Looking "Big Picture":

Beyond these near-term "bounce" positives, there are several more important, more meta-level drivers of future growth that most US investors are not aware of: a major infrastructural build-out, new economic partnerships with China and Germany, and the 2017 - 2020 Economic Recovery and Growth Plan [ERGP].

Could these three catalysts together insure a genuine transformation of the Nigerian economy, spurring the kind of positive feedback loop that each one alone simply could not? In a word: yes.

A recent agreement with Beijing has been inked that will create an east-west rail infrastructure across the country for the first time in its history. The nation's original rail lines were built during the colonial period north-south, both to avoid the difficult-to-build-upon swampy coastline and river deltas and to enhance resource extraction from the interior.

The new "Lagos to Calabar" Rail will link Nigeria's coastline in a way that has never existed. Imagine an eastern seaboard that lacked any effective rail linkage between Boston and DC -just connections, say, from New York to Albany or Philly to Harrisburg, i.e. from a coastal city to its local hinterland. How economically stultifying would that have been to US modernization?

In addition, a second bridge (with rail) over the Niger River was initiated January to better link the South East and reduce traffic.
Both projects will be transformational for a country that has long been synonymous with bad transport. These will be standard gauge as opposed to narrow gauge rails, offering much faster speeds and capacity than the older colonial-era lines.

These national rail projects will have a massive "economic multiplier effect" (EME), perhaps comparable to Eisenhower's Interstate Highway Act on the US economy, which scholars have suggested offered an EME as high as 8 in the five to ten years immediately following construction. Kenya's new Nairobi-Mombasa railway -another Beijing-backed project--just opened in December is expected to contribute 2% to that country's wealth annually.

Nigeria's new national rail project is richer in its new linkages and its implied network effect. It is expected to create up to 500,000 jobs and it will facilitate the movement of up to 3.2 million tons of cargo per annum. As Osinbajo said earlier this year: "It reflects the federal government's decision to build a globally competitive economy with first grade infrastructure."

The Export-Import Bank of China has also approved $1.275 billion loan for a new Lagos-Ibadan standard gauge rail line project. This is long overdue. At present there is no direct rail into and out of Lagos's major Apapa Port, which means big trucks clogging the capital's local streets 24/7. The new rail will offer a massive reduction in gridlock, leading to greater efficiencies. This and Nigeria's recent WTO TFA could set the stage for a post-oil economy and the kind of industrialization that will provide jobs.

More broadly, Nigeria appears to now be an important linkage in China's vaunted One Belt, One Road Strategy, offering a conduit to the West African markets. Nigeria will start exporting yams to China in July for the first time. On a recent visit to Abuja, Chinese Foreign Minister Wang Yi said the following:

Nigeria and China are strategic partners; our relations have been developing well. China has already invested or financed a total number of $22 billion projects here in Nigeria, another $23 billion projects are on-going. In addition, we are also following up another over $40 billion of investments which is in the pipeline. Compared with the size, population and market of our two countries, our cooperation still has a great potential to be deepened . . ..

This ostensibly boilerplate speech becomes a lot more intriguing when linked to the discussions about a trans-African rail system that would connect Lagos to Mombasa on the Indian Ocean. The present truck highway is nothing but a muddy, unpaved, impassible trail in central Africa during the rainy season.

This new rail line remains a speculation, but it becomes more plausible once the Kenyan track extends to Kampala and Kisangani. China is funding this because, I believe, they realize that a linkage to the big population centers of Africa offers it the best economic and geo-strategic bang for its One Road One Belt buck.

As China goes higher up the value chain, it sees Africa as a resource center, a low-cost manufacturing zone, and a serious consumer market. Its One Road One Belt regime of direct lending, currency swaps and bilateral agreements is essentially an ambitious effort to re-circuit world trade and establish itself at the center of the next century's "post-dollar" financial system. This new vector line of commerce with China and Asia as a whole would be epochal for the continent. Deep-pocketed outsiders haven't been this interested in continental West-East transport in Africa since the "Race to Fashoda."

Another font of outside spending and expertise will come from Germany. Clean energy and investment strategies mark the relationship. On March 10, the German Parliament pledged to help Nigeria to diversify its economy and energy base through the exchange of technical information and exchange programs.

Solving the nation's bad roads and spotty electricity are essential steps to a post-oil economy. The Nigerian National assembly is planning to amend its laws on power transmission to mimic Germany's best practices. This will allow local generators to distribute more than 10 megawatts and spur private sector investment in the energy sphere.

The refugee issue in Europe now has Berlin and its pension funds focused on ways to help build up Africa's economic stability, stopping the refugee migrations at the source. After a meeting with a contingent of Nigerian senators, Malu Dreyer, the Head of German Parliament's Bundestrat stated:"we are faced with a refugee situation and to save ourselves the escalation of this problem, we have to tackle the root cause of migration by helping African countries to be economically strong and buoyant."

