Saturday, 16 May 2015

12 Challenges of Doing Business in Nigeria

This essay, akin to setting up the Yin (the dark negative feminine principle in Chinese dualistic cosmology) before the Yang (the bright positive masculine principle), is a prelude to my ensuing piece which will enumerate ample investment/business opportunities in Nigeria. A shrewd entrepreneur will agree that some of the challenges discussed herein are themselves, business opportunities.
Whilst the Nigerian business terrain promises very good return on investment to the savvy and patient; please quickly suck it in that doing business in Nigeria is not for the faint-hearted but for the resilient and tough-minded. Bank on hard-nosed nuggets of lesson, information gleaned from old hands, the streets here than on theory-based demos chalked up from whatever Business School, how-to books or from the internet/social media. Is it not puzzling how business enterprises in Nigeria are thriving despite the World Bank’s Ease of Doing Business index ranking Nigeria 131st out of 183 countries in 2012? Notwithstanding the vaunted challenges of doing business in Nigeria, thanks to the large Nigerian market (nearly 200 million people) coupled with his business acumen, Forbes attests Mr. Aliko Dangote as presently the richest African. Regardless of challenges, MTN Nigeria a South African subsidiary posted a revenue of R48billion (N735.7million) for 2013 financial year.

Without much ado, a rundown of potential challenges to doing business in Nigeria: 

1.    The process of Business Incorporation is cumbersome and time-consuming. Contrasted with countries where a business concern can be incorporated online within 48 hours, it’s a different ball game here. Registering a business name in Nigeria can be done within few days and costs less but not so for a limited liability firm; you need the services of a lawyer, a lot of paper-works and several weeks to sort out. Someone mentioned a scenario when an official that was supposed to sign his document was on leave and he was asked to wait until s/he comes back from leave. The Minister of Trade and Investment once promised to cut-down on the time and Byzantine bureaucracy but one cannot vouch how pragmatic his promise turned out to be. 

2.    Insecurity: Every country has its own unique strand of insecurity challenges. If you wholly absorb the portrayals of a typical Western media about the insecurity scenario in Nigeria, you will think the entire country is a battlefield. No doubt the Boko Haram miasma upped the ante of insecurity in Nigeria especially in the Northern states. It’s cheering that the Nigerian military seem to have found its mojo after a lackluster streak as they have turned the tide against the dreaded Islamic Sect. However, it is not Uhuru yet as analysts contends Boko Haram may resort to Guerrilla-like attacks afterwards. Terrorism and insurgency aside, sporadic pockets of kidnap-for-ransom, assassinations, armed robbery, thuggery, impunity etc. permeate regions of the country. 

3.    Corruption: Granted Nigeria has not fared well on the global corruption index. At the risk of extenuating, exonerating this ugly phenomenon, far from it that Nigeria every Nigerian is corrupt. As they say, in every twelve, there is a Judas. You can still do business in Nigeria unscathed, un-entangled in corruption. The corruption quagmire in Nigeria is a function of wanton greed, weak institutions, poverty, inept leadership deficiehnt in political will and also a willing party (accessory) because it takes two to tango, amongst others. Having sojourned in the West, one is aware that Westernsocieties are not immune from corruption. The major difference is that corruption is somewhat audacious with impunity in Nigeria. A classic scenario suffices: whereas the United States swiftly prosecuted, jailed Albert "Jack" Stanley, former CEO of Kellogg Brown & Root (KBR), a Halliburton subsidiary for masterminding a $180 million bribery scheme to procure $6 billion in natural gas deals in Nigeria, the case against his highly-connected Nigerian henchmen was scuttled in Nigeria; the geezers are scot-free. Likewise, a case against Dick Cheney, former U.S Vice President and former CEO of Halliburton was dropped by the Nigerian government when Halliburton coaxed the unscrupulous Nigerian establishment into a $250m (£160m) out-of-court deal. Nonetheless optimism is in the air that there will be no hiding place for corrupt officials in Nigeria henceforth as Nigeria’s no-nonsense, President-elect - General Buhari promises wage an unrelenting war against vestiges of corruption.

