Nigerian Banks See Signs of Hope Amid Financial Crisis

Sources:
Reuters
Financial Times
ThisDayOnline

The African Development Bank (“AfDB”) has announced that it will extend $100 million of credit to Nigeria’s Intercontinental Bank. The money is supposed to go towards financing small to medium sized businesses with a priority for projects that are ready to go and that offer great growth potential, particularly those that are export producing. The industries that will receive an influx of credit include construction, manufacturing, tourism, and transportation.

Nigeria’s ability to offer loans has been curbed recently and has seen its foreign credit lines dry up, both due to the global credit crisis. However, Nigeria still has great potential as a profitable frontier market. Nigeria boasts the largest population of any African country at 140 million people. Business consultancy African Rainbow's Star of Africa index ranks 53 African countries and lists Nigeria as the most profitable country based on potential for growth in energy and communication consumption, among other factors. Indeed, Nigeria’s infrastructure and telecommunications industry are listed as offering the most potential.

Nigeria’s potential growth, even during the financial crisis, has not gone unnoticed by private investors. George Soros, who manages a $20 billion dollar hedge fund has sent representatives to Nigeria to find investment opportunities in Nigeria’s financial sector. Many foreign investors removed their capital from Nigeria when they began to feel the pinch of the credit crisis, and this has lead the financial sector to lose some of its value recently. Soros views this as an excellent opportunity to invest in Nigeria at a bargain price. Soros, and other investors, however, warn that Nigeria must improve financial transparency and governance before they will resume investing large sums of money in the country.

1) What is the relationship between the size of Nigeria’s population and its potential for growth?
2) A large portion of Nigeria’s economy is attributed to its oil exports. Is it wise to invest in oil infrastructure at a time when the price of oil continues to decline?
3) Should the AfDB focus its resources on countries like Nigeria that are doing relatively well compared to its African neighbors? Is it more efficient to spend money in a country that can use it right now for economic growth or to spend it on countries that are many years away from seeing large growth in their economies?