What Nigeria’s GDP Rebase means for your business


After Nigeria finally announced its rebased GDP calculations, the economy grew by 89% to US$ 509 billion, far more than expected. Nigeria is now the largest economy in Africa as it has overtaken South Africa’s US$ 345 billion economy.

Nigeria’s GDP rebase enhances Africa’s attractiveness as a place that holds significant opportunity because of its size, not just because of its growth rate. There are 24 other African markets planning to recalculate their GDP by 2016. As a result, we expect the overall economy of Sub-Saharan Africa to soon be much larger than currently assumed.

FSG’s report on what the GDP rebase means for your business remains relevant:

  • Brace for increasing competition: Nigeria is now more attractive in every financial and economic model worldwide, luring companies to invest locally. The size of Nigeria’s economy is now larger than that of Poland, Thailand, and the UAE.
  • Recalculate your targets: As the composition of the Nigerian economy has changed, some sectors are now much larger or smaller than previously assumed, altering the addressable opportunity for different industries. Efforts to make the case for additional resources will become easier in sectors that are larger than previously estimated, such as business services.
  • Prepare for rising government spending: The Nigerian government is expected to increase spending as the GDP rebase improved its ability to borrow on global financial markets. Public spending will focus on education, healthcare, transportation, housing, and infrastructure.

The operating environment will be negatively affected this year by heightened volatility in light of upcoming elections in 2015. However, the GDP rebase highlights why it’s important to stay focused on the country’s long-term opportunity.

Ethiopia – cracking the local code

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

As I sit on the plane from Addis Ababa to London, I am gathering my thoughts and impressions of Ethiopia. My trip made me realize just how complex a place it is. Ethiopia is different. Or at least, that’s what everybody keeps telling me. “The first mistake foreign businesses make, is to think that Ethiopia is part of East Africa. Ethiopians are not really Africans, nor are they Arab,” a leading distributor for the healthcare industry told me.

Ethiopians count time differently. It is currently the year 2006. Midnight is 6pm according to “Habesha time.” Unlike its neighbors, Ethiopia has long been closed to foreign exposure. It was famously never colonized, if one ignores the 5 years of Italian rule in the 1930s and 1940s – enough to introduce pasta to the national cuisine. From 1974 to 1991, Ethiopia was under communist influence. Today, Ethiopia is only at the very beginning of opening up to the world.

Yes, Addis Ababa has been the capital of international diplomacy in Africa since the early 1960s. Home to the African Union headquarters and other international organizations, Addis also hosts diplomats from around the world in its swanky hotels and remarkable Chinese-built AU building. Diplomats are easily spotted – they drive big cars and wear expensive suits.

ETHIOPIA 1The Chinese-built headquarter of the African Union is nothing less but a remarkable piece of architecture


The two sides of Addis include swanky buildings and impoverished areas

It seems odd. The majority of the population earns about US$60 per month and cars have a 240% import duty. The result is a stark contrast between rich and poor, diplomat and local. Most shops sell cheap Chinese imports or second-hand clothing. As a result, you can find the odd Ethiopian walking around in a Marks and Spencer shop assistant jacket. Russian Ladas from the socialist area, today widely used as taxis, contrast with the diplomat’s 4x4s. The high import duty means that cars, no matter how old, appreciate in price!


The real economy can be seen in the city’s vast market place Merkato, but Westerners rarely come here


The shop-owners in the Merkato are collectively investing in real estate to move their shops from their little shacks into proper buildings 

However, not all Ethiopians have low income levels. The number of dollar millionaires rose from 1,300 in 2007 to 2,700 people last year. GDP grew by 7.1% in 2013 and the government is implementing reforms to improve the operating environment. Ethiopia is therefore increasingly attractive for multinationals that want to tap into a large population estimated at around 90 million people.

This population figure is nonetheless misleading. Local distributors in the FMCG keep telling me that, “the addressable market is more like 10 million when you count the people living in cities.” Some argue that the addressable market is even smaller. Contrary to other African countries, urbanization is not very pronounced in Ethiopia as about 85% of its citizens live in rural areas. Despite low urbanization, consumer goods companies present in the market are experiencing dramatic growth rates of between 20% to 50%. It seems that growth, while from a low base, is happening fast.

