In part one of our interview with Thessa Bagu – managing director of market entry and advisory company Naijalink Ltd. – she highlighted some of the untapped business opportunities in Nigeria. In part two, Dutch-born Bagu discusses Nigeria’s foreign exchange challenges, succeeding in the consumer goods industry, and how the country has changed since she first arrived in 2006.

Businesspeople often highlight foreign exchange difficulties in Nigeria. It seems companies find it hard to obtain US dollars. Please shed some light on the situation.

Foreign exchange availability, combined with currency depreciation, is currently the number one challenge. It is difficult for both small and big companies, and there is no immediate end in sight. We had the same thing happen in 2015/2016; you couldn’t withdraw more than $700, no matter how much you had in the bank. That lasted a few months. This time it’s lasting much longer.

The shortage of dollars is because of structural economic weaknesses that have only gotten worse. Essentially, Nigeria depends on the oil industry to earn US dollars. However, we’ve been producing less oil recently. Even if Nigeria produces enough oil, the dollar revenue is not enough to pay for all the other imports, so dollars remain in high demand but low supply.

For example, I recently had to buy a new fridge but the one I wanted wasn’t available because the reseller couldn’t access dollars to import it. It impacts all industries. Locally produced bread becomes more expensive because the yeast and wheat are imported and paid for in dollars. Even locally grown crops require imported chemicals.

Everyone is queuing for dollars at the official rate from the commercial banks, which, in turn, need to get it from the Central Bank. Some companies have accounts at over a dozen banks and apply for dollars from all of them in the hope that they will be higher up in the queue with some banks. Others have no option but to get dollars from the black market at much higher rates. This creates problems because they cannot necessarily pass these higher costs on to their customers. The gap between the official and unofficial exchange rates can be as high as 20%. Every company I know deals with these forex issues and is suffering as a result.

Some people are advocating for devaluing the naira and letting it go into free float but in a nation with high levels of poverty, it would be a very unpopular decision.

Despite these forex problems, people in Nigeria somehow find a way to survive. This country has some of the most resilient companies because you always have to find solutions for everything. The mindset here is: let me figure out how I can make this work.

Several South African retail and consumer goods companies have pulled back their Nigerian operations, including Shoprite, Massmart, Mr Price, Woolworths and Tiger Brands. What does it take for foreign operators to succeed in this sector?

I think you really have to understand the market very well. When those companies invested, Nigeria was in a growth period. When I came here in 2006, it was growing at 8-9% a year. We were heading in the right direction, the middle class was growing and set to expand. But then it didn’t happen. Those companies essentially anticipated a growth in spending power that didn’t transpire. South Africa’s per capita spending on consumer goods is much higher than in Nigeria. Disposable income in Nigeria has actually dropped in recent years; the average person has become poorer. In addition, these companies had to deal with the aforementioned foreign exchange situation, which makes it tough to repatriate income earned in naira.

Modern retailers face incredibly strong competition from the informal market. Informal shopkeepers don’t pay taxes or high rents and they don’t have to spend on expensive generators for power. In Lagos, you can buy just about anything from street hawkers. The entire city is basically one open market. And it is not just Lagos, it’s everywhere.

However, what is doing very well here are the quick service restaurants because people splash money at these outlets when they have a special day. Food courts in the big shopping malls tend to be the busiest and the surrounding shops are suffering as the folks are merely window shopping.

People like to spend money on things they can show off, such as an expensive car or watch. But you wouldn’t spend more on your breakfast cereal, you’d try to get it as cheap as possible.

How has the business environment changed since you first started operating in the country?

There have been some good things. For example, according to the World Bank’s ease of doing business ranking, Nigeria has improved in some areas.

Connectivity has also improved. I now have fibre whereas I used to use a dongle. Banking software and digitisation, in general, have made it easier for businesses. There are also better facilities in the main cities, such as nicer restaurants. The city of Lagos has become safer compared to 2006, particularly in the main business areas. More international companies have a presence, which means increased employment opportunities and potential clients. Supermarket shelves also feature more local and international brands.

If you look at the main challenges and what has deteriorated, the forex situation is definitely at the top. Security in the rest of the country has also worsened over the past few years. There are too many poor people. This weakens security and fuels ethnic and religious tension. Nigeria is easy to destabilise in that sense. There is this quote by Sam Aluko, a Nigerian economist: ‘The poor cannot sleep, because they are hungry; and the rich cannot sleep, because the poor are awake and hungry.’ I have travelled to 32 of the 36 states by road. I wouldn’t consider doing that today.

In essence, security, forex, unemployment, inflation, corruption and infrastructure bottlenecks all remain serious hurdles.

However, despite these issues, what I find really positive is how people find solutions and create their own ecosystems. The fintech industry is thriving, for example. The same goes for Nollywood and the music industry. You now hear Nigerian music all over the world. There are a lot of good things here and it is driven purely by entrepreneurs who come up with solutions for all the challenges plaguing Nigeria. There are companies that are into artificial intelligence, robotics, solar-powered cold storage; there is just so much entrepreneurial spirit.