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McKinsey: Nigeria to Remain Africa’s Largest Consumer Market by 2025

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McKinsey Global Institute, the business and economics research arm of McKinsey & Company, has projected that Nigeria would continue to be the Africa’s single largest consumer market, controlling 15 per cent of overall growth in consumer spending by 2025.

MGI, which gave this forecast in its 148-page report titled: Lions on the Moves II: Realising the Potential of Africa’s Economies, released at the weekend, also predicted that there would be $5.6 trillion business opportunities in Africa by 2025, necessitating $2.1 trillion household consumption and $3.5 trillion business to business consumption.

The McKinsey report explained that, in Nigeria, “new spending will be relatively evenly split among affluent households, which are expected to spend an additional $30 billion a year by 2025; global consumers, projected to spend $44 billion; and emerging consumers, with $28 billion of spending.” The biggest spending categories, according to the report, will be food and beverages, housing, consumer goods, education, and transportation services.

It noted that, “Africa’s household consumption has continued to grow at a robust pace,” pointing out that, “sixty per cent of consumption growth has come from an expanding population, and the rest from incomes rising enough to fuel spending on discretionary goods and services as well as basic necessities – all powered by rapid urbanisation.”

MGI, which said there was currently $4 trillion business opportunities in Africa, projected that the opportunities would increase to $5.6 trillion by 2025.

According to the report, “Spending by consumers and businesses today totals $4 trillion. Household consumption is expected to grow at 3.8 per cent a year to 2025 to reach $2.1 trillion. Business spending is expected to grow from $2.6 trillion in 2015 to $3.5 trillion by 2025.” The report estimated that “half of this additional growth will come from East Africa, Egypt, and Nigeria.”

McKinsey advised that, “Tapping consumer markets will require companies to have a detailed understanding of income, geographic, and category trends. Thriving in business markets will require them to offer products and develop sales forces able to target the relatively fragmented private sector.”

It, however, added that the geographic spread of consumption is changing. Accordingly, it pointed out: “South Africa’s share of consumption is set to decline from 15 per cent in 2005 to 12 per cent in 2025 and Nigeria’s share from 26 per cent to 22 per cent over the same period. However, the share of regional consumption is projected to increase in East Africa from 12 per cent in 2005 to 15 per cent in 2025, and in Francophone Africa from 9 per cent to 11 per cent.”

The McKinsey report noted that, the substantial contribution of rising per capita spending has implications for patterns of consumption. “Basic items such as food and beverages are expected to account for the largest share of consumption growth in the period to 2025, but discretionary categories are projected to be the fastest growing: 5.4 per cent in the case of financial services, 5.1 per cent for recreation-related activities, 4.4 per cent for housing, and 4.3 per cent for health care.

As per capita spending rises, it noted that, “it becomes even more important for consumer-serving companies to understand where their customers are and the evolution of their incomes, and then to tailor products and services accordingly.”

Historically, MGI recalled: “Household consumption grew at a 3.9 per cent compound annual rate between 2010 and 2015 to reach $1.4 trillion in 2015. To put these trends into an international context, Africa’s consumption growth has been the second fastest of any region after emerging Asia, whose consumption growth was 7.8 per cent.”

The McKinsey report also predicted that, “Africa could nearly double its manufacturing output from $500 billion today to $930 billion in 2025, provided countries take decisive action to create an improved environment for manufacturers.

It noted that, “Three quarters of the potential could come from Africa-based companies meeting domestic demand (today, Africa imports one-third of the food, beverages, and similar processed goods it consumes)”, adding that, “The other one quarter could come from more exports. The rewards of accelerated industrialisation would include a step change in productivity and the creation of six million to 14 million stable jobs over the next decade.”

Reviewing growth of African economies, MGI noted that, “Africa’s real GDP grew at an average of 3.3 per cent a year between 2010 and 2015, considerably slower than the 5.4 per cent from 2000 to 2010.”

It, however, added that, “this average disguises stark divergence. Growth slowed sharply among oil exporters and North African countries affected by the 2011 Arab Spring democracy movements. The rest of Africa posted accelerating growth at an average annual rate of 4.4 per cent in 2010 to 2015, compared with 4.1 per cent in 2000 to 2010. Africa as a whole is projected by the International Monetary Fund to be the world’s second-fastest-growing economy to 2020.”