I have come to see that doing business in Ethiopia is a long-term game. Companies must understand it will take time for income levels, and consequently consumption, to grow. It will take time for the government to build the required infrastructure to connect rural to urban areas, so that the addressable market will approach 90 and not 10 million people.

The government’s main objective is to transform Ethiopia first and foremost into an export market before it becomes a consumer market. Industrialization, job creation and poverty reduction are also major priorities – and indeed, it has already made major strides in reducing poverty. The government also wants to tackle the recurrent problem of Forex shortages, which is only possible by having more US dollars come in through exports rather than by importing more. For example, the high import duty on cars has been implemented because the country spends a large amount of its export earnings on importing fuel. The government wants to change this trend.

According to many local and international business leaders, the government differs from other African governments in that it delivers on many of its promises. It has created various industrial zones, given preferential treatment to investors keen on producing locally, such access to land and tax exemptions. The amount of infrastructure being built across the country is nothing less than remarkable.


The railway currently under construction in Addis will provide a much-needed improvement to public transport


This image vividly represents Ethiopia’s ongoing transformation

The government also wants to keep a tight grip on the economy. It will only allow foreign companies to invest in sectors that have a true need. As the minister of Foreign Affairs Tedros Adhanom Ghebreyesus told me, “Multinationals need to bring something we don’t already have, either technology or innovation.”

As a result, some sectors are still closed to international companies. These include retail, telecommunications and banking, among others. The government wants to protect local industries and strengthen them before international players come in. There is nonetheless mounting pressure for these sectors to open up and as many say, it is only a matter of time.


The Commercial Bank of Ethiopia is one of the few banks allowed to operate in the country

Some companies are in fact already sneaking in through the back door. Leading international telecommunication providers are allegedly acquiring stakes in Belcash and M-Birr, two companies that provide the technology infrastructure for mobile banking. Telecom giants are therefore already positioning themselves for preferential access to the market.

Ethiopians want international brands, and they want them now. The odd coffee shop uses a similar logo to Starbucks, and I saw several shoe shops that call themselves Aldo and Clarks.  “But Ethiopia was long closed to foreign influence, and they don’t have a direct association with international brands. So, a no-name brand from Turkey for example, can become very successful here, because consumers don’t know the multinational brand. Companies are on a level playing field, and it all comes down to marketing,” a distributor whose Turkish nappies enjoyed a much larger market share than P&G’s pampers, told me.


International brands are much aspired to, as can be seen from this Apple logo on a bus


Local brands are widely popular, and for a good reason. I quite enjoyed St. George’s beer 

Understanding the “local code” is crucial when trying to reach the consumer, as I have been told repeatedly. To give you an example, an international FMCG company endorsed a local musician. However, it turns out this local musician was not well-liked by the 30 million strong Oromo tribe because of his praise of a former Emperor who committed manslaughter of the Oromo many decades ago. The company had planned to send this musician on a tour into the Omoro tribal area, which caused a massive outcry. The marketing mishap reveals how companies must understand cultural sensitivities to succeed in Ethiopia.

Several international companies are already tapping into Ethiopia’s opportunity very successfully. They include the typical pioneers for doing business in Africa; namely Coca-Cola, Pepsi, Diageo and Heineken. GE already paid various visits to the country and is planning to set up an assembly factory. Coca-Cola has a long history of being in the country. Apparently Emperor Haile Selassie owned shares in the company – and at a time, Coca Cola was traded for gold!

The pioneers are already here. Their success partly rides of the back of what the head of GE for East Africa described: “in Africa, we are working backwards, we create the infrastructure that will lead to the demand for our products.”

The pioneers of FMCG companies are already present in the market: Heineken, Pepsi and Diageo




I can see that this approach takes time and is expensive, but ultimately, the “working backwards approach” leads to success not just for the companies, but for the socio-economic development of countries.

Given the realities I have seen in Ethiopia, this model makes perfect sense to me.

