RenCap: Nigeria’s Power Reform to Attract Huge FDI Inflow

24 Jan 2013

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Ngozi Okonjo Iweala

Obinna Chima

The ongoing privatisation of power assets will attract significant non-oil foreign direct investment (FDI) into the Nigerian economy in the short- to-medium term, analysts at Renaissance Capital (RenCap) have said.

The financial advisory firm stated this in a report titled: “Nigeria: 2013 Economic Outlook,” made available to THISDAY Wednesday.

Rencap described Nigeria’s power sector reforms as “the most progressive reforms being undertaken in the country.”

“On the back of this (power reform), we expect the sector to become a significant recipient of FDI in the medium term. Separate developments in the sector, including the linking of gas pipelines to gas-fired power stations, has helped push up power supply from 3,500 megawatts in 2012 to 4,200 megawatts.

“This increase in power supply from the grid has reduced the amount households and businesses spend on running diesel-powered generators, which has significantly lowered their electricity costs.

“We believe new investments in the sector will boost Nigeria’s generation capacity and rehabilitate existing assets. As the country’s power supply increases and becomes more reliable over the medium to long term, we expect businesses’ cost of production to drop, which will leave them with more capital to re-invest.
We believe households’ discretionary income will also increase, on the back of more affordable power supply, which is positive for retailers,” the firm explained.
However, RenCap argued that any attempt to delay the exercise into 2015, when the next general elections would hold, might result to further complication in the system.

It added: “Nigeria’s substantial gas reserves imply that gas-fired power plants are a natural option. They have the added appeal of taking a shorter time to build than coal-fired stations. However, the government has yet to secure a reliable supply of natural gas to realise this goal.

“Despite the guarantees for gas payments offered by the World Bank, oil majors would rather export the gas than sell it locally. Third, the transmission network requires a large investment. In order to achieve the goal of 10,000 megawatts power, the transmission network needs huge investment of $10 billion.”

RenCap further forecast that economic activities this year would be largely driven by the non-oil sector from second quarter of 2013 “as the economy recovers from the impact of recent flooding.”

It also anticipated stronger consumer confidence this year, owing to a moderation of price pressures (following the fuel price, electricity tariff and cereal tax increases of 2012), and a recovery in agriculture and trade, which are big employers.

“We expect a moderate depreciation in the naira in 2013. We project an exchange rate of N160/$1 at year-end 2013, from N156/$1 at year-end 2012,” it stated.

Tags: Business, Nigeria, Featured, RenCap, Nigeria’s Power Reform, FDI Inflow

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