The beginning of a special relationship?

As the world's sixth largest producer of oil and gas and housing the eighth largest population of more than 150 million people, Nigeria is attracting huge investment and trade interest from around the world, with China leading the way. With the Nigerian government embracing privatisation, partnerships and diversification, Chinese enterprises are flocking to and taking advantage of the numerous foreign direct investment (FDI) opportunities at a time when the US and Europe are still struggling with the aftermath of the global financial crisis.

And as the new world financial order emerges, African banks are looking towards China, and Chinese banks are likewise looking to Africa as new links and partnerships are formed.

A recent report from the Chinese People's Daily notes: "While Nigeria's oil and gas industry is the main FDI destination, Chinese firms also have a solid presence in the construction, agriculture, education and service sectors. Chinese investment in Nigeria is now worth an estimated $6bn."

The report adds: "Increasing demand among Nigeria's 150 million citizens for Chinese-made goods such as motorbikes, textiles and machinery has resulted in the country becoming China's second largest African trade partner, behind South Africa."

Central endorsement

The Central Bank of Nigeria (CBN) is encouraging a combination of indigenous and foreign financial institutions to help diversify the country's economy. CBN governor Lamido Sanusi says: "We expect to see significant amounts of capital from China flowing into the construction and oil sectors, with banks trapping these flows."

A number of Nigerian banks are building links in China. Stanbic IBTC Bank is a leading local bank which is half-owned by South Africa's biggest bank, Standard Bank, which in turn is 20% owned by China's biggest bank Industrial and Commercial Bank of China (ICBC). ICBC is keen to develop in Africa and last year its chairman, Jiang Jianqing, visited the Stanbic IBTC offices.

Chris Newson, chief executive of Stanbic IBTC, says: "The successful visit of Jiang Jianqing was an important step for us as our aim was to showcase Nigeria and create an understanding of how the country functions. We believe in Nigeria and that is why we have invested more than $600m here as we see the long-term potential." Stanbic IBTC is keen to leverage its clear shareholder relations with China and play a part in the deal and financial flows.

Access Bank is also very interested in building relations with China and its chief executive, Aigboje Aig-Imoukhuede, speaking from Beijing, believes China will step up its support of Nigeria. "China will become our major trading partner over the next 20 years."

The pan-African Ecobank Group has a representative office in Shanghai that it views as a vital element in its growing relations with China. Jibril Aku, managing director of Ecobank Nigeria, says China sees Africa as a strategic partner for raw materials and as a new market. "China is worried by the maturation of the OECD markets and sees Africa and Nigeria as opening up a growing market."

Free-trade zone

A highlight of the booming relationship between China and Nigeria is the building of one of Africa's largest free-trade zones in Lagos. On the tip of the Lekki Peninsula, the two countries are building a 16,000 hectare free-trade zone to develop local manufacturing and reduce Nigeria's dependence on imported consumer goods. The area covered by the zone is one of the fastest growing in Lagos State and is expected to soon have a deep water port, an international airport and new hotels as part of a 60:40 partnership between the Chinese government and Lagos State.

Adeyemo Thompson, deputy managing director of the Lekki Free Zone Development Company, says: "The first phase of the zone, the 3000-hectare zone, will be close to a $5bn investment, inclusive of the infrastructure we are going to put on the ground, the roads, the power plants and the water plants."

The free-trade zone gives Chinese companies greater access to growing African markets for consumer goods, electrical equipment and industrial products. Part of the reason Lekki is so attractive, Mr Thompson notes, is that the Chinese government is encouraging companies shutting down in China to move to the free-trade zone. "There are funds which the (Chinese) government has provided for these companies to encourage them to come and set up their factories in other parts of the world. We have that market. Now the Nigerian government is also encouraging investors to go to China and buy those factories which are shut down, maybe at a quarter of the price, bring them into Lekki, set it up and manufacture those goods which have a market [in Nigeria]."

With nearly 90% of products used in Nigeria coming from outside the country, the free-trade zone will allow Nigerians to buy many of the same products now produced in China without the cost of importing them, all the while creating jobs for Nigerians. Chinese firms gain both from more immediate access to African markets and far cheaper routes to ship their 'made in Nigeria' exports to Europe, creating a win-win situation for both parties.

The Lekki project, along with existing investments, pushes China's FDI in Nigeria to well over $10bn. However, it isn't just the Chinese who are aware of Nigeria's many attractions, with countries from all over the world set to up their game in one of Africa's most potentially lucrative markets.

Investment developments in Nigeria

In its latest report on overseas investment projects into Nigeria, fDi Markets, a sister publication of The Banker, outlined investment developments in Nigeria in the period from January 2003 to August 2010. Here are highlights of the report, along with insightful data on FDI and details of major recent projects in the country.

Investment highlights in Nigeria: January 2003 to August 2010

- Between January 2003 and August 2010, fDi Markets recorded 235 investment projects from 174 companies.

- The average number of jobs created per project was 331.

- The leading sector was coal, oil and natural gas, which accounted for 22% of projects.

- The leading business activity was manufacturing, which accounted for 32% of projects.

- The top 10 companies accounted for 18% of all investment projects, with Chevron Corporation (US), Total (France) and ExxonMobil (US) among the top 10 companies.

- The top three source markets for investment were the US, the UK and India, providing 19%, 12% and 8% of investment projects, respectively.

- The top three destination cities for inward investment were Lagos, Abuja and Port Harcourt, providing 29%, 6% and 3% of investment projects, respectively.

The key influencing factors behind the location of investment projects were 'domestic market growth potential' and 'proximity to markets or customers', cited by 64% and 25% of companies, respectively.

In the FDI Analysis table (below), the ups and downs of FDI into Nigeria are shown, with 2008 registering a peak year of $35.9bn followed by a slump to $6.9bn in 2009, clearly reflecting the global financial crises of late 2008. Nevertheless, the average annual $13.4bn investment over the seven years (until August 2010) represents solid development.

Major recent projects in Nigeria

July 2010 - Rezidor Hotel Group (Belgium) Investing in Lagos. A Park Inn hotel to open in 2013.

July 2010 - Spar (Netherlands) Opening a flagship store in Lagos followed by additional openings in Otta, Abuja and Port Harcourt.

July 2010 - Nagarjuna Group (India) New manufacturing facility in Nigeria to produce fertilisers.

July 2010 - MTN Group (South Africa) Telecommunications provider MTN Nigeria plans to invest more than $2.25bn into its network and infrastructure.

July 2010 - Bharti Group (India) Opening call centre in Nigeria as part of $600m investment.

June 2010 - Rainbow Group (India) Rainbow Papers, a paper company, will set up a manufacturing unit in Nigeria to export paper across Africa.

June 2010 - Nokia (Finland) Communications investment in a Lagos maintenance and servicing project.

May 2010 - Royal Dutch Shell (Netherlands) Coal, oil and natural gas investment in an extraction project in Bayelsa State.

May 2010 - China State Construction Engineering Corporation (China) Coal, oil and natural gas investment to construct an oil refinery in the Kogi State, worth $23bn.

May 2010 - China State Construction Engineering Corporation (China) Coal, oil and natural gas investment to construct an oil refinery in Bayelsa State. Worth $23bn this facility will be built simultaneously with two other refineries in Lagos State and Kogi State.