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10 Emerging Markets to Watch

NIGERIA

Food, energy and banking are among the African country's most vibrant sectors

Located on the Ivory Coast, Nigeria is a federal constitutional republic. It faces huge challenges, including poverty among its 175 million people, plus inadequate power supply and infrastructure. However, the nearly 357,000-square mile country's economy is growing rapidly, and for the past six years, Nigeria's GDP has averaged nearly 7 percent growth per year to about $273 billion in 2012. The country's official language is English, a remnant of its century-long history as a British colony before independence in 1960, but hundreds of languages are spoken there.

Opportunity

"The food sector is very vibrant at the moment," says Wale Shonibare (pictured), managing director at investment bank UBA Capital plc, based in the southwestern city of Lagos. Investors in the food and beverage industry could tap into Nigeria's young population and expanding middle class, which has growing disposable income.

Shonibare, who grew up in Nigeria until high school, returned to his birth country after being educated in the U.K., "to be part of a new generation of Nigerians," he says. "The country's return to democratic rule in 1999, coupled with a more stable macroeconomic environment and faster economic growth than seen anywhere in the west, made it compelling for me to return home," Shonibare says.

"Investors in Africa are looking for deals in high-growth sectors, such as banking, cable and cellular towers, consumer industries and energy," adds Carolyn Campbell, managing director of Emerging Capital partners, a Washington, D.C., private equity firm that focuses on investments in Africa.

Energy is possibly the most popular sector in the country. The Nigerian government is currently selling six power generation companies and 11 distribution companies, which are being picked up by local and international players.

Nigeria's oil and gas assets are also attracting international investments. Many African countries have experienced nearly a decade of sustained growth, which is also helping transactions move up the value chain.

International investors may team up with Nigerian companies as a result of the Petroleum Industry Bill (PIB), which aims to protect Nigeria's stake in its oil resources and allow the country's companies to get involved at various stages of the industry's value chain. Those partnerships will likely take place in the country's oil industry.

Some of those pairings have already started. In the past, you would see foreign-owned ships providing supplies for offshore drilling projects, now you see Nigerian-owned companies taking on those services, Shonibare says.

Another industry to keep an eye on is the banking industry, which has undergone "extensive restructuring," Shonibare says. Bad loans from banks on the verge of collapse in 2010, and in some cases the banks themselves, were assigned to an asset management company, and have since been cleaned up to the point where three of the banks, renamed Enterprise Bank Ltd., Mainstreet Bank Ltd., and Keystone Bank, are for sale.

Challenges

The PIB may deter outside investment in Nigeria's oil and gas industry by raising royalties. The sector, despite the fact that Nigeria is the 13th largest oil producer in the world, has not been a key driver of employment because so many of the jobs were shipped overseas, Shonibare says.

"The biggest problem that happens here is you sell the crude and import the refined product," Shonibare says. "The general direction of the Nigerian government is to get more indigenous," which again, may encourage foreign investors to partner with local companies, Shonibare points out.

Notable Deals

Tiger Foods, based in Bryanston, South Africa, bought a stake in Dangote Flour Mills PLC, headquartered in Lagos, for $185 million in October 2012. (Nigeria isn't the only African country attracting food deals - in May, Ebene, Mauritius-based private equity firm Catalyst Principal Partners LLC bought a stake in Yes Brands Food & Beverages plc, Ethiopia.)

In December, Houston energy company ConocoPhillips (NYSE: COP) announced it was selling its Nigerian assets to Oando plc, headquartered in Lagos, for $1.75 billion. There were no deals closed between U.S. and Nigerian companies in 2012 or the first quarter of 2013.

Future

"It's going to be a mixture of organic growth with local partners and relatively small-scale acquisitions," Shonibare says.