Jim O’Neill, the former chairman of Goldman Sachs Asset Management and the man that brought the world the now ubiquitous BRIC and MINTs emerging markets acronyms, sees opportunity in Nigeria – the “N” in MINTs.
“If you look at stuff like UN population projections, by 2050, Nigeria could be as big as the U.S. population-wise,” O’Neill told Reuters. “So if they got things right and the consumers really get income support, for a lot of consumer companies, Nigeria is a fantastic story.”
Just over a week ago, in a move expected for some time, Nigeria’s National Bureau of Statistics changed the base year for calculating the country’s GDP to 2010 from 1990. By the stroke of a pen and some paper-pushing, OPEC member Nigeria, classified as a frontier market, has now surpassed South Africa as Africa’s largest economy.
The Global X Nigeria Index ETF (NYSEArca: NGE), the lone Nigeria-specific ETF, is up 2.4% in the past week. NGE, which is just over a year old, does offer some exposure to the Nigerian consumer with an almost 20% allocation to consumer staples stocks. [Top Single-Country ETFs]
O’Neill acknowledged to Reuters that Nigeria does face myriad challenges. As Africa’s largest oil producer, Nigeria is heavily dependent on oil revenue to drive government receipts. NGE allocates over 27% of its weight to the energy sector, which can be problematic on multiple fronts. First, Nigeria’s oil assets are frequent targets of rebel violence, making operating conditions in the country perilous for Western oil majors. Second, the U.S. shale boom has trimmed Nigerian crude exports to the U.S. [Nigeria ETF Plagued by Violence]
Then there is corruption. Nigeria’s corruption rankings are among the worst in the world and that is a sticking point with the foreign investors the country so longs to attract. Earlier this year, President Goodluck Jonathan suspended Central Bank Governor Lamido Sanusi due to the latter’s criticism of Jonathan’s inadequate track record of fighting corruption. [Central Bank Flap Hits Nigeria ETF]
Investors can gain decent-sized exposure to Nigeria with other ETFs, including the iShares MSCI Frontier 100 ETF (NYSEArca: FM) and the Market Vectors Africa Index ETF (NYSEArca: AFK). Nigeria currently accounts for 11.5% of FM’s weight, but that number is expected to jump next month when the United Arab Emirates and Qatar move to the MSCI Emerging Markets Index.
AFK currently allocates 16.7% of its weight to Nigeria, but that number could also change in the near-term. The is GDP-weighted, so in theory, Nigeria should be the fund’s largest country weight (it is currently third) when the ETF rebalances in June. However, AFK’s index has capping mechanisms in place aimed at preventing a single country or individual stocks from dominating the fund. [Nigeria’s GDP Change Could Change This ETF]
Market Vectors Africa Index ETF
