http://www.thisdayonline.com/nview.php?id=120213


Nigeria Now ‘Frontier Emerging Market’, Says IMF


Nigeria’s recent private sector-led growth and vibrant capital markets with potentials for investors have placed it in a league of eight sub-Saharan African countries (outside South Africa), heading towards emerging market status, a new International Monetary Fund (IMF) report has revealed.

The country is now a “frontier emerging market”, according to the IMF – a position that will guarantee the Nigeria the emerging market status as soon as it matures.
Also, Nigerian banks raised about $12 billion in capital over 2006-07 mostly from offshore investors, using a variety of investment vehicles, the report noted.

In the new report titled “The Rise of Africa’s Frontier Markets,” IMF Senior Adviser Africa Department, Mr. David Nellor, said Nigeria, Botswana, Ghana, Kenya, Mozambique, Tanzania, Uganda and Zambia had met the criteria required of emerging market countries.

Emerging markets, the study explained, refer to countries that have financial markets and attract investment interest.
According to him, these eight countries in the sub-Sahara Africa region account for about 40 per cent of the region's population outside South Africa and almost one-half of its GDP.
He pointed out that Nigeria dominated trade in this group and had fared well because of lower debt burden.
The study also pointed out that since the country received Paris Club debt relief and bought back much of the remainder of its external debt, trade in Nigerian debt had been mainly domestic.

This placed Nigeria 21st on the global debt trade ranking at the end of 2007, which in his view “is equal to or exceeds many first-generation emerging markets.”

Nellor said in the report: “The criteria for an emerging market set out here—growth, private sector–led growth, and investible markets—can be identified in eight sub-Saharan African countries: Botswana, Ghana, Kenya, Mozambique, Nigeria, Tanzania, Uganda, and Zambia.

“Emerging markets are attractive to investors because they offer rates of return that are high relative to mature markets and offer opportunities for investors to diversify risk. High GDP growth signals that there are opportunities for investors to ‘buy’ into the country’s overall prospects or seek out opportunities by identifying undervaluation in specific sectors.

“Growth prospects in emerging market countries are likely to be based on technological catch-up, significant output gaps, young populations, and faster population growth than in mature markets. The processes that bring about growth may differ by country, but a track record of solid growth is common to emerging markets. The potential for risk diversification might arise at the country level when growth trends are not synchronised with mature market economies.”

One way to assess the prospects of these countries, particularly resource-rich nations, was to compare their performance during previous oil boom periods to today and how they tried to avoid the boom-bust cycle, Nellor said.
Using Nigeria as an example, he argued that the country's performance was better since the current oil boom which started in 2004, compared to the booms of 1974-78 and 1990-94, measuring non-oil growth and inflation.
Good fiscal policy, budget oil price rule and saving oil revenues above the budget price all helped Nigeria perform better, he noted, warning, however, that Nigeria would have to adhere to strict fiscal rule in order to maintain strong growth.
These new developments, according to the study, would provide tremendous opportunities for African countries because access to capital markets was a key component of high and sustainable private sector led growth.

The study also noted that the term emerging market was coined by the International Finance Corporation (IFC) in 1980 to refer to developing countries with stock markets that were beginning to demonstrate the features of the mature stock markets in industrial countries.

It also gives investors the opportunity to make financial investments in a country. Before now, only South Africa held that status on the African continent. Access to capital had in the past been out of the reach of most African countries.

Positive news or the calm before the storm?

Certainly good news in terms of attracting foreign investment. Now, sufficient investment in infrastructure must follow to capitalise on our improved international standing and enhanced risk worthiness.

For the indepth Standard and Poors report, read here:

http://www.imf.org/external/pubs/ft/fandd/2008/09/nellor.htm

extract:

This group of African countries compares favorably with the ASEAN countries of 1980 (see table). ASEAN was already experiencing strong economic growth in 1980 but, in many other areas, the ASEAN countries looked quite different than they do today—and the African candidates perhaps have lower vulnerability and greater economic stability than the ASEAN countries had in 1980. Growth in sub-Saharan Africa is strong, as it was in Asia. Unlike the high ASEAN inflation in the 1980s, inflation in Africa is single digit. High international reserves and low debt-to-GDP ratios—the result, among other things, of debt relief—characterize the African countries relative to the ASEAN countries of 1980. Government, however, comprises a larger share of the African countries than it did in the ASEAN countries.



The macroeconomic policy challenges for the African markets are similar to those faced by the ASEAN countries in the 1980s. African markets tend to use monetary aggregates as the basis for achieving inflation goals, supported by a managed float exchange rate policy. With financial liberalization and other structural changes, the stability of money demand and relationships between monetary aggregates and inflation becomes problematic. As questions arise about their credibility, central banks look for more effective ways to meet their needs. In Africa today, a goal of some central banks is to move to inflation targeting. Some ASEAN countries adopted inflation targeting for much the same reasons, but not until after the Asian financial crisis of the late 1990s.

The rise of some African countries to emerging market status gives them a tremendous economic opportunity. Access to capital markets is a key ingredient to high and sustainable private sector–led growth, and this access had long seemed out of reach for Africa; it is now a reality. Evidence is already mounting that financial flows are being translated into growth in financial intermediation in these countries. To help ensure sustained growth, the countries must ensure that macroeconomic policy and capital account prudential policies are tailored to avoid the traps of volatile short-term flows, and that supervision promotes financial sector stability and effective intermediation.

Privitazation is helping Nigeria's economy profusely.


