Economic factors that drive investment

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There is increasing support from financial institutions in the country for viable business ideas in terms of loans or grants.

The Central Bank of Nigeria, the Bank of Industry and the Bank of Agriculture among others are giving maximum support to entrepreneurs.

However, a viable business idea should be one that the economic environment and available policies will support to survive and expand, experts say.

According to a report by McKinsey Global Institute, the global media have focused on violent unrest in parts of the country, and less has been written about the significant economic progress that has been made in recent years, therefore it assesses the immense potential of Nigeria.

The report titled, ‘Nigeria’s renewal: Delivering inclusive growth,’ noted that with about 170 million inhabitants, the country had long been the largest nation in Africa, but it is only now also acknowledged as the continent’s largest economy.

In April 2014, the government began to release rebased data that shows Gross Domestic Product of $454bn in 2012 and $510bn in 2013 confirming Nigeria’s lead over South Africa as the continent’s largest economy.

Experts note the Nigeria’s economy can be better if exposed to the right reforms and investments, projecting that it could become one of the world’s leading economies by 2030.

The new data shows that the country is no longer just a petro-economy because its entire resource sector today accounts for just 14 per cent of GDP because agriculture and trade are growing fast.

In addition it says it is not generally recognised that the county’s productivity, though low, has been growing recently and now contributes more to GDP growth than the country’s expanding population.

Among the major findings of this research which entrepreneurs could take advantage of are:

Improved agricultural yield

The report notes that while crop yields have improved in recent years, they remain far below those of peer nations, because Nigerian farmers have limited access to productivity-improving inputs, such as fertilizer and mechanised tools.

It adds that because of high post-harvest losses and an inefficient market system, farmers receive a small share of the value their work creates.

“Urban poverty is driven by poor employment options and low productivity. In Nigeria, workers in urban-oriented industries such as manufacturing actually have lower productivity than farm workers. This is the opposite of what normally happens as economies develop and urbanise —productivity and incomes are supposed to rise in tandem as people move off the farm and take up work in the city,” the report says.

It estimated that Nigeria can double agricultural output, from $112bn per year in 2013 to $263bn by 2030.

According to Mckinsey and Co., this will raise the annual growth rate to 5.2 per cent from 2.6 per cent in recent years.

It says that capturing this potential will require a four-pronged approach in crop farming — boosting yields, shifting more production into high-value crops, reducing post-harvest and distribution losses, and increasing land under cultivation — as well as improvements to fisheries and livestock production.

The report notes that large commercial farms could also be a significant employment opportunity for a young labour force, adding that commercial farms are not a major factor in Nigerian agriculture today, but they could evolve if titling and land transfer processes are strengthened and simplified.

Effective project delivery in the health and education sectors

In addition, it estimates that nearly 120 million Nigerians can move above the empowerment line and 70 million could be lifted out of poverty if growth can be made more inclusive than it has been.

The report suggests strengthening government capabilities to capture the growth opportunity and make it more inclusive.

“On health and literacy metrics, Nigeria lags behind other developing economies that spend a similar proportion of GDP in these areas. By employing well-established global practices to improve delivery of programmes and projects, the country can achieve better results,” it adds.

High demand for food and care products

As a result of the country’s large consuming class, the report predicts that by 2030, some 160 million Nigerians could live in households with sufficient incomes for discretionary spending.

That would be more Nigerian consumers than the current populations of France and Germany, it says.

According to the report, Nigeria’s burgeoning consuming class will likely shift demand for a range of food and non-food products.

MGI explains that the sales of food and beverages are expected to rise by 6.8 per cent per annum over the period, while sales of non-food consumer goods such as household and personal care products, are expected to grow by more than 10 per cent per year.

It adds, “Food will likely continue to account for the largest share of total consumption in 2030, since the majority of new consumers will be in the entry-level strata of the consuming class.

“By 2030, 27 million more households are likely to have incomes of more than $7,500, placing them in the bottom reaches of the consuming classes. With an average household size of 4.7, that would be about 125 million new consumers, or double the population of South Korea today.”

Retail trade on the rise

The report states that trade accounts for 17 per cent of Nigeria’s GDP, 25 per cent of employment, and has been the largest driver of growth over the past decade.

It notes that these sectors include both retail trade—selling goods to consumers—and wholesale trade, which involves selling goods to businesses and retailers. While the retail sector has been highly informal and fragmented, dominated by street vendors, small shops, and open markets, chains of modern stores are expanding.

“The growth potential of this sector has attracted investment by consumer goods makers and retailers from around the world. In 2011 and 2012, foreign direct investment in retail totaled $1.3bn. Rapid growth in the number of consuming households will be the principal driver of growth in trade,” the report explains.

Source: Punch