One Singular Sensation, Part III — Michael McTague

Michael McTague  |

April 2020 — Myth Buster

Our investigations of Russia and Saudi Arabia — part 1 and part 2 of this series — uncovered two widely divergent cultures. We examine Nigeria to wind up this series. Looking back, Russia possesses a large population, while Saudi Arabia’s size is far more modest. Nigeria’s population stands at 220 million, the seventh most populous nation on earth, and it remains a country that needs broad industry diversification. Its oil reserves are far smaller than those of fellow OPEC members Russia, Saudi Arabia or Venezuela, but there is a widespread perception inside Nigeria that oil will solve all problems. In reality, their reserves exceed just 37 billion barrels, and they produce only about 2.5 million barrels a day. This is hardly enough to spread wealth across its burgeoning population.

Unlike the countries examined earlier, everyone in Nigeria knows about the oil reserves and wants a piece of the action. For a variety of reasons, however, Nigeria has not developed the industrial mindset that would enable it to move forward as an economic powerhouse. Its infrastructure lags far behind developed nations as well as its neighbors. Its large population alone needs massive infrastructure: roads, water supply, power plants, schools, hospitals and so on. Beyond this, however, Nigeria spends less on capital expenditures than the average emerging economy. Even the rest of sub-Saharan Africa outpaces the homeland of Nobel prize winner Wole Soyinka.

Where is the Middle Class?

All emerging nations want to cross the line into emerged territory. Chile, for example, moved from “emerging” to “emerged” recently. It sports a strong copper industry, modest population, growing middle class, reasonable tax levels and enjoys a positive trade balance. Russia and Nigeria lack a large, growing middle class. According to the UN’s Human Development Index, Nigeria ranks 152 out of 187 countries, below Kenya, Ghana, Botswana and Rwanda. Only 77% of students complete basic education. According to The African Development Bank, the middle class makes up only 23%. Despite a positive trade balance, it needs infrastructure growth and expansion of its industrial base. Reliance on oil profits does not form a winning proposition for the foreseeable future.

A Center of Corruption

One positive for Nigeria is that it has long been a significant oil supplier to the United States. A friendly relationship with the world's richest nation could prove to be a springboard for economic development. But, real business growth moves very slowly. Foreign investment seldom results in tangible benefit. It is also widely believed that Nigeria has suffered from long-standing government corruption. For an emerging nation, this yields a bitter harvest. First, it sours investors who fear that their funds will disappear. Hundreds of billions have gone missing over a stretch of years. A single example is General Sani Abacha, the former military ruler. According to Transparency International, more than $322 million was recovered in Switzerland following the return of $723 million acquired illicitly by his family. Money earmarked for industrial development keeps getting diverted. Good efforts at infrastructure and manufacturing fall short. This in turn brings the nation back to reliance on oil.

Nigeria’s industrial base is built around the nation’s own internal needs. The largest companies in Nigeria include Dangote Cement, MTN Group Ltd. (telephone company based in South Africa, which explains in part why the "S" in BRICS is South Africa and there is no N) and Nestle Nigeria PLC. Note that these are all related to the day-to-day needs of the massive population. Large oil companies operating in Nigeria include ExxonMobil, Chevron, Total, Royal Dutch Shell and Conoil. Investors will note, however, that these oil giants have grown increasingly wary of the political environment inside Nigeria. The current oil glut certainly cuts into the attractiveness of Nigeria’s Obo-1 well oil stash. Venezuela understands what happens when outside oil giants become disenchanted. They may pick up and move out. Nigeria would do well to manage kidnappings and vandalism to keep the giant oil companies safe.

Nigeria has also been studied repeatedly by international bodies and business students. Numerous plans for development have been created, but the results have proven to be minimal. The country would benefit greatly from a group of hearty entrepreneurs, supported by reasonable policies on taxation, who could move ahead with new industrial efforts that connect with the needs of major markets. That corner has not been turned.


This myth buster looked at a number of nations that rely on their natural resources and that need to build up new industries. Saudi Arabia stands out as the most peculiar. It is perhaps the most richly endowed country in the world. Without splitting hairs about who has more oil or more resources, the Saudis have certainly made the most of their supply. Pumping to the max for decades, they now sit on two cushions: oil and money. By contrast, neither Russia nor Nigeria has figured out how to get rich — quickly or slowly. Large populations and massive roadblocks to implementing new ideas and improving the physical and human infrastructure sandbag these countries. Even a rise in oil prices will not turn the corner to a healthy environment.

Nigeria would do well to heed the advice of Wole Soyinka: “The hand that dips into the bottom of the pot will eat the biggest snail.”

Next month, the Myth Buster returns with another series of business insights.

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Freshworks Leaps 32% on First Day of Trading After Pricing Above Filing Range

Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.

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Equities Contributor: Michael McTague, PhD

Source: Equities News

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