Nigeria now most-watched frontier market

Nigeria has solidified its title as the most-watched frontier market in the latest WSJ Frontiers/FSG Frontier Market Sentiment Index as an increasing proportion of multinationals put the country on their watch list for potential future investment. Nigeria has held the top spot since the index was launched in June 2014 despite having endured a rough ride for the past few months.

Followed by Vietnam, Kenya, and Argentina, which all rank among the top 20, Nigeria has held the top spot since June 2014. An increasing percentage of multinationals are watching the Sub-Saharan African country as a market for potential future investment, despite recent turmoil.

Based on a study of around 200 multinational companies, the index, created exclusively for WSJ Frontiers by Washington-based consultancy Frontier Strategy Group (FSG), tracks which frontier markets major European and American firms are focusing their attention on. It also reveals trends in corporate thinking by tracking the rate of change in corporate sentiment among FSG’s clients, which include companies such as Cisco CSCO +1.41%, Merck and MasterCard.

Corporate sentiment is calculated as the percentage of companies that include a country on their watch-list. If 50 of the 200 companies are watching a particular country, the sentiment index score would be 25%.

Nigeria’s travails have primarily been caused by its heavy reliance for foreign exchange and tax revenues on oil, whose price has slumped by more than 50% since last June. Presidential elections are due next month, too, and the outcome is far from certain. Continuing attacks by rebel group Boko Haram are also having a negative impact on perceptions of Nigeria.

But for corporations looking beyond the short-term turmoil, the country’s problems may provide an opportunity to buy into Africa’s biggest economy at a discount. “Nigeria is about to enter a world of hurt but these are the times when you can really make a difference – both from investors’ point of view and corporates’,” says Matt Lasov, FSG’s global head of advisory and analytics.

Lasov argues that the sharp devaluation of the naira will push up prices of imported products, encouraging Nigerians to buy more locally produced goods. “Companies that produce locally will capture a huge amount of market share,” he says.

At the same time, the currency’s decline will make it cheaper for foreign firms to acquire Nigerian assets. “The reason the country’s gaining more attention while other oil exporters’ [appeal to corporations] shrinking is because companies are opportunistic,” Lasov adds.

Source: FrontierStrategyGroup