global strategy october 2012
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St ra p la n
Nigerian EconomicsGlobal Strategy: A new world order…?
October 2012A complimentary publication of Straplan (Research & Planning)
Global Strategy: A new world order…?
Focus on Africa, Nigeria … the Next Retail Frontier..? Part One
St ra p la n
It is a capital mistake to theorize before one has data. Insensibly one
begins to twist facts to suit theories, instead of theories to fit facts.
- Arthur Conan Doyle (Sherlock Holmes)
October 2012A complimentary publication of Straplan (Research & Planning)
- Arthur Conan Doyle (Sherlock Holmes)
This report has been prepared to serve a broad range of subscribers, basically, individuals and organizations interested in the dynamics of the Nigerian
economy. The Nigerian Economics series is a complimentary publication of Straplan. It seeks to bring insight into trends in the Nigerian economy, its
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St ra p la n
Global economy weakens as euro area continues to wobble..
The euro area is still deep in recession, despite the ECB’s intervention
measures, and there appears no end in sight, even as the US grapple with its
huge debt logjam. This gloomy trend continues to weaken global economic
growth, as even growth in emerging market countries, such as China, India
and Brazil continue to falter.
China and India are expected to offset imbalances in external demand and
close up economic ties with sub-Saharan Africa (SSA), further enabling
growth in trade and consumption in both regions, albeit the pressures from
the wobbling euro area and expected tightening in US demand.
Investors show more interests in sub-Saharan Africa … we think it is a clear
opportunity to emerge as a retail frontier
Summary
October 2012A complimentary publication of Straplan (Research & Planning)
opportunity to emerge as a retail frontier
Perhaps the euro crisis is SSA’s opportunity to emerge as the next frontier of
global economic growth, as more investors (local and international) show
interests in entering or expanding their operations in sub-Saharan Africa. We
see demographics in the SSA and Nigeria (our main interest) as opportunities
for a sustainable (30-50 years) retail play. With an estimated $2.2trillion
spending potential by 2020, and a rising, strong youth population, the sub-
Saharan African market is a potential retail haven.
Please check out the appendix for foot prints of some international
companies investing in SSA.
St ra p la nBeleaguered Euro Area Impedes Global Growth …
Accounting for only 1.1% of euro area total trade in 2011, sub-Saharan
Africa (SSA) has been able to ride relatively smoothly through the global
effects of the euro area economic crisis. The euro area is still deep in
recession, despite the ECB’s intervention measures, except for
Germany which has experienced marginal growth. This trend continues
to weaken global economic growth, as even growth in emerging market
countries, such as China, India and Brazil faltered. Although data on the
United States have been mixed lately, a risk to global economic growth
is the country’s huge fiscal deficit logjam which signals an ensuing
tightening that could lead it into recession and further reduce global
trade levels. There are no clear answers to solving these crises as yet,
likewise there appears no end in sight.
As uncertainty spreads in advanced countries and consumption and
trade activities slow down, sub-Saharan Africa maintained strong
growth, above 5%, making it one of the fastest growing regions in the
2.1
0.2
8.2
65.7
3.6
-2
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012f 2013f
World Output %
US Euro Area China
India Sub-Saharan World
China
IndiaSub-Saharan Africa
World (Aggregate)
United States
Euro Area
October 2012A complimentary publication of Straplan (Research & Planning)
Sources: IMF, Eurostat, EIU
growth, above 5%, making it one of the fastest growing regions in the
world.
