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The current government of Nigeria has implemented a series of bold policy reforms to address structural weaknesses of the country. The reforms have provided a boost to growth in the country thus far and have put Nigeria back on the path towards reaching macroeconomic stability over the next few years. The Finnish impact investor Finnfund sees many positive signs in sight.
“The progress has helped Nigeria to return to international capital markets at the end of 2024 after years of limited access, while also earning a credit rating upgrade in April of this year, which shows investor confidence is improving in the country,” says Finnfund´s economist Tangeni Shatiwa in the report “Focus on Nigeria – Finnfund Insights”.
Nigeria’s economy holds strong potential, supported by its large natural resources and favourable demographics. The UN expects its population to grow by 54 per cent between now and 2050 – one of the fastest-growing globally. The large and rapidly growing consumer base that will come from this, together with increasing urbanisation, has the potential to create sizable opportunities for private companies in Nigeria.
Also, this will allow the private sector to capitalise on a youthful, entrepreneurial workforce to drive productivity growth. Despite this potential, Nigeria has largely failed to capitalise on it over the years, and several policy mistakes drove the country into its worst macroeconomic crisis in decades during 2022-23.
Investors see attractive prospects
But now the investors see attractive prospects, especially for Nigeria’s digital and financial sector.
“We believe that Nigeria’s telecommunications market offers significant investment opportunities due to its low broadband internet subscription rate, which is currently less than half of the population. This is well below Nigeria’s regional peers, which indicates a largely untapped market with potential for profitable investments,” says Finnfund´s investment manager Niklas Simola.
In 2024, Nigeria regained its position as the top VC destination on the continent by attracting $520 million in funding across 103 deals. The majority of these deals are in the fintech sector, a trend Finnfund is observing in many of its markets. In the financial sector, performance has been strong in recent years despite the macroeconomic challenges.
Nigeria sees declining interest rates
“Although we expect profitability in the financial sector to moderate over the next few years in line with declining interest rates, the sector-wide re-capitalisation effort, which is currently underway, will ensure that the banks are more resilient to future downturns. We have invested in several banks within the sector to support on-lending to MSMEs, which is an important engine for creating jobs in a country where a large portion of the work-aged population is self-employed,” says portfolio manager Väinö Esilä, Finnfund.
Despite positive prospects, there are many critical issues to be solved.
“Moving ahead, the authorities will need to address issues around electricity reliability, security and access to finance to fully unlock growth in the private sector and raise living standards for Nigerians,” reminds Shatiwa.
