Nigeria has the largest population in Africa, and it presents impressive business opportunities. Not long ago, it was included in the Next Eleven, the rating of the most rapidly developing economies according to Goldman Sachs. The COVID-19 lockdowns have halted this development. So, what can the country offer to companies and entrepreneurs?
There’s no denying that Nigeria has many dynamic, ambitious, and well-educated people. Investment bankers believed it had the potential to become one of the biggest economies in the 21st century. However, the effects of lockdowns have been exacerbated by another collapse of oil prices. Of course, recovery will happen, but it is sure to be painful. Here are a few things to remember when doing business in the country.
The Emergence of New Opportunities
Historically, the national economy has been heavily reliant on crude oil exports. Now, it is relatively diversified. Real estate, financial services, and telecommunications are all growing sectors. Ten Nigerian banks were included in the Top-1,000 World Banks ranking by the Financial Times newspaper.
Now, the country is a significant banking market on the continent. This shows that recent state policies have reformed the economy despite its long history of mismanagement. These changes have had the following effects:
- improved macroeconomic environment and business climate;
- stronger appeal to attract foreign investment;
- further economic diversification.
In recent years, many more opportunities have sprung up, particularly in the realms of manufacturing, retail, agriculture, engineering, mining, construction, hospitality, and finance. For example, growing financial literacy has led to a rise in online trading in the country. At the moment, Nigeria has the second-largest Forex volume on the continent, but it has the potential to outdo South Africa.
Global brokerage brands understand the potential of the region and adapt their services to local needs. Locals do not only engage in Forex trading – they are also learning to use contracts for difference in Nigeria that are more complex instruments. The derivatives allow them to profit from different markets and instruments without owning physical assets.
All trading operations are performed using desktop platforms or mobile apps. This increased convenience has been paired with affordable entry, as a Forex account with Forextime may be opened with just $10. It can be denominated in the Nigerian naira to avoid conversion fees.
The Key Challenges
It is impossible to deny the challenges faced by companies doing business in Nigeria. One may say the country embodies the economic promise and the challenges of the African continent on the whole.
- Infrastructure is still deficient in many areas.
- The power supply is erratic.
- The government’s regulation is overly stringent in many realms.
- The currency is highly volatile.
- The inflation rate is unpleasantly high.
- Capital costs are soaring.
In addition, businesses need to grow up with foreign exchange shortages, corruption, red tape, and high rentals. These challenges, however, are not exceptional. They can be seen in many neighboring countries.
What sets Nigeria apart is its colossal population and complicated social structure encompassing various economic, political, religious, ethnic, and family groups. Business success in Nigeria is seen as the guarantee of success elsewhere on the continent. It is a testing ground.
Do’s of Business in Nigeria
What can we learn from the success of such companies as MTN, Standard Bank, Shoprite, Pepkor, and Multichoice? These brands are thriving in Nigeria. Here are six things you absolutely have to do:
- Carry out meticulous market research;
- Be thorough in your due diligence;
- Learn from your peers’ mistakes and coping stories;
- Pursue the right market strategy;
- Choose the right acquisition target; and
- Find a suitable local partner.
Don’ts of Business in Nigeria
Telkom, Woolworths, and Tiger Brands have all failed in Nigeria. The reasons were different. Their shortcomings varied from sloppy market research to poor stakeholder relations.
In addition to such preventable failures, there are always factors beyond any business owner’s control. First, one must consider all the inherent technical, operational, political, and legal challenges.
For example, MTN, the South African telecommunications company, lost over one and a half billion US dollars because it disregarded an order from the government to disconnect unregistered subscribers. The company had cracked the market but grown complacent over the years.
Nigeria is still dependent on its imports of crude oil, so every collapse in commodity prices causes its currency to depreciate. As a result, paying for imports is increasingly expensive.
The Bottom Line
Businesses need to stay open-minded and adaptable. It is important to invest not just in hard infrastructure but also in soft skills. Companies that stay focused and take the long-term view can succeed if they have a solid risk-management strategy in place.