Brexit may present Nigeria mixed trade opportunities

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The recently concluded deal on Britain’s exit of the European Union, popularly called Brexit, may present Nigeria with transaction uncertainty relative to existing modus operandi, as well as an opportunity to negotiate better terms of trade with the country.

Already, the country, according to trade statistics as of 2018, is Nigeria’s sixth-largest trading partner, with total trade of about $5billion.

The Head of Corporate Finance, RMB Nigeria, Kemi Owonubi, made the observation, during a breakfast forum organised by Private Equity and Venture Capital Association and sponsored by the bank in Lagos.

Owonubi, during a panel session, pointed out that if Nigeria issues a Eurobond this year, and UK-based portfolio investors are key sources of capital flows, “perhaps there may be some impact as some of the investors relocate their portfolios.

“There is also the opportunity for Nigeria to, perhaps, negotiate better trade terms with the UK, just as several other countries are doing. There was the first-ever UK-Africa summit, so there is the recognition as to the value and opportunities inherent within such relationships,” she said.

According to her, there is unarguably a dearth of local investment alternatives, as seen by the challenges faced by local institutional investors, who struggle to fund viable alternatives outside equity and fixed income.

She explained that the creation of alternative asset classes remains slow and limited, but noted that some sectors of the economy have a relatively more pressing need for foreign investments.

These sectors, she said, include oil and gas; infrastructure- rail, power, roads; transportation; telecommunications- 4G infrastructure, maintaining existing network infrastructure; agriculture; and haulage and logistics.

She, however, restated the key factors that are likely to impact new investment decisions to include regulatory uncertainty across a number of sectors, currency outlook, security, and consumer purchasing power.

Citing research by the bank’s stockbroking arm, she expressed concerns over plummeting fortunes of the country’s savings rate, disposable income, and dwindling middle class.

“Average real wage growth for Nigeria over the last five years to 2018, is negative, compared with a selection of African countries, including Uganda, Kenya, Tunisia, South Africa, and Egypt.

“The research team put out a note last year, which showed the number of days needed to buy an iPhone X in select cities, including Nairobi, Lima, Beijing, Moscow, and Johannesburg, but Lagos was the longest at 133 days, compared to Johannesburg at 36.4 and Zurich at 4.6

“Consumption patterns show that low and lower middle class spends 57 per cent of their income on food and beverages (key consumer buckets), compared to the middle class at 35 per cent and upper class at 15 per cent.

“We observe shifts in consumption patterns, measuring across a scale of 100 per cent, showing that the portion of low-income consumer goods has increased from about 32 per cent to about 60 per cent by December 2018, and we expect even more as at 2019/2020.

“Interestingly, luxury/premium consumer goods, increased from about 17 per cent to about 23 per cent, with middle-income consumer goods portion losing significant ground,” she said.

The expert said another data point for measuring changing consumption patterns is the market share of the value segment across a variety of products, which has reportedly increased from 15 per cent in 2010 to 58 per cent as of 2018.

So to answer this question, the middle class is clearly dwindling, continues to do so, that lower to low-income class is expanding and we see the results of these in the product categories across the FMCG companies.

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