Doing Business in Africa – A Nigerian Case Study

Africa is a very rich continent even though some of the natives are languishing in abject poverty. Because of the natural resources in Africa, many multinational companies and organizations are looking for opportunities to invest in this great continent. Africa is home to 6 of the top 10 fastest growing countries in the world, the U.S. exports to sub-Saharan Africa for instance now top $21 billion a year. According to the Overseas Private Investment Corporation (OPIC) and the UN trade agency, UNCTAD, Africa offers the highest return on direct foreign investment in the world, far exceeding all other regions. While petroleum products are the driving force behind those returns, other sectors offer impressive growth.

Africa is of increasing strategic interest to the global economy. The continent is expected to soon provide the US with more petroleum than the Middle East. The top supplier of oil to China is Angola. China and India are rapidly increasing their business dealings with Africa.  These new power-houses are often beating out American and European firms. However, doing business can be very frustrating in many African countries, the risks of investing in Africa remain high, just as they are for most emerging markets. These frustrations stem from difficult political, economic and legal environments.

Doing Business in Africa – A Case Study of Nigeria

In the case of Nigeria, just like in so many African countries, the country has not been doing exceptionally well when it comes to business. Many investors are discouraged by the low level of security in the country. However, the country’s economy is based on the principles of free market, with only some few areas under state control. Although it can sometimes be challenging for everyone including Nigerians let alone some foreigners, things don’t have to be difficult as long as you understand the cultural etiquette, doing business in Nigeria can offer tremendous opportunities. In the case of Nigeria, success comes down to two key factors: contacts and commitment. Knowing the right person is fundamental.

Nigerian business - business in nigeria

Prospects for business in Nigeria are especially promising in the following sectors: Telecoms, oil and gas equipment, healthcare services and medical equipment, technology-related products and services, electrical power generating equipment, computer hardware/software, automobile parts and accessories, construction, and earth moving equipment, agricultural products and equipment, and franchising. The Nigerian public and private sectors are actively encouraging foreign investment in all sectors of the economy. This can be seen from the nation’s foreign investment policies as well as the various regulatory frameworks. In fact, the regulatory laws impose absolutely no restriction on foreign ownership of local industries except the broadcasting, the insurance and the banking industries. All for reasons that are perfectly understandable.

That being said, the government is also keen on encouraging her citizens to invest and own businesses. They do this by incorporating various kinds of incentives in the regulatory laws aimed at increasing the number of companies owned and run by native Nigerians. The efforts are paying off as many businesses are currently run by the local populace.

Business Environment in Nigeria

For those who wish to do business in Nigeria, there are some bureaucratic and legal hurdles they must be prepared to face and deal with. According to World Bank, Nigeria, although a big economy in Africa does not make it to the top countries where it is easy to do business. The country does not make to top ten countries based on ease to do business. Her neighbour Ghana is in among the top 10, which should give Nigeria some challenge.

Nigerian business 2

According to statistics released by International Finance Corporation (IFC) in conjunction with the World Bank dubbed Doing Business 2014, Nigeria has dropped positions in terms of ranking based on ease of doing business. The parameters used for the ranking include ease of starting a business, dealing with constructing permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

Except for trading across borders and enforcing contracts, Nigeria performed dismally in all the rest compared to last year. The parameter that the country performed its worst was starting a business in which she dropped eight positions from position 114 in 2013 to position 122. This is not good news for investors because it is the foundation of business entity. If it is shaky then the entire investment may be compromised.

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One thing that really hurts Nigeria’s economy and keeps investors at bay is corruption. The country’s Corruption Perception Index ranks it at position 144 out of 177 with 25 percentile score. These statistics are really worrisome because perception is everything in business. The figures represent findings of Transparency International in the year 2013. It remains to be seen if the figures will change in this New Year. However, the government is trying the much it can to reduce the level of corruption in the country.

Doing Business in Nigeria – The Fluid Business Culture of Nigerians

Another reason why doing business in Nigeria is difficult is the business culture that prevails. So fluid are business negotiations that what you agree on today may not have the same meaning tomorrow. Actually, some investors with experience in the country say that in Nigeria, yes means maybe. Experts say the key to beating poor business etiquette is to understand the culture of Nigerians. For example, when they say “yes” to your deal, it means they respect you too much to say “no”.

However, Nigeria is a rich country and investors who manage to break the barriers stand a great chance of benefiting not only financially but also socially. This is because Nigerians are very friendly and sociable people. Their culture is also another thing you will love. They are so original and culturally diverse that your leisure times will seem too little. Whether you are a local or foreign investor, doing business in Nigeria is highly rewarding, so do not mind the bottlenecks and forge ahead to establish your enterprise.

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