Multinationals eye Nigerian consumer goods growth
21 January 2011
Multinationals from Greek Coke bottler Coca-Cola Hellenic to British soap and shampoo maker PZ Cussons have announced plans in recent weeks to expand capacity in Africa's most populous nation, shrugging off political uncertainty over April elections.
Heineken, the world's third-largest brewer, became the latest in January, buying controlling stakes in five breweries in Nigeria and expanding its capacity in Africa's second-largest beer market by nearly a third.
"What Heineken is doing is consistent with what many other multinationals are doing. The growth story in Nigeria remains compelling," Bismarck Rewane, head of Lagos-based consultancy Financial Derivatives, told Reuters.
As growth in developed markets shrinks and much of Europe battles a huge debt burden, taxes are rising, eroding purchasing power and putting pressure on consumer goods companies.
Nigeria, long seen by many investors as too politically risky and impoverished, is now seen as a potential diamond in the rough, with a debt-to-GDP ratio below many peers and a growing middle class.
"There is a big shift to Nigeria as growth in developed markets has tanked ... If you want to be in sub-Saharan Africa, apart from South Africa which other country comes to mind?," said Akintola Akinbamidele, an analyst at Renaissance Capital.
Nestle, the world's biggest food group, and Guinness, a unit of the world's biggest spirits group, plan to increase capacity in Nigeria, according to analysts' research notes.
More capital injections are expected this year as global players with local units gear up for growing competition.
Many multinationals expanding in Nigeria have been there a long time and understand the political terrain. They survived decades of military rule, and even the possibility of a disputed election is seen unlikely to derail the underlying growth story.
Nigeria's GDP per capita has been increasing steadily, to $1,118 in 2009 from around $203 in the mid-1990s, placing it almost level with India ($1,134), according to the World Bank.
Foreign direct investment rose 5.5 percent to $5.8 billion in 2009, showing signs of recovery after the global financial crisis, but still off its 2006 peak of $8.8 billion, when Nigeria won debt relief and liberalised its forex market
Coca-Cola Hellenic said last month it will invest $300 million after turning its local unit, Nigerian Bottling Company (NBC.LG), into a wholly-owned subsidiary. [ID:nLL631571]
PZ Cussons has said it will expand its food business in Nigeria and construct a palm oil refinery, investing some $27 million over the next two years. [ID:nWLA1326]
South Africa's Tiger Brands, a maker of food and consumer goods, last month agreed to buy 49 percent of the food business of Nigeria's UAC as it ramps up expansion in fast-growing African markets to offset slack demand at home.
All see growing demand in Nigeria."At least 80 million people can afford these products," Renaissance Capital's Akinbamidele said.