The third catalyst is the long-awaited 2017 - 2020 Economic Recovery and Growth Plan (ERGP). Launched on April 5, 2017, the plan's objective is to achieve "sustained inclusive growth by increasing national productivity and achieving sustainable diversification of production." With 21 programs, 60 strategies and 265 key activities, the plan will be the operative document that re-circuits the economy and put the outside investments to proper work. More specifically the federal government plans to:

1. Privatize some public enterprises/assets.
2. Reduce the government stake in joint venture oil assets to raise more funds to finance the four-year plan.
3. Revamp local refineries to reduce petroleum product imports by 60% by 2018.

The plan also seeks to sweeten the pot for the multinationals doping business in the country. At last check, the federal government has about a 55% stake in joint ventures run by oil majors including Exxon Mobil (NYSE:XOM), Chevron Corp. (NYSE:CVX), Total (NYSE:TOT), and Eni SpA (NYSE:E). Import substitution on the gasoline front should help with currency strength going forward.

Besides increasing oil output, there is a focus on opening up new farmland and boosting investment in electricity, roads, and ports to diversify tax revenue. The federal government hopes to increase non-oil tax revenues by improving compliance, broadening the net with a tax on luxury items, and measures to capture more of the non-formal economy.

On May 19th, Nigeria's Acting President Osinbajo signed a "Made in Nigeria" executive order that will affect the 2017 budget. This order mandates that government agencies must direct at least 40% of their total purchases to local producers. This "buy local" directive in procurement will enhance Nigeria's manufacturing and have a sizable multiplier effect on its business climate.

The World Bank recently recognized the potential of the ERGP, [url=http://%20https//www.thisdaylive.com/index.php/2017/05/22/world-bank-nigeria-faces-fragile-economic-recovery-in-2017/]stating[/url] that "if implemented successfully, would lead to expanded transportation infrastructure, increased reliability of supply of power ….and an improved business environment."

Of course the Nigerian government has had other plans in the past -NEEDS, Vision 20:2020 -and those plans failed. The country also navigates a multitude of tribal/sectarian divides as well as the Boko Haram in the north. And the question remains whether Nigeria will be able to maintain an undervalued and competitive real effective exchange rate (OTC:REER), and manage its exchange regime effectively. But this crisis may be occurring in a different context -with more outside investment, a different internal dynamic, and a new investment profile for the country.

2015's election was a watershed in the country's political culture, with the first-ever peaceful transition of power and a new outlook on anti-corruption. The army has been very successful in neutralizing Boko Haram, driving it from an area the size of Belgium in late 2016.

Demographic Destiny and "Soft Power":

"I see Nigeria rising and occupying a significant position like China, the US, and other great powers of the world."

--Andrew Young, former US Ambassador to the UN

With both China and Germany both seeking to prime Nigeria's economy for industrial modernization, this is a perfect moment for the speculative long-term investor. Nigeria is the last large unsaturated market in the Anglophonic world.

In a world starved for consumer demand, this is a country that is expected to surpass the US in 2050 to become the third most populous country on earth. According to the UN, it will have more people than all of Europe in 32 years and more than rapidly aging China in 2125.

Long term, jobs and consumer demand in Africa are the only things that will stem Europe's refugee crisis and maintain our current global GDP growth rate. It is rare that Beijing and Brussels find such common ground.

Last week, PwC ( PricewaterhouseCoopers) projected that Nigeria will be the 14th largest economy in the world by 2050, with GDP in Market Exchange Rate (MER) terms at $3.3 trillion. That is considerably higher than today's recessionary $232 billion.

These numbers omit the "soft power" of Nigeria. With its Fintech startups, Nollywood heft in filmmaking, and internationally recognized literature (Nnedi Okorafor et al), Lagos is already set to become West Africa's pre-eminent financial and cultural capital. It will likely resemble New York, Shanghai, or perhaps Wakanda's Birnin Zana (fabled home of Marvel Comics' The Black Panther) in fifty year's time. Yes, the rural hinterlands will languish and the nation's tribal rivalries will endure for generations, but it is always the "globally-integrated" coastal cities that are entrepôts of modernity and which eventually transform the broader society. Like Guangzhou 40 years ago, Lagos will spearhead a similar effect.

After a deep clock-cleaning recession, Nigeria has a new page to write. Its present situation brings to mind Indonesia in the aftermath of the Thai Baht Crisis. Famous for its corruption, that country was bludgeoned by a 40% currency free fall only to see genuine reforms, a GDP rebound and one of the best stock market runs of the following decade.

We can only hope that Nigeria follows the same course.

Disclosure: I am/we are long NGE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Long NGE and EEM since May 2017.

