Global investment bank Morgan Stanley has said the economic reforms by the President Bola Tinubu administration have the potential to strongly increase annual income and attract investment opportunities despite the challenges they pose for economic growth.
This was contained in a report titled ‘Market Outlook: Nigeria’s New Dawn’ published on the bank’s website.
An analyst at the bank, Steven Quattry, noted that Tinubu’s reforms could lead to a new consumer class, as two set of policies that had inhibited the country’s growth, fuel subsidy and a complex currency regime had been done away with.
“The first was fuel subsidies, which cost a whopping $10 billion in 2022 and primarily benefited middle- and high-income members of the population: Only 3% of all subsidized fuel was consumed by the poorest 40% of Nigerians.
“The second was a complex currency regime, which led to an overvalued currency and curbed much-needed foreign investment, as foreign direct investment fell by 60% under Buhari.
“In response to the economic challenges, Tinubu has acted quickly to revive growth. During his inaugural address, he declared an end to fuel subsidies. Days later, he put an end to the overvalued currency by unifying the exchange rates. The incoming administration intends to grow the economy primarily via private investment and is aiming for 6% real GDP growth per year.
“This could lead to a strong rise in incomes, which, combined with a young and fast-growing population, could usher in a new consumer class and a number of investment opportunities,” he stated.
The analyst further identified mobile banking and consumer segments as two sectors that could interest investors, following the ongoing reforms of the current administration.
According to Quattry, the telecommunications sector offers a unique opportunity due to the country’s low mobile data penetration and usage levels, just as there is also an opportunity for providers of telecommunications-led mobile-money services, which are still in the early stages of growth as Nigeria is yet to catch up with the high levels recorded in Senegal, Ghana and Kenya.
In the area of consumer segments, the analyst noted that there will likely be a rise in investable opportunities as a rise in GDP per capita will provide households with sufficient income for essential needs and more discretionary purchases.
He predicted that with a significant rise in GDP per capita, “Nigeria could help the consumer goods market grow 150% from an estimated $240 billion in 2023 to about $603 billion in 2030.
“This could present investment opportunities in several sectors, including packaged food and beverages, household and personal care products, education, healthcare and even durable goods like appliances and transportation.”
Quattry further noted that the export of services offers Nigeria untapped opportunities as Nigeria has the ability to replicate East Asia’s manufacturing success.
The analyst added that the interventionist policies of former president, Muhammadu Buhari, triggered economic bottlenecks that hindered the private sector’s ability to grow.
He identified two major policies – multiple foreign exchange rates and fuel subsidies.
The Morgan Stanley analyst noted that the average Nigerian has experienced an incredibly difficult time in the last eight years, with annual income shrinking by 32% from $3,222 to $2,200 under Buhari’s administration.
“The country was one of the fastest-growing economies in the world from 2001 to 2014, but during Buhari’s term grew only 1.4% on average a poor showing, considering the 2.8% growth in the working-age population.
“Over that same period, the average Nigerian saw their annual income shrink by nearly a third, from $3,222 U.S. dollars to $2,200. By contrast, Kenyans saw their incomes rise by more than 40%.”
The analyst added that in the next two to three years, once the current administration has succeeded in reversing the harmful policies and economic malaise of the past eight years, Nigeria could witness a sharp upturn in economic growth. This is likely to present investors with opportunities in local equity markets, especially in the telecom, consumer goods and durables sectors.
“In the long term, the new administration’s challenge will be devising sound policies in education and training to unleash Nigeria’s human capital potential, perhaps its greatest asset. Tinubu and his team of technocrats have a unique opportunity to introduce policies to free up the economy and attract foreign investors looking for sustained growth.”