-14
-11
-8
-5
-2
1
4
7
10
13
16
20
08
20
09
20
10
20
11
20
12
20
13
20
14
World Trade
World trade Developed countries Developing countries
13.8%
13.3%
9.5%
6.6%
4.4%
3.7%
3.6%
2.5%
2.3%
2.1%
1.1%
United States
China
Russia
Switzerland
Norway
Turkey
Japan
India
Brazil
South Korea
Nigeria
12
34
56
78
91
02
1
% of (EU) Total TradeRanking
St ra p la nNo obvious end in sight… sovereign debt-weak banks perplexity .. Although the
euro crisis is more pronounced in the PIGS (AKA peripheral countries excluding
Spain), the entire region faces higher credit risk and uncertainty. The IMF
estimated in its Global Financial Stability Report that European banks could
shrink their balance sheets by US$2.6trn over the next 18 months, while the
rating agency, S&P had reported that the long term refinancing operations
(LTROs) of the ECB did not result in significant improvement in loan
origination. About 30% of Greece is below the poverty line. As part of its
efforts to ameliorate the situation, the EU announced on Thursday that it will
introduce a new banking supervisor to prevent a systemic collapse, and the
ECB pledges to do ‘anything’ to stabilize the financial sector. America is on the
edge of a fiscal precipice …expectedly, the US will eventually slow down on
current consumption to offset its huge debt. Investors and trade partners to
seek alternatives.. austerity and other fiscal consolidation measures across
the euro zone (household deleveraging is incipient in certain countries)
Euro Crisis: ‘No Obvious End in Sight…’
-8
-6
-4
-2
0
2
4
6
2008 2009 2010 2011 2012f 2013f
EU Output
EU-27 Euro area-17 Germany
Ireland Greece(p) Spain
France Italy Portugal
UK United States
October 2012A complimentary publication of Straplan (Research & Planning)
17.9%
25.8%
86.3%
81.5%
160.8%
99.2%
68.1%
105.0%
120.1%
106.8%
68.5%
82.5%
82.5%
102.9%
Nigeria
China
France
Germany
Greece
Iceland
India
Ireland
Italy
Portugal
Spain
UK
EU
US
Debt/ GDP %
8%
11.40%
5.50%
10.60%
10.70%
15.90%
15%
24.40%
25.10%
United …
Euro …
Germa…
France
Italy
Portugal
Ireland
Greece
Spain
Unemployment
the euro zone (household deleveraging is incipient in certain countries)
invariably suggest continued slow down in consumption, output and trade.
Source: EuroStatAs publicly published by national sources without independent verification
St ra p la n
Chinese FDI in Africa
China-led Asia Buoys Continental Shift?
China and India continue to lead world growth … the second largest economy slows down further in
Q3 2012 but its officials indicate it is ‘the slow-down on the transition to transformational
leadership.’ China’s slow down is largely caused by weaker external demand linked to the euro area
crises. Albeit the deceleration, China is expected to lead global growth in 2012. China’s economy
has taken a big-brother position in world economy as the foremost bearer of the United States’
debt, major supplier of relatively cheap labour to global companies, and provider of ‘customised,
affordable’ retail goods and services to the global market. It is a voracious consumer of natural
resources and key investor in the African mining sector. China is the world’s largest exporter and
has since the last decade continued to strengthen its trade partnership with Africa. Its position in
Africa is characterized by a strong demand for natural resources and rising supplies of bottom of the
pyramid goods and services. We expect to see stronger ties between China and Africa (and other
emerging markets) as the former offsets the dent to demand for its exports from the euro area.
Similarly, waning external demand is partly responsible for India’s flagging economic growth,
nonetheless we expect forthcoming structural reforms in the Indian economy towards
infrastructure investment to lead to readjustments in its trade and consumption in favour of the
Agricultur
e, 7
Services,
18.3
Manufact
uring ,
46.3
Mining,
27.6
Others,
0.8
2000 (%)
October 2012A complimentary publication of Straplan (Research & Planning)
9.7 9.6 9.4 9.2
8.17.6 7.4
0
2
4
6
8
10
12
Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
China's GDP
Source: National Bureau of Statistics of ChinaSource: eiu.com
infrastructure investment to lead to readjustments in its trade and consumption in favour of the
SSA. India, like China, continues to strengthen its economic ties with Africa. The Bharti-Airtel initial
investment of US$10.7bn to acquire Zain’s operations across 15 countries in Africa in 2010, signal
India’s confidence in Africa, hence the SSA.Agricultur
e, 3.1
Services,
42.3
Manufact
uring , 22
Mining,
29.2
Others,
3.4
2010 (%)
4
5
6
7
8
9
10
11
2007 2008 2009 2010 2011 2012f 2013f
India’s GDP
Source: IMF WEO October 2012
St ra p la nSub-Saharan Africa – From Cynicism to Optimism
Contour Global
Cummins
Archer Daniels
Midland Co.