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional TrendsetterNotes from the Field: Kenya, Nairobi – African Cities Need Urban PlanningKenya – Let the pictures speak for themselves, and The Uganda Trap

The Uganda Trap

Uganda 1

Kampala’s skyline

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

Apparently Ugandans very rarely say no; they much prefer to say maybe. As I sit (without a previous appointment) in Prime Minister’s Amama Mbabazi waiting room hoping for a slot to open up in his busy schedule, I can see this cultural practice work to my advantage. His secretary is doing everything in his power to find the time for Mbabazi to see me.

To have the chance to speak to the prime minister reflects my impressions of Uganda in a nutshell. Unlike Kenya where I spent the previous week, Uganda seems less intense, much safer and above all, has a more relaxed competitive spirit. It is therefore easier to access high profile individuals and business opportunities.

Then again, I might have fallen into the “Uganda trap.”

“Uganda is very attractive when you look at macroeconomic indicators, the country is growing at 5.6% average in the last 5 years. Now we have oil, which will come online in 2016, which means we will grow even faster. But to be honest, the addressable market is much smaller than it might appear on paper,” says the CEO of a leading bank in the country. “If you want to be successful here, you have to own the market, invest heavily to become the number one player. Many investors don’t know that, they are lured by the figures rather than seeing it for themselves. That is what I call the ‘Uganda trap’.”

While this might be true when looking at Uganda as a single market, I cannot help but see its many advantages. The country benefits from a strategic geographic position – despite being land-locked, it serves as the main access point to neighboring Eastern DRC, Rwanda, and South Sudan. The nascent oil sector will be a game-changer and there are many gaps in the market waiting to be filled.

Uganda 2

I visited DEMBE in Kampala– a regional FMCG distributor servicing Uganda, Rwanda, Tanzania and Kenya, Burundi, South Sudan and Zambia

Although Uganda’s addressable market is smaller than Kenya’s – in part due to past political instability that hindered economic development – there is still strong demand for a wide variety of goods. Wealth is evident. I passed a well-maintained golf course in central Kampala and sipped a creamy cappuccino in the city’s new shiny Acacia shopping mall.

Uganda 3

The Ugandan elite playing golf in central Kampala

Uganda 4

Uganda 6

The recently opened Acacia shopping mall has Western products and African designer fashion on display

In addition to offshore oil finds, Uganda is also building an oil refinery and hopes to become an exporter of refined oil in East Africa. Hopes are high that the government will properly manage this natural resource as did Botswana with its diamonds. To that end, a special government task force was sent to oil-producing countries in order to learn from their successes and mistakes. The government eventually decided to follow the Norwegian model.

Despite strong upstream and downstream potential, Uganda’s main advantage vis-à-vis its neighbors lies in agriculture. A common prejudice in the region states that Ugandans are less productive than Kenyans because they never had to worry about getting enough food on the table. “In Uganda, if you throw something out of the window, next thing you know, a tree has grown there. Uganda is so fertile, no one stays hungry,” someone told me.

Uganda 7

A vendor offering tropical fruits to passersby in Entebbe. The lush and fertile countryside lends itself nicely to agriculture all year round

Uganda contributes to a large portion of arable land in East Africa and is surrounded by countries that have difficulty feeding their populations. Large opportunities abound for the country to turn its raw materials into processed foodstuff and export it into the region. However, the capital required for a supply and marketing chain is missing, although new revenues from the oil sector might help.

Agriculture and oil are not the only opportunities. On my way to the ministry of finance, I bumped into a group of Turkish businessmen waiting for the elevator. They told me they worked in construction, “building a lot of roads to be precise.” I asked them about Chinese competition, given that many Chinese companies tend to win most infrastructure tenders in Africa. The businessmen answered that, “the roads that were built by the Chinese, are already in decay. African governments now want good quality.”

Uganda 8

Currently, there is not much danger in getting run over by a train, as it only passes Uganda every 2 to 3 days. But this might change soon as the rail network expands

Uganda might be less mature than some of its neighbors, but I find that it will become a small and important market in itself.  In a few years down the line, the country could become a hub to service Anglophone central Africa for international companies.

