Nigeria's economy grew by 89% overnight - But does that mean you should invest there?

by , 10 April 2014

It's official - Nigeria's GDP is now 60% larger than South Africa's, making it by far the largest on the continent.

A sceptic might think the doubling of its economy is from 'cooking the books'. In fact, it's the opposite. It's the old numbers that were dodgy.

And because these true figures have now surfaced it's caused investors to wonder: is Nigeria the new investment hotspot of Africa?

A strong economy doesn’t always mean your investments will grow!
 
Investing is not just about GDP. The stock market and the economy are by no means the same thing. They have some relation, but their growth rates differ because they are driven by different things.
 
In fact, their relationship is often negative. Meaning that the higher the GDP growth of a country, the lower the stock market returns. 
 
As you can see in the chart below, there’s a weak relationship between GDP growth and stock market returns:



*Source: http://www.businessinsider.com/correlation-between-equity-returns-gdp-growth-2013-11

You see it’s not only the country’s GDP that needs to expand for its stock market to grow. If majority of our stocks generated most of its revenue overseas, we’d need the world’s economy to grow – Not just ours.

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Nigeria is still the same investment hub as it was two weeks ago
 
Nigeria didn’t just change overnight. They are no richer than they were two weeks ago. Most of the country’s 170 million people live on less than a dollar a day. So the Nigerian population is not better off. 
 
The buying power per person in South Africa is much higher than Nigeria’s. GDP per capita here is $6,089 against Nigeria’s $3,020. 
 
This shows that although they have more people and a stronger economy, per person South Africans are STILL wealthier. And this means we’re technically more capable of buying more expensive goods than Nigeria. 
 
Before investing in Nigeria you need to consider what the company you're investing in does. For example, when it comes to the type of product you’re trying to sell, Nigeria is better for low-cost products and not high-cost products. 
 
So Nigeria is good for some investments and not all investments.
 
Which brings me to my next point…
 
Investing in Nigeria is more difficult than you think
 
Even if you wanted to invest purely in Nigeria, you’ll have problems. 
 
There simply is not enough liquidity in its market – There aren’t many shares in its market, and the shares that do trade, don’t trade often. 
 
Let me put it into perspective. The South African market’s turnover for the first nine months last year was $341,218 million. Whereas Nigeria’s turnover was only  a puny $5,417 million. 
 
This means that if you wanted to buy or sell a Nigerian share you’d have to wait several days to do so. 
 
So nothing has changed about Nigeria as an investment destination. I still believe we’re a better market to invest in for stronger, safer returns.
 
Thrive in your possibilities,
 
Jonathan Bachrach
 
P.S. I've released a report that'll help you profit no matter what happens to the economy. It's called 'Start Poor Retire Rich' and you can click here for details.

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