By The Nation,
Nigeria’s economy has the potential to double its current performance within the next 12 months, but the government needs to support economic growth with more investments in basic infrastructure, especially electricity.
In its latest primary macro outlook for frontier and emerging markets, Global Chief Economist, Renaissance Capital, Charles Robertson, said improving macro-economic fundamentals place Nigeria on a vantage point to significantly grow its economic performance in the period ahead.
According to him, with good growth, currency stability and falling interest rates, Nigeria is an attractive frontier investment market.
“We still think emerging markets (EM) and frontier markets (FM) are less than half-way through a structural bull market. The big shift in our thinking is on the oil exporters. Middle East and North Africa (MENA) is looking much healthier, from Egypt to the UAE in EM. We think Russia and SA can beat IMF GDP forecasts in 2018/2019. Nigeria is a big beneficiary in Africa,” he said in the report.
The report, however, underscored the need for Nigeria and other African countries to invest substantially in infrastructural development to unlock growth.
According to the report, with investment of about a quarter of Gross Domestic Product (GDP) in infrastructure, especially electricity, Nigeria can re-enact sustainable high growth that had been achieved by countries such as Bangladesh and Ethiopia.
“But we need to see electricity supply at least double or treble per capita in East Africa and the rest of West Africa before industrialisation is realistic. Our base case is that countries that can’t industrialise or shift from subsistence agriculture into higher valued-added services can’t grow much above four to five per cent or one to two per cent in per capita terms,” Renaissance Capital stated.
The report noted that “Africa is on the rise again, but to really take off, needs more investment and electricity in many of the countries”.
The report pointed out that while there has been dramatic improvement in adult literacy in Sub-Saharan Africa (SSA), there are still acute shortfalls on electricity supply in East African and most of West African countries. Renaissance Capital holds that countries need between 70 to 80 per cent adult literacy to grow fast. The global investment banking firm also holds that countries must also have at least 300 to 500 kWh of electricity per capita to grow sustainably at a fast rate. To put that into perspective, one LCD TV requires about 240 kWh pa.
While most EM countries meet both targets, including for the first time this decade Egypt and India, the situation is far more mixed in FM. Argentina and Vietnam meet the targets along with the countries in Emerging Europe. Morocco and Tunisia have joined them recently and so has Sri Lanka.
“There appears to be one exception to this though. If you invest 25 per cent of GDP or more, then Bangladesh, Ethiopia and others demonstrate sustainable high growth can still happen. This is good news for Tanzania and perhaps Uganda but sends a clear message to Kenya, Nigeria, Egypt and Pakistan about their urgent need for electricity and investment,” Renaissance Capital stated.
The report pointed out that sovereign outlook for the continent is positive, noting that the credit rating downgrade cycle in Africa has basically finished; and sovereign upgrades in 2019 is the story to start thinking about.