To quote the Prime Minister, who I have now seen and who emphasized the country’s readiness for agro-processing, fisheries and minerals as areas of investment, “Uganda is not a land-locked country, but a land-linked country, ready to export more of its products into the region and the world.”

Uganda 9

Prime Minister Amama Mbabazi showing me the flag of the East African community 

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional TrendsetterNotes from the Field: Kenya, Nairobi – African Cities Need Urban Planning, Kenya – Let the pictures speak for themselves.

Kenya – Let the pictures speak for themselves

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

I am currently sitting on a plane bound for Uganda, gathering my thoughts and impressions of a busy week in Kenya.

Kenya’s business landscape is buzzing with activity – there is no doubt about it. The past two years have seen international companies set up their regional offices in the country to benefit from strong human capital and good infrastructure links.

Western, local and other emerging markets companies are all competing for market share of Kenya’s expanding consumer class. Kenya is therefore becoming an increasingly competitive place to do business.  The pictures I took during my travels through the country speak for themselves:

Nakumatt, a Kenyan supermarket chain, sells a variety of local and international products:
Nakumatt Shelves

Whether in Nairobi or in the countryside, one is bombarded with billboards advertising Huggies nappies, Nivea deodorants, Colgate toothpaste, Samsung electronics, Tusker beer, Johnny Walker whiskey, Coca Cola and Kentucky Fried Chicken, among many others:

Commercial Billboards


Kenya 1

Kenya 2

On my way to the airport, I saw two workers put up the Porsche sign at the company’s new outlet in the industrial district, nearby other car retailers such as Toyota and Foton of China:

Kenya 4

High rise apartment blocks and large villas are mushrooming throughout Kenya’s major towns:

Kenya 5

Construction is everywhere. New roads and railways are being built, and the airport and port are expanding. The upsurge in infrastructure will make the distribution of goods in the country much easier:

Kenya 6

Kenya 7

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional TrendsetterNotes from the Field: Kenya, and Nairobi – African Cities Need Urban Planning.

Central bankers’ decisions could mean changes are in the air for the euro

President of the German Bundesbank Jens Weidmann and other countries’ central bankers made statements during the week suggesting that negative interest rates or even asset purchases (Outright Monetary Transactions, or OMT) may be considered in upcoming monetary policy announcements. These statements represent a material softening of particularly the German political stance against such measures. Any unconventional monetary policy enacted as a result of shifting eurozone economic sentiment would reduce bond yields, helping governments and banks to pay down their bad debts, and relieve upward pressure on the euro, making European exports more competitive and spurring growth.

The timing of this disruption in the consensus view on unconventional monetary action is noteworthy.  In February, Germany’s highest constitutional court criticized OMT and asked the European Court of Justice to determine whether such transactions were even within its mandate, essentially “rejecting” its validity as markets understood the ruling. However, last week the court upheld participation in the European Stability Mechanism, paving the way for further German concessions in the last pillar of the European banking union. This week’s similarly surprising change of heart prompted hopes that OMT actually could be used to support the European economy.

There are several possible reasons for the central bankers’ change of heart. The first is that a slow, incremental shift in consensus has been taking place in economic circles across Europe and is finally coming to the fore. Policymakers and business leaders alike have become less hostile towards unconventional monetary policies, and the fear of unintended consequences from QE has waned. This shift has been even more pronounced since October, when euro area inflation shrunk below 1.0% YOY, a level from which it has not returned. Price growth fell further to 0.7% YOY in February, and data released on Monday is expected to reflect the same weak inflation.

Other drivers of Europe’s re-introduction of OMT could be the result of governments bracing for another difficult year of low economic growth. Risks in Europe, and particularly Germany, are to the downside. Business confidence in CEE, but particularly in Germany, has suffered a sharp fall due to the Crimea crisis. Emerging markets’ currency devaluations have reduced demand for German exports, decreasing new orders for industrial goods. Banks are writing down massive amounts of non-performing loans ahead of ECB bank stress tests, causing a credit contraction that reduces business activity. The risk of a lash-out against austerity in southern Europe has raised fears of increasing political risk and thus higher borrowing costs for those countries, particularly Italy, which could threaten default.

