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Monday, 5 October 2015

Sectors that’ll drive Nigeria’s growth

IFE ADEDAPO examines some of the sectors that experts say will see increased investment and expand the growth of the Nigerian economy

Despite the long-standing challenges in Nigeria’s economy, there are some new areas of investment in the country that are expected to be major drivers of growth.

The regular power shortages over the years have constrained the growth of the manufacturing sector, with the World Economic Forum ranking Nigeria as one of the world’s least reliable suppliers of power.

Bad roads and ports hinder exports, while education and health systems are continuously strained as the nation’s population rises.

Moreover, wealth generated by energy production has yet to lead to great advances in social progress.

Meanwhile, a report by Deloitte notes that a growing pool of young and well-educated people is poised to enter the workforce and transform some key sectors.

The report titled, ‘Competitiveness: Catching the next wave Africa,’ says some industries are poised to fuel growth and development.

Rapidly growing consumer sector

The Deloitte report says that the nation’s rapid growth makes it a testing ground for companies hoping to become important players in Nigeria’s consumer sector.

It adds that this has been proved by the recent construction of a new factory by Procter & Gamble in the country.

In addition, SAB Miller, the global brewing company, has also expanded into Nigeria, and Guinness brands is sold in Nigeria more than in any other nation, including Ireland, it says.

The company explains, “Indeed, beer sales have grown by at least 10 per cent a year over the past decade – more. Even with this growth, there is ample room for market expansion. Average per capita consumption of beer is still relatively low, at about 10 litres a year, compared with 60 litres in South Africa, the continent’s biggest market, and nearly 80 litres in the United States.”

Entertainment industry expected to expand

Deloitte observes that when the size of Nigeria’s economy was dramatically rebased in 2014, the mobile phone industry and film-making sectors were discovered to contribute significantly to the country’s Gross Domestic Product.

It says, “Nollywood contributed 1.42 per cent to the national economy last year. Annual revenue for Nollywood is estimated to be around $590m. These adjustments reflect the real potential for Nigeria to move beyond oil production and agriculture to more value-added and services industries over the next 20 years.”

Tourism, food services, telecommunications are future hub of revenue

Projections suggest sectors such as tourism, food services, and telecommunications will have a major impact on Nigeria’s development over the next 20 years, Deloitte report notes.

It states that the country’s economic output is expected to grow by 5.6 per cent per year, a figure which is almost triple in real terms.

The information and communication sector will expand more than three times faster than the underlying growth in the economy over the next two decades, while accommodation, construction, and general services will also experience rapid growth as the urban middle class expands, it says.

“Two decades ago, for example, the country had only one telecom operator with around 300,000 telephone lines. Now, nearly a dozen operators service Nigeria’s 120 million mobile phone subscribers,” the organisation explains.

China becoming the biggest buyer of Nigerian oil

The reports says that Nigerian exports to Europe have grown more rapidly than those to the United States, reflecting the fact that energy dominates Nigeria’s export sector, adding that the US tight oil revolution reduced the country’s dependence on foreign imports.

However, as with European interests, Chinese companies have also been keen to invest in Nigeria’s energy sector, it adds.

Despite the projected economic growth and development the country will experience, the report highlights some challenges the government must address in order to realise its sustainable growth potential.

Privatisation of key sectors

The report notes that Nigeria is capable of boosting its competitiveness by privatising key sectors such as the power sector, which should feed through to lower prices and raise infrastructure investment.

According to it, the infrastructural deficits in other sectors like transport and communications as stated in the National Infrastructure Investment Plan can improve the ease of doing business.

It says, “The country’s National Infrastructure Investment Plan has identified infrastructure needs of about $30bn to $50bn a year. In addition, the $2.5bn privatisation of the power-generation sector – splitting the national Power Holding Company of Nigeria into six generating companies and 11 distribution firms – should accelerate much-needed investment in the sector. However, building out extensive new generation capacity that relies on using Nigeria’s abundant national gas reserves should also receive additional attention.”

Complete abandoned infrastructure projects

The documented and abandoned infrastructure projects, when completed, are capable of making Lagos a major financial hub for the region, Deloitte points out.

It notes that public private partnership will facilitate the remodelling of Nigeria’s roads and ports.

It explains, “World Bank loans are helping to finance a light rail project to help ease congestion in Lagos; however, the project remains incomplete seven years after construction started. There has been a similar level of attention paid to the potential for public-private partnerships to facilitate sorely-needed expansions of the country’s ports and roads, but the much-anticipated construction of the second Niger Bridge remains unfinished.”

Land acquisition should be made easier

While there is great potential in the nation’s consumer sector, enormous roadblocks must also be overcome, the competitiveness report points out.

It says, “Land is expensive, disputes over title are commonplace, and registering property is cumbersome. As a result, it is difficult to amass the large tracts needed to build factories, warehouses, or shopping malls. Moreover, building costs are significantly higher than in South Africa, in part because imports of cement are banned to protect the local industry. As a result, Lagos, a city of more than 20 million people, has relatively few modern shopping malls.”

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Contact: editor@punchng.com



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