3M
Apple
Entries and further expansion into Africa
BT Group
Yum!
Brands
A Retail frontier … the demographics play
Beyond its natural resources, sub-Saharan Africa’s over 850 million people
have become a strong attraction to investors and lent to its presence as an
emerging frontier for retail investments.
Within the strong, youthful population is a burgeoning middle class with
increasing financial resources. The AFDB estimates the middle class at 34% of
the population, and projects the region’s annual spending power by 2020 at
$2.2 trillion annually. This segment is characterised by demand for branded
and sophisticated products.
On the other hand, Africa has a wide informal market, typifying the poor and
illiterate which possess a residual but relatively strong spending power for
affordable consumer and social goods. Poverty levels are relatively high in
Africa but observably they are much more pronounced due to infrastructural
constraints which when overcome by large corporate companies yield
enduring results.
October 2012A complimentary publication of Straplan (Research & Planning)
Dow Chemical
General
Electric
Unilever
Nestle
Midland Co.
Starwood Hotels
enduring results.
Over 340 million are 14 years and below, indicating a strong, youthful
population and potentially sustainable consumer market over the next 50
years. This category is comparable to about 260 million and 370 million in
China and India, respectively. Accounting for approximately 40% of total
population, this segment will sustain Africa’s population boom and
strengthen its economy, provided these human resources are well developed
and trained to be intellectually assertive. Applying the basic economic
question of what and how to produce to this next generation highlights a lot
of interesting possibilities and scenarios.
‘Consumerism’ and sophisticated demand increases as SSA becomes more
urbanized. About 315 million, approximately 37% of the population now live
in urban centres, driving the region’s growth in mobile technology, banking
and finance, alternative delivery channels, building materials, consumer
goods, oil and gas etc., thus positioning the SSA as a potential retail haven.and more …..
St ra p la nPreviously, sub-Saharan Africa was considered an insignificant part of the global
economy. Today, there is a new dimension to its outlook due mainly to more
discoveries in natural resources and its population boom, and more so, it is one
of the regions with the strongest economic growth at over 5%. As corporate
giants seek regions that offer growth opportunities and sustainable consumer
demand, the question is, “Has the euro crises created an opportunity for SSA to
emerge as the next frontier for global investments and growth opportunities? “
Many companies continue to show interests in introducing or expanding their
operations in SSA, especially for a retail play on its demographics. Typical of a
less advanced region, there are enormous challenges facing the average
investor, but well-researched strategies, adequately funded and organized
operations, and ethical business approaches have recorded considerable
returns.
In the mid-term, investors willing to do business in Africa must be ready to
invest in education, skills training and infrastructure. We think SSA’s emergence
0
2
4
6
8
2007 2008 2009 2010 2011 2012f 2013f
SSA Output
Sub-Saharan Africa – from Cynicism to Optimism
Please see appendix for companies investing in SSA.
October 2012A complimentary publication of Straplan (Research & Planning)
Source: The World Bank
Source: NBSinvest in education, skills training and infrastructure. We think SSA’s emergence
is possible, and rapidly so, if constituent economies remain assiduous and keep
focus on improving infrastructure, health and education.
