Nigeria’s telecommunications sector and expanding consumer market are brimming with promising investment prospects, according to a recent analysis by global investment firm Morgan Stanley. The report identifies telecom operators and consumer goods companies as particularly attractive investment targets.
Morgan Stanley attributes this optimism to Nigeria’s strong mobile phone penetration rates, low mobile data usage levels, and projected income growth. The firm estimates that internet usage in Nigeria is one-tenth of that in South Africa, indicating significant room for growth. Additionally, last year’s regulatory changes enabling telecommunications operators to offer banking services have spurred the development of a thriving mobile-money market.
Mobile Money and Financial Inclusion
Nigeria’s high mobile phone ownership, estimated at over 85%, and the presence of a large unbanked population, with over half of the population without bank accounts, create a fertile ground for mobile money services. Currently, only 10% of the population utilizes mobile money accounts.
Steven Quattry, an executive director at Morgan Stanley with over 19 years of industry experience, asserts that if mobile money penetration in Nigeria reaches levels seen in Senegal, Ghana, and Kenya, ranging from 75% to 95%, it would dramatically boost financial inclusion and present lucrative investment opportunities, particularly in telecom operators.
Consumer Goods Market Poised for Expansion
The burgeoning consumer goods market in Nigeria is another area of potential investor interest. Morgan Stanley analysts note that as GDP per capita increases in emerging markets, typically within the range of $2,000 to $5,000, households gain sufficient disposable income to venture beyond essential needs and indulge in discretionary purchases.
Citing China’s experience as an example, the analysts highlight that as GDP per capita rose from $1,000 to $4,000, automobile demand surged from one million vehicles to over 17 million. A similar dynamic in Nigeria could propel the consumer goods market to grow by 150%, from an estimated $240 billion in 2023 to around $603 billion in 2030. This growth could present investment opportunities in various sectors, including packaged food and beverages, household and personal care products, education, healthcare, and even durable goods like appliances and transportation.
Addressing Inflationary Challenges
While these projections paint a rosy picture, Nigeria’s current economic realities pose challenges. Headline inflation soared to 27.33% in October, primarily driven by the naira’s depreciation and rising food and fuel prices.
This inflationary environment could hinder consumer spending, as a significant portion of household income is allocated towards food purchases. Moreover, stagnant wages and naira depreciation further dampen consumer purchasing power.
Economist Seun Smith cautions against investing in the domestic mass market in the near term, emphasizing that exports, including services, offer more promising prospects.
Service Exports: A Bright Spot
Morgan Stanley analysts highlight Nigeria’s immense potential for service exports, particularly given its large English-speaking population. By some estimates, 125 million Nigerians speak English, surpassing the combined populations of the UK, Canada, and Australia. This linguistic advantage could fuel the growth of service-export industries, similar to the Philippines’ business process outsourcing (BPO) sector, which generates over $35 billion annually in hard currency, equivalent to roughly 10% of Nigeria’s projected GDP in 2023.
The Nigerian music and film industries also hold promise for service exports. The country boasts two of the most prominent Afrobeats artists, a genre that has garnered over 16 billion plays on popular streaming platforms. Additionally, the Nigerian film industry, affectionately known as Nollywood, produces around 2,500 films per year and is attracting investments from major global media companies. Morgan Stanley estimates that by 2030, Africa’s film and music industries, largely driven by Nigerian productions, could be worth $20 billion and create 20 million jobs.
While Nigeria’s economic landscape presents challenges, the country’s demographics, growing consumer market, and potential for service exports offer compelling investment opportunities. Investors should carefully consider these factors and conduct thorough due diligence before making investment decisions.
