Nigeria Food and Drink Report Q4 2008

While Nigeria has gradually been attracting foreign investment into its food and drink sector, many investors are still hesitant to enter this market. As discussed in BMIs recently published Nigeria Food & Drink Report for Q408, it is easy to see why, for corruption is still a major issue for all companies operating in Nigeria. Illustrating this point very clearly was the corruption scandal that emerged in July involving Cadbury Nigeria, a separately listed subsidiary of Cadbury Schweppes, which was suspended from trading on the Nigerian Stock Exchange following a decision by Nigeria's Investment and Securities Tribunal.

In operation since 1965, Cadbury Nigeria is the market leader in sugar confectionery, gum and food beverages in the country. In 2006 Cadbury Schweppes increased its shareholding in Cadbury Nigeria, investing GBP19.7mn (US$34.33mn) in order to gain a narrow majority of 50.05%, from the 46.4% it previously held. However, when Cadbury Schweppes then appointed a financial director to oversee the transition from associate to subsidiary and replace the retiring financial director, this revealed the overstatement of the company's finances, and led to its suspension from trading on the Nigerian Stock Exchange. An independent audit was then launched, which revealed accounting irregularities, with Cadbury eventually stating that it had discovered 'a significant and deliberate overstatement of Cadbury Nigeria results, which had existed over a number of years.

This scandal has done little to help Nigeria's reputation as a risky place to do business, 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. Transparency International currently ranks Nigeria 147th out of 179 countries surveyed. This level of corruption has had a considerable impact on food and drink producers, with several highprofile cases coming to light in recent years, which has further tarnished Nigeria's already shoddy reputation.

Nevertheless, despite the risks involved, many investors are still willing to enter the Nigerian market simply because of the great potential opportunities. Nigeria is the largest country in Africa by population, and while private consumption has not historically been a major propellant of growth, BMI is cautiously anticipating a greater contribution in 20092012. Traditionally, Nigeria has lacked a consumer class, the existence of which tends to foster more robust economic growth and insulate a country from commodity price swings. Despite the countrys oil wealth, the vast majority of the populace is too poor to sustain a consumptionbased economy. With economic diversification proceeding alongside the development of a strong banking sector and the relative taming of inflation, we are cautiously forecasting increased growth in private consumption. If a significant consumer class does emerge, this could lead to a boom in the countrys food and drink sector.