Investors Have to Weigh the Risks Carefully
Twice the size of California, the Federal Republic of Nigeria sits on the western coast of Africa. Its coast marks the link between upper and lower Africa. The country shares borders with Benin to the west, Chad and Cameroon to the east, and Niger to the north. An English speaking country, Nigeria’s population has tripled over the last 50 years, and it is now the world’s seventh most populous nation with 167 million people calling it home.
It’s a home with a tumultuous legacy, to say the least. Since gaining independence from England in 1960, the country has faced brutal civil war, violent military coups, and persistent sectarian violence among its many tribal groups. Uprisings and upheaval have been the order of the day, even as the nation has earned honors as one of the “Next Eleven,” a group of emerging economies set to dominate the 21st century. Still, with the installation of Goodluck Jonathan as president in 2010, Nigeria is settling down and hoping that its new stability will encourage large and small investors to take advantage of its potential.
The center point of Nigeria’s opportunities for potential minority and women-owned business investors lie in serving the booming population and efficiently developing resources. Despite being an oil and mineral rich nation, for many decades these resources were mismanaged. Monies from mines and oil field lined the pockets of a succession of dictators and generals while the country’s basic infrastructure crumbled.
This basic infrastructure has been further strained by the population explosion and increasing urbanization of the nation. The capital, Lagos, is home to nearly 10 million people. They are hungry for waste management solutions, reliable energy sources, and efficient yet affordable transportation solutions. These needs are mirrored in smaller cities and rural environments throughout the country, particularly in northern Nigeria, as it is less industrialized than the southern and coastal regions. With all the political upheaval, many of the existing systems have been overwhelmed as government groups were historically more focused on staying in power than helping the country.
As a result, Nigeria’s population is hungry for effective technology solutions. The cellular phone market is a major opportunity space, as are online services. While the country may be infamous for its Internet fraudsters (“From the desk of ..” is now a spam flag thanks to the millions who were told the prime minister needed their help wiring money out of the country), the reality is that the country is ranked 163rd for Internet host connectivity. The 41 percent of the population currently under the age of 14 are a ripe potential market.
Along with consumer service needs, Nigeria is also desperate for efficient domestic resource development solutions. Petroleum and petroleum products account for 95 percent of exports, while some 70 percent of the population works in agriculture related fields. This disconnect in development is something the current government wishes to change by encouraging diversification of the economy, but due to decades of oil centred industry, rural applications are few.
Opportunities abound in making the most of Nigeria’s extensive domestic foodstuffs. As an example, the government currently pays to import massive quantities of salt annually since the country lacks a mining group to access and process identified domestic salt deposits. One of its biggest import categories is live animals, since the infrastructure to transport rural production to urban environments is lacking. MWBEs with experience in food processing, cold chain, or distribution systems could make a big impact.
Legal, Organizational, and Economic Concerns
The current government of Nigeria is actively seeking foreign direct investment (FDI), and sharp declines in FDI between 2009 and 2010 have motivated a number of new initiatives in 2011. The Ministry of Commerce and Industry is being replaced by the Ministry of Trade and Investment (MTI), and $221 billion USD has been pledged toward economic development efforts. However, any firm considering investment in Nigeria needs to be aware of the legal, organizational, and economic concerns facing the business industry.
In the legal arena, Nigeria is governed by four distinct sets of laws. There is English law, a legacy of colonization by the British. Common law emerged after 1960, and Sharia law, based on Islamic teaching, took hold in multiple northern states in 1999. Parts of the country also practice ‘customary law,’ which traces its roots to indigenous tribes that have inhabited the region since 9000 BC. All four sets of laws can be enforced at the discretion of local authorities, and rampant corruption throughout the country is an openly acknowledged issue President Jonathan routine addresses when discussing the economic future of the nation.
This cloudy legal arena has allowed serious criminal elements to flourish. Nigeria is a transit point for drugs from Africa bound for Europe, gangs operate with relative impunity, and piracy off the coast is a growing concern. Lagos is a major money-laundering center and the country has been evicted from international anti-fraud groups over its frequent internal enabling of scams.
Organizational issues don’t help the legal scene. Nigeria’s tendency toward tribal organization and power-sharing structures helped coin the academic term “prebendalism” to describe the sense of entitlement held by in-group members for any potential profits of a venture. Clannishness also motivates Transparency International to consistently rank Nigeria at the bottom of its corruption perception index. Transparency International is the global civil society organisation leading the fight against corruption. MWBE businesses interested in coming in to a particular region will need to study the situation on the ground and be aware of community perceptions of their project to be successful.
Economic concerns will also present an issue. While Nigeria is credited as one of the largest and wealthiest economies in Africa, per person yearly income averages just $2,500 USD, and monthly minimum wages for high-level officials are around $75 USD. Goods marketed in the country need to be affordable to the 70 percent of the population that lives in poverty, and sharp divides between rich and poor will have to be accounted for in marketing ventures.
Key Competitors
In approaching the Nigerian marketplace, US-based MWBEs will be competing against Chinese, Brazilian, and European groups already in place. The US is Nigeria’s largest partner for exports (Nigeria supplies 11 percent of America’s oil), but on the import side of the table, China takes 15.4 percent of the market and the Netherlands are nearly 10 percent. France, Brazil, Spain, and India are other key trading partners.
Of the group, China is working the hardest to advance its toehold in Nigeria. The country announced a November 2011 deal to expand manufacturing relationships with Nigeria in the automotive production space and contribute to infrastructure development. Chinese manufacturers are also keen to access Nigeria’s consumer markets for home goods.
An emerging player in Nigeria are Middle Eastern interests. Nigeria is linked to the Middle East through its membership in OPEC, but hadn’t received much direct investment until recently. Prince Al-Waleed bin Talal of Saudi Arabia has been visiting Nigeria and meeting with President Jonathan about infrastructure and tourism projects. These meetings have been favorably received, though firm investment commitments are pending, notes Forbes Magazine.
Dedicated Support Agencies
MWBE firms that do want to take a chance in Nigeria and compete will find that they are not without friends on the ground. Nigeria’s newly reorganized Ministry of Trade and Investment (MTI) is committed to helping new investors get off the ground, and it has one of the continent’s most robust toolkits of tax breaks, tax exemptions, and incentives customized by industry to stimulate development in key areas. These exemptions can be as large as seven years of tax relief and 120 percent deduction of operating expenses.