As attention shifts to emerging markets as investment destinations, following the economic downturn in the West, a new report has listed two Nigerian cities – Lagos and Ibadan – that will make up 10 leading African cities to watch for investment inflow.
The report contained in a research conducted by Frontier Strategy Group, an international research firm, forecast that Africa will have 73 cities of 1-5 million people by 2025.
Head of the research team Matthew Spivack picked five top urban markets across the continent and five up-and-coming prospects.
According to the research, the first set of cities, described as the Big Five cities, which are broadly politically and economically-stable, and already major FDI destinations include, Accra, Ghana; Johannesburg, South Africa; Lagos, Nigeria; Luanda, Angola and Nairobi, Kenya.
Johannesburg is the biggest city in Africa’s leading economy, and, as Frontier notes, is reaching the size of any large European city. Its nominal GDP output is $51 billion. Munich, in Germany, has a GDP of $64 billion.
The research firm noted that Lagos has a smaller economy, at $40 billion – but that is expected to jump when Nigeria rebases its economic statistics this year.
By 2015, Frontier says, “risk-weighted business opportunities in Lagos will far outpace that of the city’s nearest competitor Johannesburg.”
Ibadan also featured prominently among the ‘Next 5 large cities with rapidly expanding economies, but with serious business climate deficiencies that offer some of the biggest potential rewards – provided multinationals can stomach the risks.
Others in this category are Addis Ababa, Ethiopia; Dar es Salaam, Tanzania; Kinshasa, Congo-DRC and Mombasa, Kenya.
Frontier did not however fail to warn that there are risks to expanding in all of these markets as the company highlighted the usual concerns about infrastructure, corruption, and regulation.
But Africa is the fastest growing and most rapidly urbanising region in the world. The risks of staying out could be greater still.
In spite of these risks, however, Frontier pointed out that some of the world’s largest companies have already made inroads into these economies.
The report added that apart from the population advantage, the proximity of Ibadan to Lagos, which houses the major seaports, international airports and other business activities are some of the factors that qualify the city for this latest ranking.
The recent regional development agreement endorsed by governments of the south-west states in the country is also said to be a big factor in the choice of Ibadan in the latest ranking.
The governments pledged to work towards improvement in the business landscape with particular focus on infrastructure and security.
Nigeria is by far Africa’s most populous nation but in 2011 its nominal GDP was less than two thirds that of South Africa, the continent’s largest economy.
This year, the federal government is expected to rebase its GDP to 2008 from 1990. This looks likely to revise the size of its economy dramatically upwards.
Nigeria is due to rebase its GDP sometime this year, having missed an earlier January target because of nationwide fuel protests.
Depending on the scale of the revision, Renaissance Capital, an investment advisory company, predicts Nigeria could surpass South Africa as the continent’s largest economy as soon as 2014.
When Ghana’s GDP was rebased in 2010, the size of its economy was found to be 60 per cent bigger than previously recorded – $31 billion, compared to $18 billion.
Rebasing involves changing the weighting of sectors of the economy to reflect changes in economic activity over the past three decades. The new figures would, for instance, put more weight on the country’s telecommunications sector, which has grown strongly over the last 10 years.