Nigeria remains a compelling investment case, given the size of its consumer market, high levels of entrepreneurialism, growing private sector and international interest. The government’s efforts to diversify the economy are creating many new opportunities for investors.
The South Africa-Nigeria Chamber of Commerce, in association with African Brand Link, recently hosted an event in Cape Town to inform companies about the ins and outs of doing business in Africa’s most populous country. The meeting featured input from a variety of private and public sector participants.
Many companies start by exporting and then later expand with an investment, a local office or make an acquisition. All methods of engagement do require a deep knowledge of the environment. Here are some tips for those seeking to crack the Nigerian market, as highlighted during the event.
The key to success is a well-informed entry strategy that takes into account Nigeria’s particular nuances and challenges. Companies sometimes fail because they do not have a strategy that deals with these problems and the attendant costs and timeframe issues.
With delays, corruption and onerous bureaucracy, it can be tempting to take short cuts by paying ‘facilitation fees’ to government agencies and officials. This is to be avoided. It can backfire when things go wrong, for example taking a short cut for a building permit when there are problems in construction. Your recourse is limited if you did not follow the rules in the first place. There are also possible reputation issues and, particularly for foreign-listed multinationals, legal complications.
In a country of the size and complexity of Nigeria, it is more realistic to have a focused entry strategy than a country approach. For example, it may be better to use a city or state strategy – Nigeria is a federal country with 36 states – to test the market, expanding as things progress. A key element of strategy for investors is patience – to make the Nigerian market work optimally, you need to take a long-term view and not expect quick wins.
Red tape and bureaucracy
Getting permits and licences can delay start-ups or projects for long periods. Budgets and delivery timetables need to accommodate this. Novare Equity Partners, which funds and develops western-style shopping malls in Nigeria, outlined their challenges in this regard, saying, for example, they had to wait more than a year for a permit to move a project forward after construction had started. Although no work was going on, staff and contractors still had to be paid.
Tapping into local knowledge
Nigeria is a complex country where the business environment is not only challenging but also often opaque. Government agencies can be difficult and time-consuming to deal with. Consumer markets are also sometimes difficult to read from the outside and knowledge of competitors and customers is vital.
A good deal of due diligence in a highly informal and unstructured economy such as Nigeria’s is done by word of mouth or reputation, rather than through formal channels. It is thus advisable to either have a physical presence in the market or a local partner who can be your eyes and ears on the ground.
Tapping into local knowledge may also help to fast-track your entry and help with the cumbersome regulatory issues, which is easier if you have someone to handle it who knows the terrain. They can also advise on how to deal with other challenges, guide you on potential partners and possible customers and introduce you to the broader environment. They do not necessarily have to be Nigerians but must certainly be someone who is well integrated into the business environment there.
Build a team locally and develop skills – expatriates are expensive and while they may be important in specialised areas and useful to bed down new operations, contracts should be kept as short as possible. Skills development is also a cost saver in the event of expansion, where you can move local skills around once they have been developed without bringing in more expatriates.
Dianna Games is Executive Director of the South Africa-Nigeria Chamber of Commerce.