Photo courtesy of African Capital Alliance

Building Connections and Investment in Nigeria

When Afolabi Oladele first got Canadian citizenship, he hoped to be a bridge builder, connecting Nigerian business opportunities with Canadian suppliers.

It’s taken some time for trade and commerce to beef up, but the last five years have seen tremendous growth,” says Oladele, part of the management team of African Capital Alliance (ACA), a Nigerian-based private equity firm.

ACA focuses on sectors of key importance to the country’s economic development, such as power, oil and gas, telecom, and financial services, all of which mirror Canada’s strongest export sectors.

Nigeria is Africa’s most populous nation, with an estimated 170 million people. It is also Africa’s leading oil producer; oil and gas account for about 90 per cent of export earnings and 80 per cent of government revenue. The country’s return to civilian government in 1999, followed by sound fiscal policy decisions, has brought economic stability and real gains in rural incomes. With one of the fastest growth rates in the world, at 6 to 8 per cent a year for the medium term, Nigeria could become one of the future leading world economies, say many experts.

ACA manages the US$400 million Capital Alliance Private Equity III (CAPE III) of Nigeria, in which EDC invested US$7 million in 2011 to develop opportunities between Canadian companies and CAPE III’s portfolio firms.

“Through our funds, we hope to improve the economic landscape of our markets, while also making money for our clients,” says Oladele.

“With EDC’s commitment to our fund, we can tap deeper into extensive Canadian expertise. We expect to build on this relationship to help create opportunities for Canadian companies planning to expand into the West African region.”

Nigeria in particular is a relatively stable democracy, but its public institutions are fragile. There are disputes over access to resources, which have escalated local conflict, and lower global prices for crude oil following the economic crisis brought on a fiscal deficit. But the last few years have seen several economic reforms and most sectors are open to private investment.

For example, Nigeria can now only meet 10 per cent of its power demands, so it needs massive amounts of investment for new and existing infrastructure (upgrades). “Nigeria’s investment needs are too much for the government to sustain; which is why the country has opened up to the private sector.”

Just 12 years ago, Nigeria had fewer than 300,000 telephone lines. After deregulation of the sector, the country now has more than 110 million lines, and the telecom industry now accounts for almost three per cent of GDP, giving rise to many more “multiplier” opportunities, as Oladele describes it.

Today, Nigeria is Canada’s largest trading partner in Sub-Saharan Africa. Since 2006, bilateral trade between the two countries has more than doubled, reaching $2.3 billion in 2012, with Canadian direct investment in Nigeria reaching $36 million. Earlier this year, Canada’s Minister of International Trade Ed Fast led a trade mission to Nigeria, primarily to look at opportunities in oil and gas, energy and power generation, and mining-related infrastructure projects.

Power Plan

Recently, the Nigerian government made power generation a key part of its economic strategy, pledging to increase electricity generation more than sixfold over the next decade. Efforts to privatize power stations and distribution companies are now underway.

CPCS Transcom Ltd. is an international consulting firm that specializes in private sector participation in the power and transportation sectors. Based in Ottawa, with offices around the world, the company has experience in more than 100 countries, including 31 in Africa.

Building Connections and Investment in Nigeria
Building Connections and Investment in Nigeria

CPCS has worked throughout Africa to improve the efficiency and competitiveness of transport systems, restore and build facilities, and help public and private-sector clients develop strategies and financing arrangements for infrastructure development projects.

The reform of the Nigerian ports sector, led by CPCS, for instance, brought more than $700 million in investment into the country; this represents more than half of the cumulative total of private port financing ever raised in Sub-Saharan Africa.

Most recently, CPCS was retained by the Government of Nigeria to manage the privatization process for state companies in the generation and distribution areas of the energy sector—including 11 distribution companies and 10 power plants for a total of $2.7 billion in assets.

Among many things, they manage the process to bundle the assets, and receive and evaluate bids in a transparent and rigorous process. Their goal is to develop the industry structure enough to attract risk-averse investors, says CPCS’s lead in Nigeria Arif Mohiuddin.

The company is currently generating interest from around the world, including Turkey, China, Japan, Malaysia and the United States.

A relatively small company, CPCS is seen as a specialist in Nigeria, competing with the likes of PwC, KPMG and Deloitte & Touche, and is recognized for its successes in the region. “Canada is well-known and highly respected in Nigeria,” notes Mohiuddin. By contrast, he adds: “The government can be overly optimistic with timelines and they expect a lot. And there are security issues and corruption, but it’s not as bad as many believe. With experience and proper management, you can avoid these issues. We’ve had payment delays, but we’ve never not received payment.”

EDC’s accounts receivables insurance can help mitigate default risk. Last year, EDC supported 17 Canadian companies doing business in Nigeria, and insured 29 international buyers for a total loan and insured exports value of nearly $27 million.

Mohiuddin’s advice to Canadian companies looking for opportunities in Nigeria: “You need to have a local presence, for sure. And you should understand that Nigerians want to speak with decision-makers, otherwise don’t waste their time.”

Interest from Canadian companies is building, notes EDC’s Regional Manager for Africa Diane Belliveau. “We have some work to do to highlight the regional nuances and economic diversification that exist in Africa. Still, there are so many profitable opportunities for Canadian companies right now, and we could help them take advantage of the region’s burgeoning growth.”

Categories Africa, Mining & Energy

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