- Twitter banned as government claims it facilitates insecurity, although ban follows removal of post by President Buhari
- Nigeria is Africa's largest Tech venture capital market in absolute terms, but relatively small in per capita terms
- For ESG types, Nigeria scores much better on press freedom than largest emerging (China) and frontier (Vietnam) markets
Nigeria's ban on Twitter has brought with it unflattering coverage in international mainstream media and does, no doubt, reflect underlying vulnerabilities on security, freedom, political succession, and ease of doing business – but these vulnerabilities are not new.
Nigeria is, alongside Kenya, the largest destination for venture capital in the Technology sector in Africa. However, its per capita figure is one-quarter that of Kenya. In conjunction with a relatively weak score on the World Bank's ease of doing business survey, this event likely reinforces the concern that Nigeria is not the best location to base a Tech operation, implied by Twitter's own recent choice of Ghana for its regional headquarters.
From a country ESG perspective though, it should be pointed out that while press freedom has deteriorated in Nigeria in recent years, this is a global phenomenon and its scores are much higher than the largest countries in emerging (China) and frontier (Vietnam) markets.
With oil prices around US$70/bbl, the Nigeria equity investment case is attractive for foreign institutional investors able to navigate convoluted FX convertibility: the equity market (NGSE Index) valued on forward PE of 9.6x, merely a 10% premium to the 5-year median, and a forward dividend yield of 5.5%, which compares to a negative real interest rate of 6.6% and underpins the inflows of local investors. Of course, for many foreign institutional investors the FX market remains a dysfunctional deal-breaker.
Context for Twitter ban
The Twitter ban brings together a number of separate events and trends in Nigeria:
Twitter's 1 June removal, on the grounds of "abusive behaviour", of a tweet from President Buhari on violence in the south east in which he referenced violence meted out to Biafran separatists in the 1967 civil war, and Twitter's April 2021 decision to base its regional headquarters in Ghana.
Use of social media platforms to locally mobilise and globally raise awareness of protests, eg the #EndSARS protests of October 2020.
Broad deterioration of press freedom in Nigeria over the past couple of years (albeit a common trend globally).
Increasing insecurity related to mass kidnappings by criminal gangs in the north west, clashes between herders and farmers in central regions, attacks on police and election offices from the Eastern Security Movement in the south east (albeit the chronically high level of fatalities related to Boko Haram in the north east and disruption to oil production in the Niger Delta have fallen drastically, compared to the start of Buhari's presidency in 2015).
Significantly poorer economic welfare (real income per capita in PPP terms has dropped about 10% since 2015, inflation will average 16% this year, according to the IMF, and the Q4 2020 unemployment figure from the Nigeria National Bureau of Statistics was 33%).
A youthful demographic bias in the population, which does not appear well represented in government, or in the broader political elite — c40% of the population is below 15 years of age, c30% is between the age of 15 and 30, unemployment in the 15-24 age bracket is 53%, unemployment in the 25-34 age bracket is 37%, but merely a couple of members of President Buhari's roughly 50-strong cabinet was born after 1970).
The marginalisation of the formal political opposition after the sweeping defeat of the Peoples Democratic Party (PDP) in the 2019 general election.
A looming tricky handover of the Presidency from the north to south during the 2023 election (according to Nigeria's unwritten zonal agreement for power sharing).
Nigeria is Africa's largest Tech venture capital market in absolute terms, but relatively small in per capita terms and its ease of doing business score is low
Nigeria received slightly more venture capital investment into the Technology sector than Kenya in 2020, making it Africa's largest destination.
But, on a per capita basis, it ranks lowest among the larger destination markets by some distance (at about one quarter of Kenya's level).
Nigeria's Ease of Doing Business score is low, at 57 out of 100, relative to pan-Africa peers, eg Kenya score 73. Globally, Nigeria ranks 131st out of 190 countries. By way of comparison, neighbour Ghana is 118th.
While Nigeria Press Freedom is deteriorating, it is much better than in the largest emerging and frontier equity markets
Nigeria notably lost out to Ghana, in April 2021, as the location for Twitter's regional headquarters. At the time, Twitter stated "As a champion for democracy, Ghana is a supporter of free speech, online freedom, and the Open Internet, of which Twitter is also an advocate."
In the Reporters Sans Frontieres Press Freedom Index for 2021, released in April 2021, out of 180 countries globally, Nigeria ranks 120th and its score deteriorated 11% compared to last year.
China (38% weight in MSCI EM) ranks 177th and Vietnam (31% weight in MSCI FM) ranks 175th (and Vietnam's absolute index score has deteriorated by 5% compared to last year).
Nigeria top-down investment case
Nigeria: Deep value or deep trouble? March 2020
Central Bank of Nigeria makes dovish shift and affirms FX unification (Curran), May 2021
Nigeria politics and security
Nigeria: Boko Haram leader may be dead, May 2021
Africa fintech: Start-up funding trends – Nigeria tops the list (Shah), March 2021
Stripe acquires Nigeria’s Paystack: Game-changer for Africa fintech (Jeje), October 2020
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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...