Source: https://seekingalpha.com/article/4098681-nigeria-economic-titan-late-21st-century-todays-classic-mean-reversion-trade

Front Page: lalasticlala Mynd44

wow
very insightful

It's a pity this is appearing so late at night, as there's a lot I would have liked to say on the topic. For now, this will have to suffice: the author of this article is severely misguided if he thinks all the things he has mentioned will suffice to make Nigeria any kind of "economic titan", as that would require numerous systemic changes, of which this writer has failed to mention a single one - changes of the sort many vested interest in Nigeria will oppose to the death (e.g. stronger private property rights, a smaller and purely merit-based civil service, abolition of the Land Use Act, etc.). No number of new bridges or railways will make Nigeria into a tiger when the country's economic and political systems reward mass theft while punishing thrift and innovation.

Sum1 plz get me my glasses.

Another case of pouring water into a basket in a country that's destined for abyss.

Intellectual curiosity is foreign to these clowns.

While the country is certainly not without problems. Nigeria is the FUTURE if her leaders continue to get better from here on and not go back to the uselessness of the likes of mindless thieves like GEJ and madueke!

austinvsb1:
While the country is certainly not without problems. Nigeria is the FUTURE if her leaders continue to get better from here on and not go back to the uselessness of the likes of mindless thieves like GEJ and madueke!

as far as this type of mindset exists..Nigeria will never get better.

Even a mad man knows we are retrogressing.

Yet people like you will play the political card to soothe their pay master.

All these things quoted here were gotten in gej givt

I liked this article. The peace did a great job cumulating all the policies in 1 spot. I just wish the sift power concept was expanded on. The multiplier effect from the National railline should be decent. The roads are inefficient and alother if the bulk goods would probably be better shipped by rail. The ERGP was decent in mining and agricultural section.

What's most interesting is Nigerias role in China's one belt one road initiative. Maybe oppertuinity for more intra-African trade could be improved with rail lines. I just see this as China trying to grow it's economy with massive spending in search of new markets and expand it geological influence.

My opinionis Nigeria future lays in industrialization giving giving us best advantage in ecowas trade. Most of ECOWAS imports revolves around manufactured goods. Then we could continue exporting cheap energy. ECOWAS does plan on having common electricity market for the block.

omohayek:
this writer has failed to mention a single one - changes of the sort many vested interest in Nigeria will oppose to the death (e.g. stronger private property rights, a smaller and purely merit-based civil service, abolition of the Land Use Act, etc.).

We'll he's looking at long term. These sort of issues should be taken care before this scenario takes shape. That's if country dissolve first.

Nigeria is like a child diagnosed with malaria, Instead of attacking the plasmodium, we are going after mere symptoms,

More like a fancy car with a knocked engine,
It is not about changing the driver, but working out the engine,

A beautiful house built on a faulty foundation, will surely crumble,
Nigeria is already falling like Park of cards,

The fundamental issues are not addressed, hence everyother thing amounts to window dressing,

There are many untapped subsectors, there are too many myriads of hindrances, there are structural flaws, having said that:

This is lakaji economic corridor, lagos-kano-jibiya.
With roads and rail network, that gives facilitation to agricultural supply chain laced in backward integration plan, crisscrossing major economic flash points for agriculture, commerce, transportation, regional trade and tourism

When agro-consumables and cargo are taken off the roads, and transported via rails, it gives life the the durability and longevity of the roads,

While depreciation in cost of maintenance will be fostered.
Many cooling coaches are needed for preservation of perishables to mitigate cumbersome loss and wastes,

The private sector are now investing through appropriate channels,
The many irrigation dams are coming on stream, the trajectory to self sufficiency is becoming realistically feasible,

And non-oil exports is on the incremental margin,
This is taking into consideration the agro-belt,
The map outlines the point of start, mid points and end points,

Blue3k:
I liked this article. The peace did a great job cumulating all the policies in 1 spot. I just wish the sift power concept was expanded on. The multiplier effect from the National railline should be decent. The roads are inefficient and alother if the bulk goods would probably be better shipped by rail. The ERGP was decent in mining and agricultural section.

What's most interesting is Nigerias role in China's one belt one road initiative. Maybe oppertuinity for more intra-African trade could be improved with rail lines. I just see this as China trying to grow it's economy with massive spending in search of new markets and expand it geological influence.

While I agree that the new rail links and revamped roads are potentially a good thing, I also know that Nigeria has had big infrastructure pushes in the past, but in the end the same old problems of poor maintenance, mismanagement, underfunding, and overstaffing with incompetents always come up. The question I have is why we should expect anything to be different this time around, especially once a new government is in office, and looking to reward its backers and supporters?

Shiny new trains won't make much of an impact in the long term if they are turned into a glorified jobs program for kinsmen and supporters of politicians, while relatives and personal friends are parachuted in to run them into the ground. Speedy rail links won't do much good for farmers who lack access to credit, and have no hope of getting access due to the Land Use Act; they also won't be of much help to innovative small businesses which are hamstrung by Nigeria's utterly stupid exchange-rate policies, and they won't do anything to remove the bureaucratic obstacles that make Nigeria a worse place to do business than Syria or Zimbabwe. Systemic issues like these are even more important than borrowing to build infrastructure that will neither be properly utilized nor well maintained under federal government control.