The African Private Venture Capital Association (AVCA) says that the significantly improved macro environment in Nigeria is spurring more attention from the country's international investors as it approaches its annual meeting in Lagos in late April.
“When we finished our meeting in Johannesburg last year, we announced that we were going to Lagos. At the time, we were skeptical because Nigeria didn't seem to be doing particularly well and didn't really attract many deals.”
“I cut to the present and most people are absolutely excited. There's a macro stability and the emotions are much more positive. This is a good time to go to Nigeria.”
Ongoing turnaround?
Nigeria has proven to be a challenging environment for investment over the past few years. This is probably due to the devaluation of Naira in the middle of 2023.
In particular, when combined with the severe shortage of foreign currency in the country, which made it difficult for investors to repatriate their profits, investment in Nigeria has put the outlook in much danger for most people. In fact, in the first quarter of 2024, foreign direct investment in Nigeria was only $119.2 million, down 35.2% from the previous quarter.
However, the International Monetary Fund (IMF) forecasts Nigeria will increase by 3.2% this year, while the World Bank is slightly optimistic, predicting growth of 3.6%. Government officials are promoting optimism.
Goldman Sachs, Global Investment Bank, predicts that Naira can bolster NGN to 1,200 NGN compared to current levels of 1,600 thanks to stricter monetary policy and increased capital inflows.
Inflation is still rising above 23%, but is expected to continue. Sub-Saharan Africa is widely predicted to record stronger growth in 2025, while growth is estimated to continue to decline in other markets such as Europe.
Mustapha-Maduakor says that, as well as these macroeconomic trends, certain events have helped to reinforce investors' feelings about the West African powers.
“Mony Point, who becomes a unicorn, really helped me, just like I decided to invest in Nigeria,” she says.
One of the challenges that Nigerian and African investors are more widespread and most of them invest in the US dollar is forex risk, as the devaluation of the Naira in 2023 was shown, even if investments are strongly carried out in Naira terms, can be severely damaged by currency depreciation.
But Mustapha-Maduakor said, “If investors can deploy local currency, that would be a small problem.”
“In Nigeria we were able to move towards this. For example, we found that Nigeria's infrastructure debt fund has collected over 300 million naira from domestic pension funds. “We're talking to more managers who are raising dual cars, a typical US dollar with an international LPS and a local monetary fund.”
More infrastructure is needed, the association says
Of course, this increased investor interest is welcome, but there are certain strategic areas in both Nigeria and across the continent where more investment is desperately needed. In future meetings, the AVCA will be particularly keen to highlight the role private capital can play in filling the infrastructure gap in Africa. Between 2012 and 2023, $47.3 billion was deployed in 847 reported infrastructure transactions, but the continent is still believed to face a $100 million shortfall, limiting its growth potential.
“In the hard infrastructure aspect, there is only a lack of general things you don't tend to think of, such as roads, ports, energy, etc., digital infrastructure such as fiber optic broadband is also lacking in other important “soft” things like education and health capabilities. ”
Mustapha-Maduakor suspects that the continental infrastructure gaps stem from relying on exports of raw goods.
“Focusing on mineral and commodity exports has negative consequences in that African countries tend to focus on getting value from exporting raw materials, meaning they are not focused on industrialisation,” she told African businesses.
“As the country begins to reverse its focus, it begins to realize that all this infrastructure is necessary to industrialize. We need roads to be able to transport goods, so we need ports so that we can export.”
Infrastructure funds take off
Given the high demand, there is an increase in particularly launched funds targeting space.
In December 2023, the Africa50 Infrastructure Acceleration Fund announced its initial closing of $222.5 million, with the African Development Bank (AFDB) and International Finance Corporation (IFC) joining 16 African institutional investors to invest in Africa infrastructure, renewable energy, transportation and other projects across Africa.
In July 2024, Africa Infrastructure Investment Fund 4 (AIIF4) secured a total of $954 million commitment to invest in Africa's digital infrastructure and energy transition projects. Earlier this year, the Infrastructure Climate Resilience Fund (ICRF) was launched by a private pension fund and a state-led fund with the aim of investing up to $750 million in sustainable infrastructure on the continent.
Mustapha-Maduakor says the amount of capital invested in Africa's infrastructure has been declining since its peak in 2020, but adds that with improved macro conditions, the new funding is now “to capitalize on the potential returns available in Africa's infrastructure.”
“2020 was at its peak in terms of capital being invested in infrastructure. In Nigeria, we invested $300 million in infrastructure projects in 2020. This has declined over the last three years. In 2023, we had about $74 million in investments, and last year we were about the same amount,” she says.
“This was due to post-pandemic declines in all asset classes and was another macro challenge, like the war in Ukraine, where Africa-focused managers contributed to deploying less capital on the continent.”
However, the gusts of new funds launched to invest in Africa's infrastructure have sparked optimism that it is changing more widely in Nigeria.
“We're back in Lagos. We haven't been to Nigeria since 2014, so we're very pleased to introduce the country to our global representatives. We'd like to showcase the wide range of opportunities available in Nigeria,” says Mustafa Maduakor.