_{Don't take away the armed robbers though}

In a way, i tend to agree. With our population, resources, capabilities and potentials i tend to think that we destined for greatness, regardless of what is happening now.

That is why we see companies like Microsoft, IBM, Oracle, Cisco, GE and other worldwide companies using Nigeria as their regional hub for West and Central Africa operations.

No matter how much you sugar coat the name the properties still remain the same.

Form House boy to House servant to Domestic worker. All na the same.

How much of the investments and more is due to high cost of oil? Any information on that?

Kobojunkie:

How much of the investments and more is due to high cost of oil? Any information on that?

Well, this extract answers some of this:

One way to assess the prospects for these countries is to examine how they are performing today, compared with previous episodes of high commodity prices. Is there anything to suggest that this time their performance after the boom could be different? The best emerging market prospects would be resource producers that have installed sound economic institutions to avoid the boom-bust cycle of the past. Take the case of Nigeria. Since the current oil boom started in 2004, its economic performance has been far better than in previous booms in 1974–78, 1979–83, and 1990–94—whether measuring non-oil growth or inflation (see Chart 1).





The key to this good performance is that fiscal policy has been set with an eye on the ability of the economy to absorb the domestic demand consequences of spending booming oil revenues. Use of a budget oil-price rule, which allowed spending of oil revenues in line with absorptive capacity and saving oil revenues above this budget price, was effective in breaking the link between growing oil prices and budgetary outlays that led to booms and busts in the past. If this fiscal rule can be sustained, the prospects for ongoing growth are strong.

Consumer Prices have risen much more slowly? Where??

Do we have the infrastructure and the hard working human resource to capitalise on this good news?
If investors come in and they realise that everything is done via bribery, will that make them have any confidence in the system?

this is old news.

I read the same thing two or more years ago, I think.

^^^How is it old news when it came out in Sept 2008 IMF journal?  The fact it is classified as 'emerging' is old news. . . . but all of this is fresh news.

Kobojunkie:

Consumer Prices have risen much more slowly? Where??

In comparison to previous years, why not? Remember that oil prices usually rise in conjunction with soft goods - so in the past whenever the price of oil rose, it is safe to assume that soft goods rose as well. Which 300 goods would you pick to measure Nigeria's CPI? I am guessing Yam, Rice, Egusi, Palm Oil, Cassava etc - a lot of these crops are homogenous to Africa and are not in high demand worldwide so not each and every of those goods would have been affected by the rise in the price of soft goods. I don't exactly see anyone in Europe speculating on the price of Egusi.  

Also, remember that the rise in the price of soft goods is fairly recent - lets say it started at the beginning of this year - you can see that the graph has not factored in the CPI for 2008 yet - so it may still be bad news, as you suggest.

Nigeria has been an emerging economy for decades now. Back during Obasanjos time, the same was the news, but the common man seems to see the opposite happening. The high cost of oil and food does not make it easier. Until these advancements start to trickle down, I believe the news is only worth much to banks and government in Nigeria.

Kobojunkie:

but the common man seems to see the opposite happening. The high cost of oil and food does not make it easier. Until these advancements start to trickle down, I believe the news is only worth much to banks and government in Nigeria.

The common man is always the last to feel any change. . . . even in China today, we have starving peasants, yet China is a developed economy. . . .

I beg to differ, last I heard, China is still a developing economy, in fact third world. The Numbers do not make the whole. There are other factors that go in to check when determining whether a country is developed or developing. I believe India remains a third world country as well.

I believe the sooner those numbers start to trickle down, the better for us and our place in the world. We have had very good growth for so many years now. But the fact those numbers remain on the bare surface means a lot. These numbers will remain meaningless until then.

So far so good, thanks maily to OBJ, Soludo, and Okonjo-Iweala. The fear? Well the fear: bringing people with questionable economic and market oriented credential into the mix, simply because they are from the Kano-Kaduna-Katsina axis. Are you sure Yardua even understands what these ratings mean?

Well, the more the middle class grows, the better for Nigeria. Abacha killed the middle class. I hope Yar'Adua will leave finance to the professionals and not appoint his northern cronies.

The question as to whether these indices have started reflecting(trickling down) on the masses is a big yes. The middle class has swollen enormously.
Naturally, the poorest of the poor would be the last to feel the impact and sincerely, with the best of governance, it will still take nothing less than 20 years.
140 million people is a lot to handle.

However, the bad news might be that , Yar'Adua and his fellas simply don't understand these indices and have started dishing out policies and signals that would destroy all these.It would be truely sad if they squander this once in a lifetime opportunity.

Ibime:

Well, this extract answers some of this:

One way to assess the prospects for these countries is to examine how they are performing today, compared with previous episodes of high commodity prices. Is there anything to suggest that this time their performance after the boom could be different? The best emerging market prospects would be resource producers that have installed sound economic institutions to avoid the boom-bust cycle of the past. Take the case of Nigeria. Since the current oil boom started in 2004, its economic performance has been far better than in previous booms in 1974–78, 1979–83, and 1990–94—whether measuring non-oil growth or inflation (see Chart 1).

Kobo asked a very good question but your extract doesn't answer the question. In simple terms,what would have happened if oil prices never  surged in the first place and what would happen if they plunge back to the 90s level?

Is that a rhetorical question?. . . . before, if it is not down to oil, then what is it down to?. . . . the S&P report is not arguing that, rather they are comparing non-oil GDP during past booms and non-oil GDP during the current boom and they find that the results are more encouraging.

Did we have the same capacity back then as we do today?