Oil isn't everything

Nigeria's oil mess hides solid African growth bet

Nigeria’s oil mess is obscuring a solid African growth bet. The state oil company is fighting the government and production has stagnated. But at long last the country’s non-oil economy, led by telecoms and construction, is growing fast enough to compensate — and then some.

NNPC, the national oil group, this week rejected a government agency’s audit that concluded it had failed to hand over some $8 billion it owed on crude oil sales between 2009 and 2011. Arguments over such a large sum aren’t surprising: corruption has been a big problem in Nigeria and the situation is improving only slowly, with the country still ranked a lowly 139th of 176 countries by Transparency International.

The economically important oil industry has stagnated of late. Output is down to an estimated 2.15 million barrels a day in the first half of 2012 from more than 2.6 million barrels daily in 2005, according to the US Energy Information Administration. What’s relatively new is that Nigeria has still managed to record robust economic growth — 6.7 per cent in 2011, and 6.3 per cent annualised over the first three quarters of last year.

The expansion has come from Nigeria’s non-oil sector, averaging an annualised 8.5 per cent in the two years to September 2012, according to brokerage FBN Capital. Mobile telephony has shown particularly rapid growth, with subscriptions growing 16 per cent to 100 million — of a population of 170 million — in the year to September, while construction showed real growth of 13 per cent in 2011 and has continued its rapid expansion.

Another game-changer is Nigeria’s plan to rebase its GDP figures — a move that’s expected imminently. For two decades, the country has based its calculations on the balance of the economy in 1990, and this will finally be updated to 2008. When Ghana did something similar, calculated GDP increased by 60 per cent. If Nigeria’s roughly $250 billion reported output goes up by, say, 40 per cent, it would rise to $350 billion — and the roughly 60 per cent of the economy that is not oil-related would be worth more than $200 billion.

Oil exports bring in much-needed foreign exchange, and Nigeria’s large population makes for a potentially world-scale market. Assuming governance doesn’t regress, the domestic economy could keep expanding rapidly. It’s a frontier market worth a close look for investors.