bureaucratic processes are complex and time-consuming leading to lengthy customs clearance processes and administrative bottlenecks. These delays can impact the timely import and export of goods as companies may face difficulties in getting their products to market which will affect profitability. Furthermore, foreign investors may encounter demands for bribes or face regulatory hurdles that are influenced by corrupt practices wic must be carefully navigated to maintain ethical business practices. Though the Nigerian government has implemented anti-corruption initiatives, corruption still remains a persistent challenge for foreign investors.

Inconsistent Regulatory Environment

Frequent changes in regulations and policies can create uncertainty for foreign investors making understanding and navigating the regulatory landscape challenging. For this reason, companies must stay vigilant and adapt to these changes swiftly.

Security Concerns

Some parts of Nigeria experience security challenges, like insurgency in the northeast and incidents of kidnapping in the Niger Delta region. These security concerns disrupt business operations and impact the safety of employees. Foreign oil companies operating in the Niger Delta, such as Shell and Chevron, have been facing security-related challenges over the years.

Currency Fluctuations

Nigeria’s currency (Naira) value fluctuates due to various economic factors. This can affect the profitability and stability of foreign investments especially for businesses that rely on foreign exchange. For example, foreign companies that import raw materials may find their costs rising due to unfavorable exchange rates.

Local Content Laws

In some sectors in Nigeria, local content laws that require foreign investors to prioritize local suppliers and labor have been implemented. For instance, the Nigerian Oil and Gas Industry Content Development Act stipulates that a significant portion of the workforce and materials used in the oil and gas sector must be locally sourced. Compliance with these laws is complex and adds to operational costs.

Access to Finance

Accessing finance can be challenging for foreign investors as the Nigerian financial sector is not as developed as that of some other countries. As a result, companies seeking loans or equity investments may encounter hurdles related to stringent lending criteria or limited access to venture capital.
To navigate these challenges, foreign investors need to develop robust risk management strategies, engage with local partners who understand the market, and maintain a flexible approach to adapt to changing conditions. Despite the obstacles, Nigeria’s potential rewards, its vast market and abundant resources continue to attract foreign investors willing to invest wisely and strategically.
In conclusion, Foreign Direct Investment in Nigeria presents a wealth of opportunities for investors willing to navigate its unique challenges. Success in FDI in Nigeria requires careful planning, thorough due diligence, local partnerships, and a long-term perspective. By understanding the opportunities and challenges and implementing appropriate strategies, foreign investors can contribute to Nigeria’s economic growth while achieving their own business objectives in this dynamic African market.

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BANKING

Afreximbank Acts as Joint Lead Manager on Ecobank Transnational Incorporated’s USD 400mn Senior Unsecured Note Issuance

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1 month ago

Christopher

The proceeds of the note will fund general corporate purposes of the issuer, including refinancing of a USD350 million senior bridge-to-bond loan facility that was jointly coordinated by Afreximbank in March 2024.

African Export-Import Bank (“Afreximbank”) (www.Afreximbank.com) is pleased to announce that it has successfully acted as Joint Lead Manager and Bookrunner on a USD 400 million 10.125% Rule 144a/RegS senior unsecured note issuance by Ecobank Transnational Incorporated (“ETI”) due in October 2029.

The note issuance achieved peak orderbook oversubscription of 2.1x, backed by more than 70 high-quality and diverse investors comprising development finance institutions, asset managers, commercial banks and insurance companies from Africa, the UK, USA, Europe and the Middle East.

Professor Benedict Oramah, President and Chairman of the Board of Directors of Afreximbank, commenting on the transaction, said: “We are pleased to have supported Ecobank Transnational Incorporated (“ETI”) in placing the first public Eurobond issuance by any Sub-Saharan African financial institution since 2021, following our bridge financing support earlier in the year. This transaction underscores Afreximbank’s capacity and readiness to structure innovative market access solutions for our pan-African banking partners.”

Afreximbank’s Advisory and Capital Markets (ACMA) department acted as Joint Lead Manager and Bookrunner on the issuance, working alongside international and African partners.

Distributed by APO Group on behalf of Afreximbank.

BANKING

International Islamic Trade Finance Corporation (ITFC) and the Central Bank of Nigeria Successfully

Published

2 months ago

Christopher

International Islamic Trade Finance Corporation (ITFC) and the Central Bank of Nigeria Successfully

These workshops form part of ITFC’s Integrated Trade Solutions (ITS) framework, aligning with the organization’s goal of providing holistic trade financing interventions in OIC member countries.

The International Islamic Trade Finance Corporation (ITFC) (www.ITFC-idb.org), a member of the Islamic Development Bank (IsDB) Group, in partnership with the Central Bank of Nigeria (CBN), successfully concluded a workshop on Non-Interest Banking and Trade Finance in Nigeria. Held from 17th to 19th September 2024 in Abuja, the sessions aimed to enhance capacity and knowledge in Islamic banking principles, trade finance products and services, and how different financial toolkits are applied in Islamic finance from operational and business perspectives.

International Islamic Trade Finance Corporation (ITFC) and the Central Bank of Nigeria Successfully

Nigeria’s Islamic finance industry, valued at US$3.8 billion, is one of the major Shariah compliant industries in Africa. Despite some challenges such as low public awareness and a smaller capital base compared to conventional banks, Islamic finance has been substantially contributing to reduce financial exclusion and improve access to affordable finance in the country. The three-day workshop was designed to bridge prevailing knowledge gaps focusing on key areas such as Sukuk issuance and main non-interest banking products basics.

Delivered under ITFC’s Integrated Trade Solutions framework, the workshop equipped professionals with the skills to promote Islamic finance in Nigeria while also highlighting ITFC’s wide range of trade financing services.

