Nigeria to see record foreign capital inflow in H2’23, 2024
Phillip Isakpa is Businessamlive Executive Editor.
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- Biggest positive outlook for Nigeria in a decade
- Analyst sees opportunities for next $1bn interests
Get ready Nigeria! In the biggest positive outlook on investment inflow into Nigeria by international analysts in nearly a decade, the second half of 2023 and all of 2024 have been projected as periods the country would attract record international capital inflow following the ease of uncertainty caused by recent general elections in the country.
Read this: “Overall, we expect the second half of 2023 to already match Nigeria’s best six months in terms of attracting international capital, and 2024 to potentially see a record inflow of funds attracted by the more stable environment and the sheer quality of local growth companies still facing wide open market opportunities.”
A team of analysts at DAI Magister, the multinational investment bank which offers financial advisory services within the fintech, tech-enabled commerce, climate and communications tech sectors, in a forecast article prepared by Victor Basta, chief executive officer, said after recently becoming nearly un-investable, seeing $2.4 billion of start-up funding between January 2021 and mid last year dry up, Nigeria’s invest-ability is set to steadily improve.
The dry up of funding over the years, especially in the last two, DAI Magister says, is attributable to “economic uncertainty, rampant inflation, concerns about Nigeria’s managed exchange rate, and more recently political uncertainty,” which “have combined to force international growth capital to the side-lines, waiting for clarity on how Nigeria would provide a stable investment climate into which to invest significant capital.”
But the analyst team said many macro factors in Nigeria will begin to moderate as 2023 wears on, adding that “while the country’s problems cannot be fixed overnight, it only takes an improvement in direction, and steps that show clear intent, for Nigeria to become investable again.”
Indeed, it projects that with election uncertainty behind the country, and the new administration taking office in the coming weeks, “we expect Nigeria’s invest-ability to improve steadily. By the second half of 2023, stronger growth companies with trimmed losses will begin to attract international capital,” it said.
Recognising Nigeria as home to three of Africa’s five ‘unicorns’ (start-up companies with over $1 billion in valuation), as well as having the continent’s largest number of tech-based companies, the country’s downturn in attracting international capital, DAI Magister analyst team noted, is shown in the fact that only two large investment rounds have taken place since mid-2022 at $50 million and $40 million, for TeamApt and Yellow Card, respectively.
But it projects an upturn in investment flows into the country, noting that international interest is set to become more broad-based and focused on non-fintech opportunities, adding that, “as we swing into 2024, we believe many of these non-financial growth companies will offer embedded finance in one way or another, even if they operate in logistics, mobility, education or health care.”
On the back of this positive outlook for attracting international capital to Nigeria, DAI Magister said the “country can already begin to look forward to the next $1 billion of capital fuelling the next stage of expansion for the country’s growth stage tech businesses.”
And when international capital starts to flow into Nigeria, the likely beneficiaries, according to the analyst team, will be spread across sectors as there remains significant untapped opportunities across the country.
With the untapped opportunities seeming broad, past concentration on fintech has seen a lot of money going into the sector. However, the analysts say the financial ‘rails’ areas are nowhere near being fully built out.
As a result, international capital will be looking at fin-tech sectors such as SME financing, social commerce financing and delivery and aggregation and financing of smallholder farmer output, all of which are fin-tech sectors where money ‘touches’ the real economy, but they remain largely untapped.
Mobile money is also projected as an area of potential interest for international capital, while services that ride on core financial rails, such as insurance and higher-yielding savings, which are barely deployed at any scale in the country, are forecast to attract global interest. They noted that for a $500 billion economy, there remains huge opportunity in core fin-tech.
Specifically, however, in the fintech space, where leaders such as Flutterwave, Paystack and Interswitch, already hold sway, the analysts identify the emergence of growth companies such as Migo, Carbon, Nomba, and PiggyVest that are beginning to “scale to levels which naturally attract international investors who are not ‘required’ to invest in Africa, but rather are looking for a minimum scale irrespective of geography.”
Outside of fintech, key mobility sectors are identified as a large and growing recipient of where the next $1 billion would be deployed by international investors.
This is on the back of Nigeria’s poor infrastructure, typified by the fact that the country has virtually no rail transport, making deliveries around the country “take longer than shipping goods thousands of miles abroad.”
In this regards, the analysts identified companies like Max.ng as making huge strides in enabling new vehicles to be deployed in Nigeria; GIG is deploying technology to ensure social commerce deliveries and inter-city transport can occur far more efficiently, and far more profitably, than traditional operators.
Similarly, they said in long-haul transport, Kobo360 has graduated from a start-up to the largest technology-driven long-haul logistics company in the region, while they named Autochek, founded by the team that built Cars45, as expanding its vehicle marketplace and financing offerings across multiple markets, making the resale of vehicles in Nigeria tech-enabled for the first time.
Another key area that would attract international capital to Nigeria, according to the DAI Magister, is agriculture, Nigeria’s largest sector, which they note is “largely untouched by technology to date.”
“We see prominent tech-enabled growth companies such as ThriveAgric and Releaf now achieve the scale necessary to attract supportive international capital. For example, Thrive, mainly financed through debt, has already built a loyal base of nearly half a million smallholder farmers who receive higher prices, and better services, than they could ever achieve selling their harvests to middlemen in the traditional way,” Basta said.
Nigeria is also projected to attract international capital into its renewable energy sector which has huge potential, the analysts wrote. They specifically identified solar as being prominent in this regard.
“Already, Daystar has been acquired by Shell, and StarSight has announced a major expansion combining with South Africa based SolarAfrica. There remain a host of players competing in both the residential market and the commercial market. Many of these players, including M-KOPA and d.Light, have also expanded to mobile phones, and will expand further to solar appliances as they fill out their offerings. With the oil price seemingly set to remain high, the economic rationale for accelerating solar deployments in Nigeria is more compelling now than ever before,” Basta explained.
Major opportunities open to international capital are also seen in building out basic infrastructure required for a true internet economy, said the analyst, noting that “in terms of data centres, Kasi aspires to build one of Africa’s most modern data centre operations in Lagos. Actis-backed Rack Centre already operates Nigeria’s second largest data centre operation and aims to multiply revenues over the coming 2-3 years.”
Across Africa, the analysts see Nigeria as holding a pivotal position in the continent attracting international capital on the strength of the country being its largest economy with the largest number of tech-driven companies.
“For the continent’s $5 billion of start-up funding to multiply, it’s crucial Nigeria attracts the biggest share of that capital. There are dozens of high-quality Nigerian tech-enabled companies now reaching growth stage, where $30-100 million of investment into each will make the difference between them scaling to continental leadership and those companies remaining local/regional players.
“More broadly, for Africa to attract India’s $21 billion of annual growth capital, many of these Nigerian growth companies will need to multiply in size, and many currently have less than 12-18 months of cash, making delays incredibly expensive for the companies and their current investors,” the DAI Magister CEO said said in that analysts note.