4.    Political uncertainty, brinkmanship and lack of continuity affect investor’s confidence. For instance, the Nigerian economy almost came to a standstill prior to the 2015 General elections. Recall that mainstream American and European Telecom giants missed out on Nigeria’s lucrative telecoms industry because of the apparent unpredictable business climate inherent in Nigeria then. They must be biting their fingers now. MTN (a South African company) took the plunge and are smiling to the banks. A little bit of risk they say, risk taking separates the boys from the men. A little risk is not bad after all. There is also a problem of lack of policy inconsistency or summersault: a particular administration awards a contract; another one comes on board, annuls the contract or starves the project of funds. 

5.    Epileptic Electricity or Power Supply: No doubt this is stifling business activity. If your business relies on electricity supply, you must factor in alternative sources of power supply (Generators, Solar Panels, Inverters etc.) because electricity supply is yet to improve after state-run energy firm - PHCN was unbundled and privatized. It appears businesses that thrive here somehow find a way to pass off additional expense incurred generating power, on their clients.

6.    Paucity of loans, overdraft facilities from Nigerian financial institutions: You are lucky, prolly ‘connected’ if a typical Nigerian Bank avails you a Credit facility at a 20-30 percent threshold interest rate. How many businesses can break even at that rate? The banks dwell more chasing deposits than rendering mutually beneficial cutting-edge services. An analogy: a friend of mine opened a business account sometime in the United Kingdom and was forthwith extended a £2,000 overdraft facility; a rare feat in Nigeria.

7.    Uncertain fiscal policies, exchange rate and lack of transparency: Policy summersault by successive administrations or public officers is a clog on the wheel of doing business in Nigeria. A Central Bank Governor introduces Polymer notes; his successor comes on board and reverses it. At a time the CBN (Central Bank of Nigeria) came up with a Cashless Policy and was at the same time bent on introducing a N5, 000 currency note which would have made it comfortable for people to amass and carry more cash around with ease. On the other hand, because the Nigerian economy is import-driven and overly dependent on the dollar, it follows that any fluctuation on the value of the dollar will have a butterfly-effect on import-dependent businesses. Keep an eye on dollar-to-naira exchange rate, fluctuations on Crude Oil prices if your business is import dependent. The Nigerian government can do more to make tenders, contracts and transactions more transparent. Whatever happened to the Due Process Office?

8.    Cartels, Cabals and Sharp Practices: As it is in many climes, perhaps more pronounced here, the Nigerian business environment is fraught with cabals, cartels and sharp practices. Dabble into Cement, Sugar, Salt production/importation and you will have Dangote’s feathers ruffled. Go and ask Ibeto. Sometimes these monopolies are by acts of commission or omission, creations of successive governments. The Nigerian government does not have to go cap in hand begging Dangote and his ilk’s to slash the price of cement, all they need do is to encourage competition, encourage massive local production or give more firms licenses’ to import cement. Imagine where only 3-6 companies have sole licenses to import cement or rice for a country of over 170 million people. Damned if your competition is one of these politically-connected geezers who garner fraudulent import waivers. This implies that for the same quality/quantity of products both of you import, his will be extremely affordable compared to yours given that the import waiver is already a hedge.

9.    Scarcity of information and statistics: There is paucity of credible information, statistics to rely on to make forecasts. For example, in the US, increase in retail sales, consumers taking more credit cards is symptomatic of the level of confidence on the economy. There is scanty of reliable information, statistics here hence you are left to extrapolate probable outcomes with a mishmash of common-sense and realities on ground.

10.                       Counterfeiting and smuggling of sub-standard products into the country, Piracy, poor service delivery, difficulty in getting customer feedback, multiple taxation, and cloudy regulatory yardsticks are some other challenges intrinsic in the Nigerian business climate.

Finally, a caveat: don’t throw sound reason or caution to the wind, do your research, due diligence so as not to fall prey to some mouth-watering Ponzi schemes masquerading as investment opportunities here or elsewhere. As they say, if it looks too good to be true, it is. Goodluck!
Written By:
©Don Okereke

(Entrepreneur, Security Analyst/Consultant, Ex-Serviceman, Writer/Blogger)
Contact me On: donnuait(a)
Follow me on Twitter: @DonOkereke


Unknown said...

Thank you Mr. Okereke, for taking the time to elaborate on these hurdles.

Unknown said...

Thank you Mr. Okereke, for taking the time to elaborate on these hurdles.