But it submitted that, “The region has robust long-term economic fundamentals. In an aging world, Africa has the advantage of a young and growing population and will soon have the fastest urbanisation rate in the world. By 2034, the region is expected to have a larger workforce than either China or India—and, so far, job creation is outpacing growth in the labour force. Accelerating technological change is unlocking new opportunities for consumers and businesses, and Africa still has abundant resources.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Prices Hit Multi-year Highs on Monday

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Oil prices hit multi-year highs on Monday buoyed by recovering demand and high natural gas and coal prices encouraging users to switch to fuel oil and diesel for power generation.

Brent crude oil futures were up 59 cents, or 0.7%, to $85.45 a barrel by 0900 GMT, after hitting $86.04, their highest level since October 2018.

U.S. West Texas Intermediate (WTI) crude futures climbed 90 cents, or 1.1%, to $83.18 a barrel, after hitting a $83.73, their highest since October 2014.

Both contracts rose by at least 3% last week.

“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts at ANZ bank said in a note, adding that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit, said Edward Moya, senior analyst at OANDA.

“The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder,” he said.

“As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.,” he said.

Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take steps to cushion the impact of surging energy costs on industry.

Chinese data showed third-quarter economic growth fell to its lowest level in a year hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

China’s daily crude processing rate in September also fell its lowest level since May 2020 as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.

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Oil and Gas Companies in Nigeria

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Nigeria is an oil reach nation with several oil and gas companies operating in Africa’s largest economy.  However, only ten oil and gas companies are listed on the Nigerian Exchange Limited (NGX).

Before we discuss in detail each of the listed oil and gas companies in Nigeria. A short background on Africa’s largest economy will help throw more light on the significance of the oil and gas companies or the entire oil sector to the Nigerian economy.

Nigeria is a petrol-dollar economy, which means Africa’s most populous nation, sells crude oil and use its proceed to service the economy. In fact, the Nigerian Naira is backed by crude oil like Canadian Dollar and other commodity-dependent economies.

But because the Central Bank of Nigeria (CBN) pegged the Naira against its global counterparts, the local currency does not reflect succinctly the fluctuation in global oil prices like other crude oil-dependent currencies.

Since global oil prices rebounded with the gradual reopening of economies, the oil and gas companies in Nigeria have also rebounded from the 2020 record low of $15 per barrel. The oil and gas sector has gained 62.76 percent from the year to date, according to the NGX Oil and Gas Index.

The index gauge price movements in 10 listed oil and gas companies in Nigeria.  However, there are several oil and gas companies in Nigeria not listed on the Nigerian Exchange Limited.

Oil and Gas Companies Listed on the Nigerian Exchange Limited (NGX)

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Oil Prices Extend Gains on Friday After Saudis Dismiss Supply Concerns

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Oil prices extended gains on Friday after Prince Abdulaziz bin Salman, Saudi Energy Minister dismissed calls for more crude oil supply on Thursday.

Brent crude oil, against which Nigerian oil is priced, rose to $84.92 per barrel at around 8:31 am Nigerian time. The U.S West Texas Intermediate crude oil also responded positively to the comment, rising to $81.56 per barrel on Friday.

Prince Abdulaziz had stated on Thursday that OPEC plus efforts were enough to protect the oil market from wild price volatility seen in coal and natural gas markets.

“What we see in the oil market today is an incremental (price) increase of 29%, vis-à-vis 500% increases in (natural) gas prices, 300% increases in coal prices, 200% increases in NGLs (natural gas liquids) ….”

He further stated that the Organization of the Petroleum Exporting Countries and allies led by Russia, have done a “remarkable” job acting as “so-called regulator of the oil market,” he said.

“Gas markets, coal markets, other sources of energy need a regulator. This situation is telling us that people need to copy and paste what OPEC+ has done and what it has achieved.”

Prince Abdulaziz explained that OPEC plus will add 400,000 barrels per day in November and do the same in December and subsequent months. The increase will be gradual he said.

“We want to make sure that we reduce those excess capacities that we have developed as a result of COVID,” he said, adding that OPEC+ wanted to do it “in a gradual, phased-in approach”.

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