One frontier market frequently on my list of attractive
investments is Nigeria, a vital emerging economy.
[caption id="attachment_67076" align="alignright" width="300"
caption="View from the Sheraton of Nigeria's capital, Abuja"]
Nigeria is a country plagued with problems, but it continues to
grow at a healthy pace and is just beginning to tap into all of its
resources, including its people. This high-risk frontier market has
been providing big returns for investors. It has a huge and growing
population with untapped potential, light crude oil ideal for
making gasoline and, unlike some of its contemporaries,
sophisticated financial markets.
It is hard to find another economy anywhere with 160 million
people and an economy growing at 7% with such potential. Nigeria is
Africa's second biggest economy and top oil producer. Despite the
risks and challenges, foreign direct investment into Nigeria has
hovered between $6 billion and $8.5 billion since 2007 according to
World Bank figures.
Economic growth in Nigeria has averaged about 7.4% annually over
the past decade and remained healthy in 2011 at 6.9%. Growth has
been driven by the non-oil sector including telecommunications,
construction, wholesale and retail trade, hotel and restaurant
services, manufacturing and agriculture. 2012 and 2013 growth is
projected at 6.9% and 6.6% respectively. Inflation, which has been
stubbornly high, is expected to reach the government's target rate
just below 10% in 2013. As a result of monetary policy changes
inflation fell from 13.7% in 2010 to 10.2% in 2011. Expectations
are for it to fall to 10.1% in 2012 and 8.4% in 2013.
Problems persist, but also demonstrate the potential of this
frontier market. High economic growth has not cut poverty and has
yet to create many necessary jobs. The unemployment rate in 2011
was 23.9%, up from 21.1% in 2010, and about two thirds of the
population lives on less than one U.S. dollar per day. Unemployment
remains especially high within certain demographics: in the 15-24
age group it was 37.7%; for 25-44 year olds 22.4%.
Additional challenges which also expose opportunity are an
infrastructure in dire need of repair and expansion,
over-dependence on the oil and gas industry, and corruption.
Widespread as corruption is, Nigeria is making a concerted effort
and making headway in reducing it.
Ultimately Nigeria is a frontier market on the rise that is
still in the early innings of its economic development.
Unfortunately it is still not easy for individual investors to
invest in Nigeria. Few ADRs, mutual funds and ETFs are available
that have enough exposure to really take advantage of the
Two ways to tap in to the Nigerian market are through the ETFs
The Market Vectors® Africa Index ETF (AFK):
"seeks to replicate as closely as possible, before fees and
expenses, the price and yield performance of the Dow Jones Africa
Titans 50 IndexSM DJAFKT. DJAFKT is a rules-based, modified
capitalization-weighted, float-adjusted index comprised of publicly
traded companies that are headquartered in Africa or that generate
the majority of their revenues in Africa."
This is probably the best way to access the profit making
opportunities in Nigeria. With nearly 19% of the assets invested in
Nigeria, and hopefully an increase in the future, this is about as
big a concentration as you'll find.
As of May 31, 2012, the holdings comprised:
South Africa 24.6%
Sector allocation is as follows, but a deeper examination of the
fund's holdings is required to know what Nigerian sectors are being
As of May 31, 2012:
Telecommunication Services 11.4%
Capital Goods 7.6%
Diversified Financials 4.7%
Food, Beverage & Tobacco 4.1%
Real Estate 3.0%
The other fund with a mentionable amount of exposure to Nigeria
is FRN - the Guggenheim Frontier Market ETF, formerly Claymore/BNY
Mellon Frontier Market ETF. This fund "seeks investment
results that correspond generally to the performance of an equity
index called Bank of New York Mellon New Frontier DR Index (the
Frontier Index)." As interesting as this fund may be, its current
exposure to Nigeria is only 3.66%, far from enough to make a
difference. The rest of the portfolio looks pretty good with its
top exposure to Chile, but this illustrates some of the challenges
faced by investors who can't easily make direct investments in many
frontier market countries.
Chile 38.29 %
Colombia 16.74 %
Egypt 9.90 %
Argentina 9.72 %
Peru 7.95 %
Kazakhstan 4.85 %
Lebanon 4.27 %
Nigeria 3.66 %
Oman 1.63 %
Isle of Man 0.98 %
Ultimately Nigeria is a frontier market to watch that should be
part of every portfolio. Hopefully we'll see more funds with
greater exposure to it; maybe even a fund dedicated to Nigeria.