Transcript Venture Alliance Offshore Partners Nigeria Limited (*VAOP*)

Investing in Lekki Free Zone
Taking a Stake in Africa’s Biggest Economy
28 January 2015
Investing in Lekki Free Zone
Nigeria’s Place in the African Growth Story
Africa’s diversity
• Over 1 billion people (500+ ethnic groups. 2,000+ languages, 54 countries)
• Rich in natural resources with:
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10% of world’s oil reserves
40% of gold
80% - 90% of chromium and platinum group metals
60% of world’s uncultivated arable land (600 million hectares)
• Emergence of large African companies
• 20 African companies with revenues > $3bn
• Over 100 African companies with revenues > $1bn
Africa’s growth story
From “...the hopeless continent” (Economist, 2000) to the “African Growth Miracle” (AfDB Report, 2010)
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Robust, broad-based economic growth
Mineral resource wealth
Population growth
Economic and political reform
Urbanisation
Increasing disposable incomes and growth of a middle class
Infrastructure needs
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Positive average growth rates for the first time in decades
Over 6% per annum in some of the fastest growing economies by 2010
Real consumption in Africa has been growing between 3.4% and 3.7% per annum (2012)
Africa’s growth story
Selected SSA Economies: Real GDP, Consumer Prices, Current Account Balance
SSA
Oil Exporters3
Nigeria
Angola
Equatorial Guinea
Gabon
Republic of Congo
2013
4.9
Real GDP
Projections
2014
2015
5.4
5.5
2013
6.3
Consumer Prices1
Projections
2014
2015
6.1
5.9
Current Account Balance2
Projections
2013
2014
2015
-3.6
-3.6
-3.9
5.8
6.3
4.1
-4.9
5.9
4.5
6.7
7.1
5.3
-2.4
5.7
8.1
6.7
7.0
5.5
-8.3
6.3
5.8
7.4
8.5
8.8
3.2
0.5
4.6
6.9
7.3
7.7
3.9
5.6
2.4
6.6
7.0
7.7
3.7
2.5
2.4
3.9
4.7
5.0
-12.0
10.6
-1.2
3.3
4.9
2.2
-10.2
6.9
2.0
2.1
4.0
-0.4
-10.9
4.5
0.1
Middle-Income
Countries4
South Africa
Ghana
Cameroon
Cote d'Ivoire
Botswana
Senegal
3.0
1.9
5.4
4.6
8.1
3.9
4.0
3.4
2.3
4.8
4.8
8.2
4.1
4.6
3.7
2.7
5.4
5.1
7.7
4.4
4.8
5.8
5.8
11.7
2.1
2.6
5.8
0.8
5.9
6.0
13.0
2.5
1.2
3.8
1.4
5.5
5.6
11.1
2.5
2.5
3.4
1.7
-5.7
-5.8
-13.2
-4.4
-1.2
-0.4
-9.3
-5.1
-5.4
-10.6
-3.5
-2.2
0.4
-7.5
-4.9
-5.3
-7.8
-3.6
-2.0
0.2
-6.6
Low-Income Capital5
Ethiopia
Kenya
Tanzania
Uganda
DRC
Mozambique
6.5
9.7
5.6
7.0
6.0
8.5
7.1
6.8
7.5
6.3
7.2
6.4
8.7
8.3
6.8
7.5
6.3
7.0
6.8
8.5
7.9
6.0
8.0
5.7
7.9
5.4
0.8
4.2
5.5
6.2
6.6
5.2
6.3
2.4
5.6
5.5
7.8
5.5
5.0
6.3
4.1
5.6
-11.8
-6.1
-8.3
-14.3
-11.7
-9.9
-41.9
-11.8
-5.4
-9.6
-13.9
-12.6
-7.9
-42.8
-11.7
-6.0
-7.8
-12.9
-12.1
-7.2
-43.2
Germany
United Kingdom
0.5
1.8
1.7
2.9
1.6
2.5
1.6
2.6
1.4
1.9
1.4
1.9
7.5
-3.3
7.3
-2.7
7.1
-2.2
1. Movements in consumer prices are shown as annual averages
2. Percent of GDP
3. Includes Chad and South Sudan
4. Includes Cabo Verde, Lesotho, Mauritius, Namibia, Seychelles, Swaziland, and Zambia
5. Includes Benin, Burkina Faso, Burundi, Central African Republic, Comoros, Eritrea, Gambia,
Guinea, G-Bissau, Liberia, Madagascar, Malawi, Mali, Niger, Rwanda, Sao Tome and Principe,
Sierra Leone, Togo, and Zimbabwe
Source: IMF, 2013
Africa’s growth story
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Growth in SSA ~ 4.9% in 2013 (and 2012)
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Underpinned by improved agriculture production and investment in natural resources and infrastructure
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Angola, Nigeria, Ethiopia, and Rwanda are among the fastest growing economies in the world
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Not one economy or homogenous population block
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Among the less-integrated commodity exporters, Zambia’s currency benefited from strong copper export revenues and investor interest in
its debut $750m sovereign bond in Sep 2013
Nigeria’s growth has been strong due to high international oil prices (up until late 2014) –benefiting NGN – despite security problems in the
north and alleged large-scale oil mispractices in H1 2013
South Africa’s growth continued to decelerate, constrained by tense industrial relations in mining, tight power supply, anemic private
investment, and weak consumer and investor confidence
Nigeria’s target: top 20 economies in the world by 2020 (Vision 20: 2020) – primary objectives to:
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Create an enabling environment for green and inclusive economic growth
Diversify Nigerian economy
Create employment opportunities; and
Reduce poverty
Investing in Lekki Free Zone
Nigeria:
The Economic Giant of Africa
Where are the Opportunities?