ECB purchases of member government’s bonds and other assets would go far to address these issues. Reduced upward pressure on the euro would help to normalize the exchange rate, making European exports more competitive and improving growth. Lower bond yields would help banks write down bad debt more quickly, reducing the risk of bank failures. Each of these events would improve business confidence, and help bring Europe to a more sustainable recovery.

In short, central bankers’ comments bring the ECB one step closer to assisting its member governments and their banks in balanced deleveraging. This, much more than increased government spending or in lower policy interest rates, would promote growth in Europe.

Nairobi – African Cities Need Urban Planning

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

Kenya Traffic

Yesterday I spent 7 hours stuck in traffic versus 4 in meetings. With more and more cars on the streets, there is no doubt that the middle class is rising… and road congestion along with it. Even after spending some time stuck in Luanda’s traffic – which enjoys an abysmal reputation – I have to say it is nothing compared to Nairobi’s.

My experiences on Nairobi’s roads might have been bad luck or indeed a reflection of reality. Either way, I couldn’t help but notice that this traffic must have a negative impact on the economy. Spending hours stuck in a car with the engine running is expensive, environmentally destructive, and above all, unproductive. People become unhappy and unhealthy.

Cities in Europe have undergone a transformation in recent years that turned them into places people actually want to live in. Bicycles now crowd the roads, and people run and walk to work. London is about to build a garden bridge that will turn the daily commute into a pleasant walk in the park.

Africa, however, is a place of reverse innovation. Just think of M-Pesa, the mobile service that made banking accessible to the unbanked, or M-Health and M-Farming that give advice on better healthcare and farming practices, respectively. Think of Cardiopad, a touch screen tablet that electronically transmits medical tests in rural areas to urban examination centers for diagnosis. However, this innovative spirit highlighted by these inventions is regrettably not evident in urban planning.

Real estate prices are rising fast – one acre of land in central Nairobi costs today between US$ 6.0 to 7.5 million – so everyone involved in construction wants to make a rapid profit, overlooking the fact that cities should be livable places. New apartment blocks need matching infrastructure, such as schools and hospitals nearby, and roads to reach them.

Nairobi’s congestion will only get worse as more people buy cars as the consumer class grows, the financial sector matures and consumer credit becomes cheaper. Cars are a status symbol. To quote my taxi driver: “people would get a loan to buy a car, even though they cannot afford to maintain it, just because their friend also owns a car.”

However, rapid economic growth in Africa’s main cities, rising private and public investment in infrastructure, and long-term national development plans are all ingredients that should be translated into building African cities that are pleasant to live and work in.

As I sit in the taxi, I think that urban planning in Africa should embrace innovation to the same extent as the financial services and technology sectors. Better public transport, safe roads to cycle on, car sharing systems are just some examples that would make roads less congested and people healthier, happier and more productive. International companies should engage with the government and advise city councils on building cities of the future – not just cities.

Kenya’s Tatu city, an urban development that aims to provide living and retail space that is pleasant, environmentally-friendly and within easy commuting distance from Nairobi, could lead by example once completed. But innovation needs to first and foremost take place within existing cities, not only newly-built ones.

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional Trendsetter and Notes from the Field: Kenya

Kenya – A Regional Trendsetter

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

My conversations today with business leaders, consultants and journalists revealed that Kenya is a regional trendsetter for many reasons. The country’s private sector is arguably the most dynamic in the region, benefiting from a free market economy since independence. Kenya is much more open to international business as a result, unlike neighbors such as Tanzania that, for a long time, follow a state-led and socialist approach to business.

Kenya is oftentimes the first point of entry for goods traded in the region through its port of Mombasa. Upon clearance from the Mombasa port, goods are then transported via the Northern Corridor to Uganda, Burundi and Rwanda; and from those countries to South Sudan, and the Eastern DRC. The majority of goods not imported from outside the continent and sold across East Africa are produced in Kenya. Its manufacturing sector is underdeveloped but remains bigger than those of other markets. As a result, Kenyan consumer trends, particularly in fashion and technology, are carried throughout the region.

