Investors managing private equity funds in Nigeria are looking for companies whose growth outpaces inflation and acts as a hedge against exchange rate fluctuations.Infomation Guide Nigeria

In the last six years, he‘s hit two recessions, making it increasingly difficult to invest in companies like this in an economy grappling with its fastest price rise in 17 years. In addition to this, the pain of a severe dollar shortage is driving up import costs for some companies, who now procure dollars on the black market at a premium nearly 70% higher than the official rate.

Rising energy costs in a country with the world’s largest energy access deficit (43% of the population has no access to the grid, according to the World Bank) are also driving up operating costs and squeezing corporate profits.

Most private equity investors run dollar–denominated funds, and finding a company that can outgrow inflation and act as a hedge against currency risk is like looking for a needle in a haystack. Historically, Nigeria’s vast oil sector has provided a steady pipeline of such companies. Investors didn’t have to worry too much about currency depreciation because there were big deals and companies made dollars.

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Declining investment in Nigeria’s oil sector means such deals have become rare. Foreign investment in Nigeria’s oil and gas sector plunged 82% to a new low of $1.93 million in the second quarter of 2022, according to data from the National Bureau of Statistics.

“As long as we have currency issues, we need companies that can deliver robust growth that compensates for devaluation of the naira,” Gozie Chigbue, director, private equity funds at British International Investment, said at a conference organised by the Private Equity and Venture Capital Association, Nigeria (PEVCA).

Nigeria’s foreign exchange risks are well documented and hardly new. In 2016, several investors were sent parking due to dollar shortages that saw the naira lose more than a third of its value after the dust settled.

This time is unique however. Oil revenues have tanked despite high oil prices, with Nigeria missing out on the gains other oil peers are enjoying because it is exporting below capacity due to oil theft and declining investment.Jamb Result 

The impact has been telling on the naira, which has fallen to the lowest ever in the parallel market, trading at N740 per USD on Tuesday, Oct. 11, around 70 percent weaker than the less accessible official rate of N434.78 per USD.

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