2007 2008 2009 2010 2011 2012f 2013f
17
13
20
38
4346
44
30
13
19
30
18
0
10
20
30
40
50
UK
Ge
rma
ny
US
A
Gh
an
a
Nig
eri
a
An
go
la
Ga
mb
ia
So
uth
Afr
ica
Jap
an
Ch
ina
Ind
ia
Fra
nce
% of Population Age 14 and below (2011)
35%
35%
36%
36%
37%
34%
35%
36%
37%
2007 2008 2009 2010 2011
700
720
740
760
780
800
820
840
860
MillionsSSA Population and Urban Population Growth
SSA Population SSA Urban Population
St ra p la nSSA PECR
Potential Enablers
• Economic growth
•Improving macroeconomic conditions
• Growing consumer market
• Rising sophisticated demand
• Young population
• Technology innovation
• Natural Resources
•Population Boom
•Urbanization
•Mobile Technology
• Macroeconomic Reforms
• External Demand from China and India
Challenges Risks
October 2012A complimentary publication of Straplan (Research & Planning)
Challenges Risks
• Access to finance
• Infrastructure
• Corruption
•Weak Work Force-underdeveloped human resources
• Teething problems associated with inchoate democracy, stop-
go policies, etc.
• Poverty and illiteracy
• Inflation
• Weak Human Resources
• Growing urbanization without commensurate expansion and
improvement in infrastructure
• Mono-cultural economies, vulnerability to oil price shocks
• Deviation from or macro-reforms
• Issues of asset bubble and hot money following surge in
capital in-flows
• Political Instability (low)
• Illiteracy
St ra p la nNigeria – Once a Pariah, Now a Bride?
Agriculture,
40.21
Solid Mineral,
0.36
Crude
Petroleum &
Natural Gas,
14.78
Manufacturin
g, 4.16
Telecommunic
ation & Post,
5.71
Finance &
Insurance,
3.45
**Wholesale
and Retail
Trade, 19.36
Building and
Construction,
2.08
Hotel and
Restaurants,
0.52
Real Estate,
1.78 Business and
Other
Services, 0.92Others, 6.67
Share of GDP (2011)
Nigeria leads the population boom and retail market potential in SSA, accounting for 19%
of the region’s population in 2011 at over 160 million (compared to 51 million in South
Africa). Evidently, Nigeria’s robust trade (retail and wholesale) sector accounted for
about 19% of its GDP in 2011.
Typical of the SSA region, Nigeria has a youthful population with over 65 million age 14
and below, representing 40% of its population. Nigeria’s demographic play becomes
more promising as its urban dwellers gradually rise beyond 80 million, supporting the
gradual emergence of a middle class with significant financial resources and sophisticated
demand.
Conversely, there is high poverty and illiteracy levels (largely due to infrastructure
deficiencies) followed by a large informal sector (retail market) with residual, but strong
spending potential directed towards affordable, customized ‘economy-pack’ products.
The efficiency of the Nigerian retail market will be reinforced by the rise in mobile
technology, fuelling its integration with the global economy and helping to alleviate some
A Retail frontier … the demographics play
October 2012A complimentary publication of Straplan (Research & Planning)
Source: NBS
120
130
140
150
160
170
2006 2007 2008 2009 2010 2011
Million Population
7.137.61
7.37.68
6.17 6.28 6.5
0
1
2
3
4
5
6
7
8
9
Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 2012f
Growth (quarterly)
technology, fuelling its integration with the global economy and helping to alleviate some
of the challenges of doing business. The spread of mobile telephony (over 100million
active mobile lines by Q2’12) has also increased internet penetration with about 45
million on-line and 24million (56%) of them via their mobile phones.
St ra p la n
Great potential… but lacks a grand national development plan/strategy to guide its political economy in driving a focused transformation
process. 'If the economic system is the gun that solves the problem, the political system is the hand that pulls the trigger-Anonymous.’
