Menu

Moody’s Investors Services, the leading global provider of credit ratings, research, and risk analysis, today published a report that examines the outlook for multinational companies operating in Nigeria.

The report, “Nigeria - Multinational Companies: Long-term Growth Strategies Resilient Despite Weak Oil Price Environment,” states that multinational companies remain committed to participating in the long-term growth of Africa's biggest economy, despite the current environmental challenges arising largely form low oil prices.

According to Moody's survey of 43 rated companies with operations in Nigeria, large companies are sticking to their long-term strategies in Nigeria as they look past the weak oil price environment and focus on the potential for future economic growth.

"Multinational companies plan to continue their investment in Nigeria as they position themselves for the benefits of the country's long-term growth and vast oil wealth," said Douglas Rowlings, a Moody's analyst and co-author of the report. "While a prolonged low oil price and weaker growth pose immediate challenges, many corporates believe Nigeria still offers strong long-term growth potential, given the size of its economy and its favourable demographic profile."

Impact of low oil prices

Nigeria has significant proven oil and natural gas reserves but has suffered from underinvestment in exploration. The International Energy Agency (IEA) estimates that Nigeria has 5 trillion cubic metres (tcm) of proven natural gas reserves and 63 billion barrels of recoverable oil resources.

The Department of Petroleum Resources (DPR) reported that as of January 1, 2015, Nigeria had 31.87 billion barrels of proven oil reserves and 5.578 billion barrels of oil equivalent in associated gas.

But as a result of lower crude oil prices, international oil companies (IOCs) have taken steps to cut costs and reduced onshore exposure, including in Nigeria. In February 2015, Chevron completed the sale of its 40% stake in two shallow water oil blocks and it announced in June that it is looking to sell its 40% stake in two more blocks.

Shell announced plans to cut operating cost in its Nigerian operations by $190 million in 2015, which is a 20% reduction in its operating cost. However, Shell said it sees Nigeria's onshore and heavy oil as a market that offers future opportunities. The pace of development will be driven by the market and local operating conditions, as well as the regulatory environment.

Non-oil sector boost

According to Moody’s, consumer products companies, automakers, telecoms service providers, and beverage companies are among non-oil multinationals that are positioning their operations to benefit from rising demand for goods and services spurred by the growing size and wealth of Nigeria's population. Some of these companies also stand to benefit from the low penetration rates for certain products.

Nestle said it remained optimistic about the long-term potential of its business in Nigeria, while Ford said Nigeria was a priority for the company. Ford is to begin assembling its Ranger pick-up at a new assembly plant in Lagos and Renault, Kia and Volkswagen have also announced plans to set up plants in the country.

Reckitt Benckiser said it still sees big growth potential in Nigeria, but stressed the importance of taking a long-term view because the Nigerian market doesn't always offer immediate returns.

"Multinationals that have been successful in Nigeria have understood the market dynamics. They adapt their product offering to the market rather than trying to adapt the market to the product," Rowlings added.

The Moody’s report also says Cement makers stand to benefit from increased demand from large public infrastructure projects.

Enabling environment

Government policy will play an important role in shaping the economic outlook and will be key to attracting investment in Nigeria and open opportunities across the spectrum of upstream, midstream and downstream activities in oil and gas and in the power sector, the Moody’s report says.

The authors said for Nigeria to fulfil its growth potential, it will need sustained investment, infrastructure upgrades and a stable policy and regulatory backdrop. The future direction of government policy and reforms will play an important role in shaping the economic outlook.

They further said investment in Nigeria's power supply would be a huge economic growth enabler. Moving away from expensive oil-fuelled generators towards more efficient gas-fired power stations would greatly reduce business overheads.

The research, now available on www.moodys.com for Moody's subscribers, is an update to the markets and does not constitute a rating action.