Nigeria:
Opportunities in Africa’s largest economy
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Political Context
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Democracy in Nigeria – a work in progress
Mobilisation along ethnic and religious lines pose significant challenges
Challenges posed by civic unrest and insurgencies
Economic Developments
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Population of approximately 170 million with a land area of 923,768 km2
26th largest economy in the world and SSA’s largest economy (given rebasing of GDP data)
Predominantly primary product oriented (agriculture and crude-oil production)
“Dutch disease” in 1970s diminished the role of agriculture and manufacturing sectors
Oil and gas accounts for 79% of revenue collected at federal level and >70% of export revenue
Agriculture (vulnerable to climate change) is c. 40% of the nation’s GDP and employs 70% of the labour force
High consumer demand is now the driving factor
Nigeria:
Opportunities in Africa’s largest economy
Brand Success Case Studies
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Telecoms Sector (MTN Nigeria Communications)
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Started operating in 2001 in Nigeria and successfully completed first GSM mobile call and 3G calls in Aug 2001 and
May 2007 respectively
Full-service mobile telecom company operating in mobile, fixed-line telephony and data business lines
Over 55 million subscribers in Nigeria
Banking Sector (United Bank for Africa Plc)
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Incorporated in 1961 to acquire old business of the British and French Bank (BFB) which started in Nigeria in 1948
First Nigerian bank to offer an IPO following listing on NSE in 1971
Product of a merger between UBA and STB in 2005 and one of the largest corporate mergers in Nigeria
One of the largest financial groups in SSA with balance sheet size > $3bn and over 2m active customer accounts
First Nigerian bank to obtain banking license in Ghana in 2004
Presence in New York / Grand Cayman Island, and 18 African subs: 20% of group balance sheet (targeting 50%)
Nigeria:
Opportunities in Africa’s largest economy
Brand Success Case Studies (cont’d.)
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Retail Sector (Shoprite)
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One of Africa’s largest food retailers with operations in 16 countries on the continent
Started by consolidating market leadership in South Africa by uniquely targeting mid/bottom end of food retail market
Employed centralised distribution strategy (owning warehouses to which suppliers make deliveries, then sending
trucks out to stores as stock is needed as opposed to relying on supplier’s schedules)
Supply chain control and also cost reductions since stores no longer needed huge loading and storage areas to hold
large inventories
First entered Nigeria in 2005 – first store at The Palms, Victoria Island, Lagos
Shoprite’s lead-time to supply one its stores in Nigeria from Cape Town base is 117 days ~ resulting in the company
considering building a distribution centre in Nigeria
Foreign investors are no longer only interested in oil wells and mines in Africa – also looking at mediumsized opportunities in FCMG, financial services … Also, notably geographic base and type of foreign
investors are also rapidly changing
Nigeria:
Opportunities in Africa’s largest economy
Challenges and Weaknesses
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Governance
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Mismanagement of oil resources
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Perception of widespread corruption has undermined trust between citizens and the levers of government
Steps being taken via EFCC and ICPC and the Senate / House of Reps launching investigations to expose corruption,
inefficiencies and waste in areas including the subject of oil subsidies and petroleum revenue management
To curb wastage and introduce fiscal prudence, SWF established alongside Excess Crude Account (ECA), where excess
oil revenue over the benchmark oil price are deposited
Draft PIB is also expected to address transparency in the sector and redefine the roles of key executive and regulatory
agencies and the national oil company (amongst other items)
Infrastructure deficit
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Power, roads, railways – inadequacies due to mismanagement and/or implementation problems
Budgetary allocations are insufficient to finance the deficit ~ so government is promoting private sector participation
under Vision 20: 2020
Nigeria:
Opportunities in Africa’s largest economy
Challenges and Weaknesses (cont’d.)