The current administration has just presented the medium term expenditure framework (MTEF) 2012-2015 to its parliament, signaling
its administration’s commitment to fiscal prudence and restructuring, while keeping focus on strengthening the fragile infrastructure
base, especially the supply of electricity power. Since Nigeria’s democracy is still inchoate, macroeconomic reforms have progressed
albeit slowly due to the absence of an overarching framework that clearly spells out the priorities of the nation and effectively
coordinates the affairs of its institutions. Therefore, significant structural improvement and socio-economic transformation, especially
in infrastructure development, appears far-fetched in the near term until the country has developed and instituted a national
development programme-in part, a derivative of the much touted constitutional review, which is the pillar that would support and
define the political economy.
Scale is an important consideration for investing in Nigeria in order to overcome challenges of access to finance and infrastructure.
Investors interested in doing business in Nigeria should be ready to invest in education, skills training and infrastructure. Nigeria’s
labour force is weak on two accounts, the human resource is under-developed and then is constituted by a mere 40% of the population,
compared to Africa’s average of 55% and China’s 70%. These deficiencies however signal potential improvement in local spending
Nigeria – Once a Pariah, Now a Bride?
October 2012A complimentary publication of Straplan (Research & Planning)
compared to Africa’s average of 55% and China’s 70%. These deficiencies however signal potential improvement in local spending
power when eventually the work-force becomes more efficient.
The outlook on the economy is generally positive owing to rising commodity prices and on-going attempts at reforms. Nigeria’s
resilience to the euro area crises has been buoyed by its economic ties with China and India which is continually being strengthened.
26.2
10.9
7
6.4
US
India
Brazil
Spain
Leading Markets % of Total Exports
17.5
9.1
4.9
4.7
China
US
Netherlands
India
Leading Suppliers % of Total Imports
Source: EIU
St ra p la nNigeria- PECR
Potential Enablers
•Economic growth
• Stable financial sector
•Improving macroeconomic conditions
• Growing consumer market
• Rising sophisticated demand
• Young population
• Mobile Technology Growth
• Natural Resources
•Population Boom
•Urbanization
•Mobile Technology
• Macroeconomic Reforms
• External Demand from China and India
We believe that a realistic overarching national development plan, transcending and connecting all levels of government and economic
structures would keep Nigeria above a double-digit growth. Infrastructure deficiency tends to deepen poverty levels, widen the income gap,
sustain corruption, increase cost of living and doing business, and push lower the standard of living, but a strong infrastructure base will reduce
inflation drastically and free disposable income, as noted with slight improvement in electricity power.
October 2012A complimentary publication of Straplan (Research & Planning)
Challenges Risks
•Access to finance
• Infrastructure
• Corruption
•Weak Work Force-underdeveloped human resources
• Teething problems associated with inchoate democracy, stop-
go policies, etc.
• Poverty and illiteracy
• Inflation
• Oil price shocks
• Labour unions
• Political risk (still manageable)
• Management of surging inflows and possible asset bubble
• Under-developed human resource
• Growing urbanization without commensurate expansion and
improvement in infrastructure
• Price adjustments on successful delivery of sustainable
infrastructure, especially power and transportation
St ra p la n
• 3M
Technology conglomerate 3M announced a big expansion to its African business in June and set up subsidiaries in Nigeria and
Kenya. The new operations will set about distributing the company’s existing products in the region. Eventually, they hope to
develop new products, specifically designed for the African context. Management believes Sub-Saharan Africa could develop
into a $500 million market for the company over the long-term.
• BT Group
UK-based telecom, BT Group, plans to nearly double its African operations by 2015. The company already serves 600 African
commercial customers and is hiring 100 additional staff at its regional head office in Johannesburg. Other investment includes
the construction of data centers and the purchase of internet bandwidth on a Cape Town to Johannesburg.
• France Telecom
The telecommunications giant has made a huge push into Africa with its “Orange” mobile and broadband brand. During the
first half of 2012, revenue from Africa and the Middle East grew 5.8%, propelled by a stabilized Ivory Coast (+34%) and an
impressive performance from Niger (+20%).