Historical legacy and better infrastructure are not the only reasons for Kenya’s role as regional trendsetter. Kenya’s financial landscape is more sophisticated and mature than its neighbors’ and Kenyan banks are expanding across the region.  Local retailers, such as Nakumatt, are among the most successful in the region and are on an expansion drive. The country’s talent pool and human capital are strong, as multinationals face minimal problems in staffing their local operations.

Anna Rosenberg visited the headoffice of Nakumatt - a leading retailer in East Africa

Anna Rosenberg visited the headoffice of Nakumatt, a leading retailer in East Africa

However, not all East African consumers are receptive to these trends. Tanzania’s relationship with Kenya is strained. Tanzanians perceive Kenyans as aggressive and are afraid that they might take over Tanzanian businesses if the country opens up more under the East African Community. As a result, Tanzania is hindering faster progress of regional economic integration.

To put it in the words of two executives I spoke to today, “Kenyans are trendsetters in East Africa” but “they are not well liked in the region.”

Notes from the Field: Kenya

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

Nairobi, Kenya -Anna Rosenberg

Kenya – Security is a Concern
Kenya is an attractive place to do business – that’s the reason I am on the ground doing research. My conversations today with business leaders and ordinary Kenyans alike surprised me in the palpable, growing sense of insecurity they implied. Perhaps our talks were overshadowed by a recent Islamist terrorist attack that had young men storm a church in Likoni, near Mombasa, to open indiscriminate fire, killing six people.

Taking place six months after the Westgate Mall attacks in Nairobi that killed 64 people, the Likoni assault is only a reminder of the underlying tensions within Kenyan society. These tensions do not originate in religious divisions, but economic ones. While Nairobi is bustling with economic activity, the coastal areas are not. Youth unemployment among educated Kenyans is high, which fuels resentment and provides a fertile recruitment ground for radical causes.

Westgate Mall Closed

Nairobi’s shopping mall, Westgate, is closed for reconstruction after a terrorist attack in September 2013

How is this fear impacting business?
I spoke today to the regional head of a company that sells spirits across East Africa. Although his business in Kenya is still growing, he stressed that it is performing worse than other East African markets as consumption activity is shifting to the home, away from public places. Consumers are also buying less alcohol because of negative religious connotations. His employees are scared, particularly when launching marketing events in Nairobi’s flashy Westernized hotels – a prime target for terrorists.

A seasoned Kenyan investor told me that his friends in the tourism industry near Mombasa are severely feeling the economic impact of insecurity. Every incident triggers a drop in prices for hotel rooms, causing dramatic losses in revenues, in turn leading to layoffs that contribute to unemployment. A vicious cycle.

To be clear, as I have heard and seen repeatedly today, Kenya’s business landscape is one of dynamic and fast-paced growth. Business targets typically exceed expectations. Investments in the power sector and nascent oil & gas industry keep rising. Yet for Kenya to remain an attractive hub for multinationals in the region, the government needs to ensure that economic growth creates attractive employment opportunities for the disgruntled youth.

Follow me on twitter @anna_rosenberg

Businesses Need to Prepare for a Tough Year in Nigeria

Despite a positive medium-term economic outlook, Nigeria is struggling with various challenges that undermine its economic potential: These challenges are coming to the forefront as the country prepares for presidential and national assembly elections on February 14, 2015. Executives should expect political volatility to hinder policy-making, fuel inflation, and currency depreciation. Business customers, partners, and government agencies will be in a wait-and-see mode up to elections. This could have implications for demand, investment plans, and the speed of moving through regulatory processes.

Power struggles ahead of the 2015 elections hinder the passage of important legislation and weaken investor confidence: Political infighting is undermining the current administration’s ability to pass policies. After various high-profile defections from the ruling People’s Democratic Party (PDP) to the newly formed All Progressive Congress (APC), the APC now forms a strong opposition. It is blocking all legislations including the 2014/2015 budget. President Goodluck Jonathan’s politically motivated decision to oust widely respected Central Bank Governor Lamido Sanusi weakened investor confidence significantly. In past months, the president also fired various ministers, including the ministers for information, environment, and foreign affairs. 

