Multinational companies see long-term growth potential in Nigeria — Moody

Lagos, Nigeria, Capital Markets in Africa — Multinational companies operating in Nigeria remain committed to participating in the long-term growth of Africa’s biggest economy and most populous country. This is despite the current environment of a continued low oil price and slowing economic expansion, Moody’s Investors Service said in a report published today and titled  “Nigeria — Multinational Companies: Long-term Growth Strategies Resilient Despite Weak Oil Price Environment”.

Large companies are sticking to their long-term strategies in Nigeria as they look past the weak oil price environment and focus on the potential for future economic growth, according to a Moody’s survey of 43 rated companies with operations in Nigeria.

Moody’s asked the companies if the weak oil price environment had changed their strategy in Nigeria, how they view recent government reforms and what operating challenges they face in the country.

“Multinational companies plan to continue their investment in Nigeria as they position themselves for the benefits of the country’s long-term growth and vast oil wealth,” said Douglas Rowlings, a Moody’s analyst and co-author of the report. “While a prolonged low oil price and weaker growth pose immediate challenges, many corporates believe Nigeria still offers strong long-term growth potential, given the size of its economy and its favourable demographic profile.”

Nestle said it remained optimistic about the long-term potential of its business in Nigeria while Ford said Nigeria was a priority for the company. Ford is to begin assembling its Ranger pick-up at a new assembly plant in Lagos and Renault, Kia and Volkswagen have also announced plans to set up plants in the country.

Reckitt Benckiser said it still sees big growth potential in Nigeria, but stressed the importance of taking a long-term view because the Nigerian market doesn’t always offer immediate returns.

“Multinationals that have been successful in Nigeria have understood the market dynamics,” Mr Rowlings added. “They adapt their product offering to the market rather than trying to adapt the market to the product.”

While international oil companies have taken steps to reduce their operating costs and exploration funding, Nigeria’s vast oil and gas reserves are expected to continue to attract long-term investment from oil majors.

However, the sector has already made changes to adjust to the low oil price environment. Moody’s estimates that projects with around 1.2 billion of commercial oil reserves have been deferred by companies with operations in Nigeria during 2015.

In February 2015, Chevron completed the sale of its 40% stake in two shallow water oil blocks and it announced in June that it is looking to sell its 40% stake in two more blocks.

Shell said it sees Nigeria’s onshore and heavy oil as a market that offers future opportunities. The pace of development will be driven by the market and local operating conditions, as well as the regulatory environment.

For Nigeria to fulfil its growth potential, it will need sustained investment, infrastructure upgrades and a stable policy and regulatory backdrop. Following elections in April, the future direction of government policy and reforms will play an important role in shaping the economic outlook. It is expected that regulation will be applied more stringently under the new government with penalties for infringements.

Investment in Nigeria’s power supply would be a huge economic growth enabler. Moving away from expensive oil-fuelled generators towards more efficient gas-fired power stations would greatly reduce business overheads.