‘Sentiment much more positive’ on Nigeria, says VC association

The African Private Venture Capital Association (AVCA) says that a significantly improved macro environment in Nigeria is prompting stronger interest from international investors in the country as it approaches its annual conference in Lagos in late April.

“When we finished our conference in Johannesburg last year, we announced we were going to Lagos. Some were sceptical as, at that time, Nigeria did not appear to be doing particularly well and was not really attracting many deals,” says Abi Mustapha-Maduakor, CEO of the AVCA.

“Cut to the present and most people are absolutely excited. We have macro stability and the sentiment is much more positive. This is the right time to go into Nigeria.”

Turnaround in progress?

Nigeria has proved to be a challenging environment for investment over the last few years, perhaps most notably because of the devaluation of the naira in the middle of 2023, when the currency was freely floated as part of President Bola Tinubu’s economic reforms.

Especially when combined with the severe shortages of hard foreign currency in the country, which made it tricky for investors to repatriate their profits, this made investing in Nigeria too risky a prospect for most to consider. Indeed, foreign direct investment into Nigeria in the first quarter of 2024 stood at just $119.2m – a 35.2% drop from the previous quarter.

However, the International Monetary Fund (IMF) predicts that Nigeria will grow by 3.2% this year, with the World Bank slightly more optimistic, forecasting 3.6% growth. Government officials are fuelling the optimism.

The global investment bank Goldman Sachs has predicted that the naira, thanks to tighter monetary policy and increased capital inflows, could strengthen to 1,200 NGN to the dollar compared to its current level of around 1,600.

Inflation is still elevated at just over 23% but is forecast to continue coming down. Sub-Saharan Africa more widely is predicted to post stronger growth in 2025 while, in other markets such as Europe, growth is estimated to continue declining.

Mustapha-Maduakor notes that, as well as these macroeconomic trends, specific events have helped bolster investor sentiment towards the West African powerhouse.

“Moniepoint becoming a unicorn really helped, as did Uber deciding to invest in Nigeria,” she says.

One of the challenges faced by investors in Nigeria and Africa more widely, most of whom make investments in US dollars, is foreign exchange risk – as the naira devaluation of 2023 showed, dollar profits can be severely undermined by currency depreciation even if the investment is performing strongly in naira terms.

But Mustapha-Maduakor says that “if investors are able to deploy a local currency, that becomes less of an issue.”

“We have seen strides towards this in Nigeria. For instance, we saw that the Nigeria Infrastructure Debt Fund raised over 300bn naira, all from domestic pension funds. Stanbic also launched an infrastructure fund fully in local currency,” she says. “We are speaking to more managers that are raising dual vehicles: a US dollar one with their typical international LPs, and a local currency fund as well.”

More infrastructure needed, says association

This increase in investor interest is, of course, welcome – but there are certain strategic areas where more investment is desperately needed, both in Nigeria and across the continent. At their upcoming conference, AVCA is particularly keen to highlight the role private capital can play in filling Africa’s infrastructure gap. Between 2012 and 2023, $47.3bn was deployed across 847 reported infrastructure deals – but the continent is still believed to face an annual shortfall of $100bn, stifling its growth potential.

“On the hard infrastructure side, we are lacking in just the generic things you do not tend to think about, such as roads, ports, and energy. Digital infrastructure, such as fibre optic broadband, is also lacking, as well as other important “soft” things like education and health capacities.”

Mustapha-Maduakor suspects that the continent’s infrastructure gap stems from its dependence on exporting raw commodities.

“The focus on exporting minerals and commodities has a negative consequence in that African countries have tended to focus on deriving value from exporting raw materials, meaning they have not focused on industrialisation,” she tells African Business.

“When a country starts flipping their focus, you start realising that all this infrastructure is required to industrialise: you need roads to be able to transport your goods, you need ports to be able to export”.

Infrastructure funds take off

Given the huge demand, there is a growing number of funds that have been launched specifically targeting the space.

In December 2023, the Africa50 Infrastructure Acceleration Fund announced its first close of $222.5m, with the African Development Bank (AfDB) and International Finance Corporation (IFC) joining 16 African institutional investors to invest in digital infrastructure, renewable energy, transportation, and other projects across Africa.

In July 2024, the African Infrastructure Investment Fund 4 (AIIF4) secured commitments totalling $954m to invest in digital infrastructure and energy transition projects in Africa. Earlier this year, the Infrastructure Climate Resilient Fund (ICRF) was launched by private African pension funds and state-led funds, aiming to invest up to $750m in sustainable infrastructure on the continent.

Mustapha-Maduakor says that the amount of capital being invested in African infrastructure has declined since its peak in 2020 – but, with macro conditions improving, adds that new funds are now emerging aimed at “capitalising on the potential returns available in African infrastructure.”

“2020 was the peak in terms of capital being invested in infrastructure. In Nigeria, we had $300m invested in infrastructure projects in 2020 – that has decreased over the last three years. In 2023, we had about $74m invested and last year was around the same amount,” she says.

“This is because we had a post-pandemic decline across all asset classes, and then other macro challenges like the war in Ukraine which contributed to non-Africa focused managers deploying less capital on the continent.”

However, the flurry of new funds that have been launched to invest in African infrastructure are raising optimism that this is now changing, in Nigeria and more widely.

“We’re coming back to Lagos. We haven’t been in Nigeria since 2014, so we’re very excited to showcase the country to our global delegates. We want to show the wide spectrum of opportunities that are available in Nigeria,” says Mustapha-Maduakor.