Inflation is expected to rise, and the naira is expected to depreciate in 2014. Both trends will put downward pressure on consumer and business demand: Inflation will likely rise to double digits because wealthy individuals are flooding the economy with cash to back candidates and the government is increasing spending. In past elections, an influx of cash into the economy led to currency depreciation and inflationary pressure. Capital outflows as a result of the US Federal Reserve’s quantitative easing program, losses in government revenue because of oil theft and corruption, uncertainty over monetary policy, and weakening investor confidence have led the naira to depreciate. The power sector is undergoing major reforms that also increase prices. Electricity is now more expensive as the state-owned power company privatizes its distribution operations and hikes prices. Moreover, the worsening security situation in parts of the country is leading to higher distribution costs of consumer goods. Businesses producing locally will pass on rising production costs to consumers, who will, in turn, prioritize non-discretionary purchases.

The security situation is worsening ahead of the elections: Nigeria’s security challenges include bombings by Boko Haram and ethno-religious clashes in the northern and central areas, oil theft and piracy in the Niger Delta, and kidnappings in the Southeast. Election-related violence has hit Rivers State as skirmishes erupted between APC’s Governor Rotimi Amaechi’s supporters and his opponents. Boko Haram’s attacks have increased in recent months despite heightened military response.

Unemployment, poverty and corruption remain high and are the real drivers of criminal activity: Although Nigeria’s economy expanded an average of 7.2% per year between 2004 and 2010, the proportion of Nigerians living in poverty is still 62.6%, down only slightly from 64.2% in 2004. Social inequality and theft by powerful elites aggravate the dissatisfaction of ordinary Nigerians, who are then easily drawn into criminal activities because of lack of perspective. Oil theft by criminal gangs costs Nigeria US$ 8 billion per year. Corruption within the state oil company led to the loss of between US$ 10 to 50 billion of oil revenue from January 2012 to July 2013.

Companies should monitor developments closely to get ahead of risks and opportunities: Executives should monitor the pre-election period closely and manage corporate expectations regarding demand. Less risk-averse executives should consider strategic investments now as their competitors are in a wait-and-see mode. Details for what to monitor and which strategies to implement to protect and grow your business despite the worsening environment can be found in our latest report ‘Market Spotlight: Nigeria’.

Despite the tough environment this year, Nigeria’s solid growth will prevail: Nigeria’s medium-term macroeconomic outlook remains positive because of rising private consumption by the country’s 170-million-strong population, the economy’s diversification away from oil, and its attractiveness for investors. The GDP rebasement will also have a positive economic impact. A significant boost to total GDP figures will make Nigeria more attractive in every financial and economic model worldwide, luring more companies to invest locally.

Global economic headwinds will weigh on eurozone growth

As developed-market monetary policy creates currency volatility in emerging markets, it would be easy for companies turn their attention away from Western Europe. The financial crisis has abated somewhat; eurozone countries hardly make the news.

However, executives should be prepared for problems emerging in the eurozone as a result of weaker emerging markets currencies. For example, emerging markets currency devaluations make euro-denominated exports relatively expensive, decreasing demand for those products. As a result, the efforts that southern European economies such as Greece and Spain have made to reduce labor costs and increase competitiveness do not yield the export growth that they had hoped.

Furthermore, attempts to diversify western European customer bases among emerging markets are now proving in vain, as currency devaluations sweep away the once bright spot of growing demand.  Chronically high unemployment has muted demand in the eurozone as well, the bulk of whose trade comes from consumers and businesses within its own currency union borders.

At the center of this dynamic is Germany, an economy that has long centered its growth on export health. Across the past five years, Germany’s exports to non-eurozone and emerging markets have increased drastically, insulating its economy more and more from weak eurozone demand.

increase in exports from germany

As major emerging-markets currencies lose….


…. Germany’s growth is likely to suffer.

germany gdp growth

Fluctuations in exchange rates and demand will continue to accompany global economic volatility. To manage in this environment, executives with responsibility for Western Europe should consider increasing the flexibility of their annual targets. ​

You may download FSG’s corresponding podcast on Germany’s Quarterly Market Review by clicking here.