Nigeria is by far the most populated country in Africa. An estimated 170 million people call this West African oil-producing state home. Coupled with strong economic growth over the past decade, Nigeria’s huge population presents many business opportunities for companies.
One person with a good vantage point of Nigeria’s changing fortunes is Randy Buday, managing director of logistics group DHL in Nigeria. American-born Buday has worked for DHL across the continent for close to three decades.
In a recent interview, he told How we made it in Africa that although Nigeria’s oil and gas industry is still responsible for most of DHL’s business in the country, he is seeing an upsurge of household related appliances, electronic goods, healthcare related items and high end fashion garments arriving in the country by freight/express originating from within sub-Saharan Africa, Europe, Asia and the Americas.
“Nigeria is a massive consumer market which cannot be ignored. A lot of countries, and in particular South Africa, are taking advantage of the retail opportunities in products such as appliances, clothing, food and other things that an emerging middle class market requires,” said Buday.
Grappling with a slowing economy and a more saturated market back home, many South African companies – including banks, hotels and supermarket chains – have entered the Nigerian market over the past years. Whitey Basson, chief executive of South African-based supermarket group Shoprite, told Reuters last year that he sees potential for over 700 stores in Nigeria. South Africa’s Novare Equity Partners recently also opened the Grand Towers shopping centre in Nigeria’s capital Abuja.
In addition, since the Nigerian government lifted a ban on the importation of clothing, some South African fashion retailers – such as Mr Price and Woolworths – have opened outlets in the country. These South African chains are, however, facing competition from foreign brands such as Hugo Boss and Mango.
A 2011 Renaissance Capital survey with middle class Nigerians (with an average monthly income of between US$480 and $645) revealed that the vast majority of these households own a refrigerator, electric fan, electric iron and DVD player. However, only 42% said that they own a fridge freezer, and only 8% a washing machine. Almost a quarter of respondents said that they planned to buy microwave ovens, washing machines, and dishwashers in the coming year, and another 20% to 25% plan to do so within five years.
Buday added that DHL is also seeing exponential growth in e-commerce, especially from Nigerians buying goods from international online retailers. Locally based online stores, such as Konga.com, are also trying to make inroads in the market.
While Lagos, with a population of around 17 million people (depending on who is doing the counting), is Nigeria’s undisputed commercial hub, Buday pointed out that there are many other cities with large populations that offer opportunities for business. These include: Abuja, Port Harcourt, Kano, Kaduna and Ibadan.
Overcoming the challenges
Despite Nigeria’s massive potential, many challenges remain. One of the risks is insecurity, notably in the north of the country, where militant Islamist groups have carried out many attacks over recent years.
US-based Frontier Strategy Group recently said in a report that terrorist groups in the predominantly Muslim north of the country pose a threat to workers of multinational countries.
However, according to Buday, companies can take precautions to makes themselves aware of potential risk when entering unfamiliar terrain. “There are ways of mitigating the risk. If I were to travel to Johannesburg, common sense would tell me not to walk into the CBD in the middle of the night. The same goes for some of the northern parts of Nigeria; there are certain areas you would want to avoid. Other areas you would venture into, but you would be more vigilant especially if the location had experienced recent security related issues. In addition, in some cases you would want to consider to travel with an armed security escort, such is the case in the oil producing states in the south of the country. So as long as you take proper security precautions, your chances of experiencing unexpected and unpleasant incidents are considerably reduced.”
Buday said other challenges of operating in Nigeria include poor electricity and road infrastructure, increasing labour costs and government regulatory and bureaucracy concerns.
According to Buday, business people need patience and tenacity to succeed in the Nigerian market. “Nobody is going to make a fast buck here. You need investment, you need patience, you need the ability to understand the workforce, and some of the other unique constraints particular to the country,” he explained. “Even coming to work can be a daily challenge for employees due to inadequate public transport and congestion which is endemic to a number of the larger cities. That being said, there is no doubt that Nigeria is offering some of the most attractive investment opportunities and companies that are willing to invest time and energy here, will see major returns.”