Growth outlook of the Nigerian services sector

Divestment of assets by the International Oil Companies (IOCs) resulted in Nigeria’s slip to second position in 2013 – the year global FDI flows also took a tumble as a result of weak economic conditions around the world. Remarkably though, much of the sold assets by the IOCs were snapped up by Nigerian indigenous entities, […]

Divestment of assets by the International Oil Companies (IOCs) resulted in Nigeria’s slip to second position in 2013 – the year global FDI flows also took a tumble as a result of weak economic conditions around the world. Remarkably though, much of the sold assets by the IOCs were snapped up by Nigerian indigenous entities, as local participation in the country’s oil and gas sector has increased. While this is cheery news, the truth is that Nigeria has made even more impressive progress with structural transformation of the economy. The nonoil sectors are now the key drivers of the country’s GDP growth, which is expected to rise to 7.3 percent in 2014. 
Until recently, South Africa had for years maintained the status of the top destination for foreign investment on the continent: it was the top FDI recipient country, as well as the gateway for foreign investments into other African countries. Also, Nigeria had usually trailed Egypt in attracting foreign direct investment. But now, the signs are clear; whereas opportunities in South Africa have been significantly tapped, Nigeria has only recently come under the radar of global investors because of its frontier opportunities in several sectors including power, infrastructure, agriculture, solid mineral, retailing and services.
Over a decade ago, sales of mobile licenses to local and foreign investors introduced wider scope in the structural transformation in the Nigerian economy. Private investment in telecommunication, after a transparent licensing round, saw rapid deployment of infrastructure in the sector. Modern mobile services rolled out quickly and dramatically increased access to mobile communication by all classes of Nigerians. Soon after this was the banking industry reform which has seen Nigerian banks rapidly transform from small entities to some of the biggest banks in Africa and the world. We also remember the sparkle of modernity in the aviation sector, where private sector management of a key infrastructure has taken place.
Today, the current Administration has brought infrastructure investment to the forefront of its commitment to improving the Nigerian business landscape. It is revamping and expanding road, rail and aviation infrastructures.  Investment fund flows into these and other sectors in recent years have triggered a huge demand in the services sector. For instance, the banking sector has witnessed significant growth over the past decade as Nigeria opened up for investment.
Financial services sector growth itself has triggered demand for ICT services, particularly high-speed internet bandwidth and software. Policy support to unlock these sub sectors of the services industry are in place. They include clear regulatory framework which incentivizes private sector participation. Huge investments in fibre optic networks are linking the major cities to deliver high speed internet connection. Coverage of the entire country with modern telecommunication services are becoming a reality. As would have been known to interested parties, the entrepreneurial drive of Nigerians is part of the facilitation of investments in technology as with other services.
Increase in foreign capital flow for investment in Nigeria, has meant increase in inbound international aviation traffic. The need for linkages to the States has fuelled rising demand in the domestic aviation industry. Since Nigerian businessmen are also leading the charge of investment in other African countries, Nigeria is steps closer to being the hub for regional air travel; not only in the West Coast, but predictably in Africa. This trend is also pushing up demand for road transportation to open up access to the vast land and mineral resources across the country.
The hospitality industry is a key beneficiary of the surging domestic and foreign investments. Data collected by W-Hospitality Group affirms Nigeria as the fastest-growing hotel industry in sub Saharan Africa. Demand for luxury hotel rooms in Nigeria’s political capital, Abuja, and commercial hub, Lagos, is complemented by rising demand for lower cadre hotel facilities in secondary hotel markets including Port Harcourt, Ibadan, Enugu, Abeokuta and Kano, according to W-Hospitality Group.
In line with Nigeria’s status as the biggest consumer market in Africa, and “Africa rising” being a recent phenomenon, it is very easy to distil investment opportunities in the services sector to key frontiers of education and healthcare: the two areas I intend to limit this discussion. Nigeria’s demographic structure, which features large youth population, and government encouragement of private investment in education, create a huge opportunity. Indeed, private sector investment has complemented government resources in education across the tiers.
Today, one of the areas of smart investment would be educational institutions and related facilities in Nigeria. We have the population to support sustainable enrolment. We have proven affordability. We also have growing industries to absorb graduates from the institutions. Nigerian Export-Import Bank (NEXIM Bank) has been drawn to the investment opportunities in the Nigerian services sector. Since our mandate entails attraction/generation of foreign exchange for the country, we have significantly invested our resources in the hospitality and transportation segments. The Bank has made total funding disbursement of N15.6 billion in the services sector, which accounts for 16.4 per cent of total loan disbursement by the Bank. We hope to scale up the investments and also look into other segments where government seeks to make more impact and the private sector requires some of the resources we are able to deploy which include guarantee and advisory services.
Orya is Managing Director/Chief Executive Officer, Nigerian Export-Import Bank