Nigeria Food and Drink Report Q1 2009

The Nigerian government has been looking to attract outside investors to the country as it hopes to improve domestic agricultural production, as discussed in BMI's recently published Nigeria Food & Drink Report for Q109. The hydrocarbon sector has been the main driver behind the strong growth of the Nigerian economy. However, with the discovery of oil in the early 1970s, the country's agricultural sector was neglected, with food and cash crop production dropping severely as oil revenues allowed the government to import massive amounts of agricultural products. Realizing the potential of the agricultural sector as a means of providing employment for much of the population and achieve more broad-based economic growth, the government has once again begun to prioritize this sector, as can be seen from a number of recent projects discussed in the report.

One recent example is the BUA Sugar Refinery which was opened in Lagos in October. With a 720,000 tonne capacity this is Nigeria's second-largest refinery after the Dangote Sugar Refinery, which has a capacity of over 2mn tonnes. The plant began producing at 60% of installed capacity although it plans to be operating at full capacity by the end of the year, and hopes to increase output capacity by 50% within 12 months. In recent years the government has been focusing on privatisation reforms and an emphasis on domestic processing in order to reduce the massive amounts of sugar imported from Brazil for domestic consumption. Nigerian sugar production was notoriously inefficient up until recent years due to a volatile electricity supply and poor state management of the sector. However, the last few years have witnessed concerted efforts to enhance the productivity, with the state having put all its plantations up for sale, attracting private investors.

The government has stated its goal of becoming 70% sugar self-sufficient by 2011, which will require significantly more investment than at present, and will likely look for joint venture partners for these investments. However, if the government is to be successful in attracting foreign investors into the country, it will have to work hard to continue to improve the business environment, as the country is known to suffer from widespread corruption, lack of transparency, political instability and the arbitrary enforcement of trade and investment regulations, which limits its growth potential and deters foreign investors. In fact, Transparency International currently ranks Nigeria 121st out of 180 countries surveyed, which is actually an improvement from its previous ranking. This level of corruption has had a considerable impact on food and drink producers, with several high-profile cases having come to light in recent years, which has further tarnished Nigeria's already shoddy reputation.

Nevertheless, investors looking for new markets will no doubt continue to be attracted to the Nigerian market thanks to its vast long-term potential. With its massive population, which at over 157mn, is the largest in Africa, and its lack of market maturity, Nigeria offers ample opportunities for both investors and food and drink producers who are willing to take the risks for the potential long-term rewards.