Appendix: Companies Investing in Africa… Culled from www.investinginafrica.net
October 2012A complimentary publication of Straplan (Research & Planning)
impressive performance from Niger (+20%).
FTE also devoted considerable resources to building its mobile customer base in Niger (+28%), Cameroon (+25%), and Senegal
(+18.5%). Mobile broadband usage increased 83% in the region.
• Koninklijke Philips Electronics
Dutch electronics maker, Philips, said its second quarter Africa sales increased nearly 30%. Much of the growth stems from the
company’s distribution of high-efficiency lighting in South Africa. It’s in the midst of a program that will see 200,000 50W
halogen bulbs at South African banks, shopping malls, and other commercial establishments replaced with Philips’ 7-10W LED
lamps.
• Moneygram
Remittances from the US to Africa have surged of late as the pain of recession begins to ease. There’s also been a big upswing
in transfers within Africa and between Africa and China.
To take advantage of this opportunity, fund transfer company, Moneygram, is building out its branch network as quickly as it
can. In July, it announced that it could now process transfers to South Sudan. It also added nearly 500 additional locations in
Ghana and over 500 locations in Nigeria.
St ra p la n
• Starwood Hotels
Hotel operators are beginning to reap the benefits of their African investments. Starwood Hotels’ Middle East and Africa
revenue per available room (REVPAR) bounced back after last year’s tough Arab Spring, increasing 11% in constant dollars.
The chain’s Nigerian properties performed particularly well, with revenue up 43%. Starwood operates 84 hotels across Africa
and the Middle East.
• Visa
The global payments company that’s everywhere you want to be is finally realizing that some people want to be in Africa. It
opened its Sub-Saharan regional headquarters in Nairobi in June.
Visa sees significant potential in East Africa’s mobile payments market and in processing inter-bank ATM transfers. A wider
Visa network would also be a boon to the international tourism industry. It aims to generate $14 million worth of revenue
from Kenya alone by 2015.
• Western Union
The money transfer service reported “strong” results in Africa in spite of foreign currency headwinds. Its Middle East and
Appendix: Companies Investing in Africa… Culled from www.investinginafrica.net
October 2012A complimentary publication of Straplan (Research & Planning)
The money transfer service reported “strong” results in Africa in spite of foreign currency headwinds. Its Middle East and
Africa segment grew revenue by 3% during the second quarter. It now accounts for 15% of total sales and total transactions
in the region grew 9% — more quickly than anywhere else in the world.
• Yum! Brands
We’ve highlighted Yum! in Africa before, but on its second quarter conference call, the purveyor of pizza (Pizza Hut), tacos
(Taco Bell), and fried chicken (KFC) reiterated its plans to be in 20 different African countries by the end of the year. It sees
“tremendous growth potential” on the continent, especially in Nigeria with its rapid population growth.
The company’s expansion will be driven primarily by the KFC chain, which has proven extremely popular in South Africa. It
bought 70 restaurants in South Africa last year, building its base in the country which it will use as a springboard into the rest
of the continent
and more …..
St ra p la nDisclaimer
October 2012A complimentary publication of Straplan (Research & Planning)
Disclaimer
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and opinions also contained herein are objective, reasonable and fair, no responsibility or liability is accepted either by Straplan or any of its
employees for any error of fact or opinion expressed herein. No reliance should be placed on the accuracy, fairness or completeness of the
information contained in this report as it is based on secondary information. All information and opinions set forth in this document constitute the
analyst(s) position as at the date of the report and may not necessarily be so after the report date as they are subject to change without notice.
This document is for information purposes only and for private circulation. No portion of this document may be reprinted, sold or redistributed without
the written consent of Straplan Research. The report is available primarily electronically.
St ra p la n
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October 2012A complimentary publication of Straplan (Research & Planning)
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October 2012A complimentary publication of Straplan (Research & Planning)
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