Participants reported a significant boost in understanding Islamic banking and trade finance, and the workshop showcased ITFC’s contributions to economic development through sustainable financial solutions.

Eng. Nasser Al Thakair, ITFC, remarked: “ITFC is committed to supporting Nigeria’s efforts in Islamic finance, tailoring this workshop to address the unique challenges faced. We will continue to provide the expertise and financial backing needed to grow Islamic finance in Nigeria and beyond.”

Over 30 professionals from the Central Bank of Nigeria, non-interest banks, and other financial institutions attended, further advancing Islamic finance in the country.

As Nigeria positions itself as a leading market for Islamic finance in Africa, ITFC remains dedicated to advancing trade finance and supporting the growth of the sector for long-term economic impact.

Distributed by APO Group on behalf of International Islamic Trade Finance Corporation (ITFC).

About the International Islamic Trade and Finance Corporation (ITFC):

The International Islamic Trade Finance Corporation (ITFC) is a member of the Islamic Development Bank (IsDB) Group. It was established with the primary objective of advancing trade among OIC member countries, which would ultimately contribute to the overarching goal of improving the socioeconomic conditions of the people across the world. Commencing operations in January 2008, ITFC has provided over US$75 billion of financing to OIC member countries, making it the leading provider of trade solutions for these member countries’ needs. With a mission to become a catalyst for trade development for OIC member countries and beyond, the Corporation helps entities in member countries gain better access to trade finance and provides them with the necessary trade-related capacity-building tools, which would enable them to successfully compete in the global market.

FINTECH

Kazang Pay launches card acquiring service in Zambia

Published

2 months ago

Christopher

Kazang (www.Kazang.com), the prepaid value-added services (VAS) and card acquiring business within JSE-listed fintech Lesaka Technologies, has launched its Kazang Pay card acceptance solution for merchants in Zambia. Kazang Pay makes it affordable for merchants to accept card payments on the same Kazang terminal they use to sell prepaid products and services.

Kazang Pay launches card acquiring service in Zambia

The Kazang Pay enabled terminal in Zambia accepts VISA debit and credit cards as well as mobile wallet payments. Payments are settled to the merchant’s Kazang wallet on the same day. It’s as easy as letting the customer tap or insert their bank card and enter their PIN on the secure scramble PIN pad.

Kazang operates around 12,000 VAS terminals in Zambia. The goal is to enable the majority to accept card payments over the next six months. Benefits to merchants include low transaction fees and no monthly terminal rental fee for those that meet a modest monthly transaction threshold as well as the opportunity to grow their business through card acceptance.

Kazang is Zambia’s largest VAS point-of-sale terminal provider, enabling mobile money payments, bank and mobile money cash in and out, bill payments, airtime, Zesco, and many other prepaid services on one platform. The addition of card acceptance makes the platform even more comprehensive for merchants and consumers alike.

The launch of Kazang Pay in Zambia follows the introduction of the solution in South Africa, where around 60,000 small and micro merchants use Kazang Pay to accept card payments. In Zambia, there are around 3.8 million debit, credit and ATM cards in issue and 41,000 point of sale (POS) terminals in place. The value of POS transactions has grown to K 111.4 billion by 2022 from less than K 20 billion in 2018, according to the Bank of Zambia.

Says Leon de Wit, managing director at Kazang Zambia: “Zambia has made enormous strides in terms of financial inclusion, with card usage and penetration growing at a rapid pace. With Kazang Pay, merchants can now easily accept card payments on the same all-in-one terminal they already use for vending of VAS products.

“Card transactions help merchants to grow basket sizes and potentially attract more customers, and at the same time, reduce the risks and costs of handling cash. Moving towards digitalised payments will also enable merchants to track sales, manage cash flow, and create a footprint that could make it easier for them to access loans.”

Ashley Naidoo, director of Kazang Pay in South Africa says: “Our Zambian merchants have eagerly embraced our card acquiring service as a valuable part of our one-stop solution. Following the launch of Kazang Pay in Zambia, we have seen higher VAS sales across our merchant base and much-improved merchant retention and with our card acquiring solution we now appeal to a broader merchant base.”

Distributed by APO Group on behalf of Kazang.

ABOUT KAZANG:
Kazang (www.Kazang.com) is a leading provider of cash and digital solutions to merchants in Southern Africa’s informal economies. Our fintech solutions include a diverse range of value-added services (VAS), card acquiring, secure cash vaults and supplier payments platforms. Operating with a network of approximately 90,000 active devices, we process approximately 2.2 million transactions daily in markets such as South Africa, Namibia, Botswana, and Zambia.

We are dedicated to helping small and medium merchants grow and succeed, through increasing their sales, making their businesses more efficient and reducing their risks with its holistic portfolio of products and services. Kazang is a member of Lesaka Technologies (https://LesakaTech.com).

ABOUT LESAKA TECHNOLOGIES, INC:
The Connect Group and Kazang was acquired by Lesaka Technologies, Inc. in April 2022. Lesaka Technologies, (Lesaka™) is a South African Fintech company that utilizes its proprietary banking and payment technologies to deliver superior financial services solutions to merchants (B2B) and consumers (B2C) in Southern Africa. Lesaka’s mission is to drive true financial inclusion for both merchant and consumer markets through offering affordable financial services to previously underserved sectors of the economy. Lesaka offers cash management solutions, growth capital, card acquiring, bill payment technologies and value-added services to retail merchants as well as banking, lending, and insurance solutions to consumers across Southern Africa.

Lesaka has a primary listing on NASDAQ (NasdaqGS: LSAK) and a secondary listing on the Johannesburg Stock Exchange (JSE: LSK). Visit www.LesakaTech.com for additional information about Lesaka Technologies (Lesaka ™). $LSK / $LSAK