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Poor and inadequate public financial management
Lack of long-term, cost effective financing for SMEs
Business environment and competitiveness
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World Bank’s 2013 “Doing Business Report” ranked Nigeria 131st out of 185 countries, marginally better than 133rd
out of 183 countries in the 2012 Report
Challenging social harmony
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Multi-ethnic society – minority interests or fears based on diversity are a source of discontent ~ people of Niger Delta
over resource allocation / Boko Haram
Income disparities highlight four different economies within the Nigerian economy:
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Middle / High Income economy – Lagos State: GDP per capita of $3,000+
Resource Rich economies – Niger Delta States
Fragile State economies – North-Eastern States
Low Income economies – rest of the states
Nigeria:
Opportunities in Africa’s largest economy
Inherent Strengths & Opportunities
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Potential to become a major global economy player
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Abundant natural resource endowments
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Middle Income, mixed economy, and an emerging market with expanding financial, service, telecom, hospitality and
entertainment sectors
Despite weak business environment, total FDI rose from $5.7bn in 2009 to $8.9bn in 2011 (20% of total FDI to Africa)
34 different minerals across Nigeria including gold, iron ore, coal, and limestone
37.2bn barrels of proven oil reserves and 187 trillion cubic feet of proven natural gas
Opportunities also for fertiliser and liquefied gas production
Human capital
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Nigeria is a leader in the continent when it comes to qualified medical officers, engineers, and other professionals
Succumbed to the problem of “brain-drain”
Nigeria:
Opportunities in Africa’s largest economy
Inherent Strengths & Opportunities
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Agriculture and manufacturing potential
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Nigeria’s yield per hectare is 20% - 50% of that obtained in comparable developing countries
Capacity utilisation in manufacturing also decreased from 54% (early 1980s) to c. 35%
To develop the non-oil sector and achieve a strong manufacturing/industrial base, government needs to tap
comparative advantages to enhance competitiveness of Nigerian enterprises (including modernisation of key
infrastructure to set up industrial clusters and special economic zones to promote industrialisation)
Opportunities from regional integration
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In 2011, Nigeria’s exports to African countries was 10.7% of total value of exports (exports to Economic Community o
West African States – 3%)
Nigeria is a founding member of ECOWAS and one of its major financial contributors
Nigeria stands to benefit more from regional integration to offer more opportunities for it’s trade and investors
Limited progress made (customs union, free movement of persons, ECOWAS passport) – still a major challenge due to
lack of regional infrastructure including transport, trade facilitation measures, and regional energy production
Nigeria:
Opportunities in Africa’s largest economy
Inherent Strengths & Opportunities
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Rapid urbanisation represents opportunity for diversifying income and growth
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Rapid urbanisation ~ 50% of population living in urban centres in 2010
Although opportunities to diversify incomes, expand options for more affordable service delivery and widen horizons
for innovation and skills acquisition, rapid urbanisation also pressurises cities to provide urban jobs, housing, energy
and infrastructure to mitigate urban poverty, expansion of slums, and a deterioration of the urban environment
Relative strength and success of Lagos State offers opportunities that the country can leverage to promote its
economic development
Investing in Lekki Free Zone
Lagos State – A Success Story for Investors
Lagos State – At a Glance
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Established on 27th May 1967: Nigeria’s most populous state with > 19m people – mainly young and
abundant workforce and relatively untapped market for consumer products and services
Over 50% of Nigeria’s industrial capacity is located in Lagos
7th fastest growing city in the world at 5% pa
Contributes over 25% to Nigeria’s GDP
Consumes over 60% of Nigeria’s energy
Accounts for 90% of Nigeria’s foreign trade flows and 70% of all industrial investments
Generates over 90% of Nigeria’s port revenues
70% of state’s revenues is internally generated
The Third Mainland Bridge is the longest bridge in Africa (11.8 km)
240 vehicles per km (national average: 11)
Power deficit of over 3,000MW
Daily water demand gap: 2.5 billion litres
10,000 metric tonnes of waste generated daily
Lagos State – At a Glance
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Lagos is the only coastal megacity in Africa
Favourable location for trade, tourism and industry
It’s GDP is similar to Angola
Local GDP expected to outperform national GDP growth of c. 7% in 2014/15
Lagos State – Recent Track Record
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Completion of 3 power plants across the state
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Six simultaneous transport solutions at present (including Lagos Light Rail, Lagos Ferry and Lagos Car)
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On housing, the State delivers 200 Housing Units monthly with a 10-year mortgage and maximum interest
rates of 9.5% pa
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A large portion of the State’s infrastructure is financed from Internally Generated Revenue (the State
continues to perform its statutory obligations despite declining federal allocations)
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Development of a tax based economy
Lagos State – Key Success Factors
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Diverse economy – service, construction, transport and industry account for 80% of local economy
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Represents the benchmark for budget implementation and performance in the country
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In 2012/2013, the State’s budget recorded 89% and 85% performance respectively
Also run quarterly budget
In November 2014, Fitch ratings of Lagos State:
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National Long-Term Ratings: AA+ / Stable
Long-Term Foreign and Local Currency Issuer Default Ratings: BB- / Stable
Short-Term Foreign Currency Issuer Default Ratings: B
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Fitch rates the state high on debt management which has improved with longer bond tenures and more
loans from development banks
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State performance is shown by enhanced transparency, renewed efforts towards increasingly urbane and
transparent administration – favourable to increasing private sector investment