Coca-Cola (KO) is going to invest about $17 billion in Africa, where it already has 140 bottling plants, between the years 2010 and 2020. This news comes from an article in Forbes titled, “Why Coca-Cola is betting big on Nigeria.” According to author Pete Guest, Coca-Cola recently bought a 40% stake in the Nigerian juice company Chi, and hopes to complete the sale over the next three years.
I applaud one of my favorite bellwether stocks in the developing world, but I have to admit that I am not too sure about this move. Nigeria’s GDP growth through 2015 averaged just about 2.5% year over year. Remember, they went through some creative accounting to become the largest economy in Africa a few years ago, and admittedly quarter over quarter recent GDP growth did increase by 9.19%, but I don’t believe that is sustainable.
Nigeria has many problems, both economically, politically, and the most severe being that they are dealing with the terrorist group Boko Haram, who continue to engage in random killings, including recently burning 84 children alive. The worst part of this is that the armed forces are unable to contain the terrorists, allowing the attacks to increase and become even more indiscriminate.
An article from CNN Money written by Ivana Kottasova and titled, “Nigeria is Running out of Cash” basically explains it all. With oil hovering around $30 a barrel, they are unable to balance their budget, and according to the article, “Nigeria is considering asking the World Bank, the African Development Bank and other international organizations for help to plug a hole in this year's budget created by the collapse in crude oil prices. The government said it is looking to borrow as much as $9 billion to fund its cash-starved economy.”
It doesn’t paint a pretty picture, does it?
The government wanted to spend oil revenue to build badly needed large infrastructure projects, but is falling behind on this goal. The country is struggling. The Global X MSCI Nigeria ETF (7GXB) traded on the Berlin stock exchange is down 13.48% YTD making it one of the worst performing investments this year. I wish I could see a hint of sunshine through the dark clouds, but I can’t.
Every 10 years or so, some well-meaning fellow lets me know that this is going to be the African decade, but it never happens. Again, as long as corruption and ineptitude and, in Nigeria’s case, terrorism as an additional and most damaging reason, are allowed to continue, Sub-Saharan Africa will remain off this investor’s watch list.
I am sure that Coca-Cola is privy to research that I am not, and I wish them the best of luck in their endeavor. Come to think of it, I have never had a bottle of coke in Africa and it would really be nice to do that one day. Finally, I will take issue with a quote from the Forbes article where an analyst mentions that the Nigerian economy is very resilient. If oil exports account for 35% of Nigeria’s GDP and constitute 95% of export revenue and 70% of government revenue, then how can the economy possibly be that resilient?
Source: Nasdaq News
