Friday, 7 September 2007

Nigeria Open For Business

By Jocelyn Newmarch, Johannesburg , South Africa

Business in Nigeria is booming -- and South African companies are determined to be a part of an economy they say has sky-high potential, despite the challenges posed by unpredictable regulations, unreliable power and a lack of infrastructure. In recent years more than 100 South African companies -- among them MTN, Nando's, Shoprite, Game, Naspers and Johncom -- have entered the Nigerian market. Mvelaphanda Resources is said to be eyeing the underdeveloped Nigerian minerals sector, along with bigger players such as BHP Billiton. Of these companies, MTN has enjoyed the most obvious success, with revenue of R14,9-billion last year. But other players are upbeat.

Investment is helped by official market rates moving closer to those of the parallel market. A unified exchange rate has been a long-standing demand of the International Monetary Fund and was one of the goals of former president Olusegun Obasanjo's government. This means that money, which was previously laundered to invest outside the country, is now being used to invest in legitimate Nigerian companies, according to a business insider.

The perception of "Briberia" still exists, with several companies saying there is a hidden cost to doing business in Nigeria . Two public relations companies said that when organising media events journalists had asked for payment. South African expats said they are asked constantly for bribes at roadblocks and they are asked to pay more because they are foreigners. A patronage system is in place. Many Nigerians are expected by their communities to give jobs to relatives. But one expat said Western companies constantly give favours to clients, such as tickets to high-profile sporting events. The only difference seems to be that Nigerian clients prefer cash to freebies.

A commentator said South African companies face three major challenges in Nigeria . Often the regulatory environment is unpredictable, with import bans on certain items creating difficulties for big retail groups in particular, including Game and Shoprite. He said it seemed the intention was to remove the import bans, which were intended as part of an import substitution programme. The import bans, which can cover "anything from toothpicks to imported furniture", says expat Ian Taylor, have been roundly criticised.

Taylor said Woolworths opened a store in Nigeria , but closed shop when a ban on imported clothing took effect. Imported beers are banned, as are imported apples, although Nigeria produces no apples of its own. Consequently, smuggled apples are for sale on every street corner and in the Shoprite in Lagos . The commentator said the physical infrastructure is weak, particularly in terms of energy. "Wherever you go you have to put in private power sources. Most of these are diesel-driven. As fuel prices have increased since deregulation, this is a considerable additional cost." Companies also face logistical challenges as Nigeria has tried to diversify away from an oil-based economy.

Infrastructure development has not kept pace and remains geared towards exporting oil. Consequently, there are long delays at ports and in clearing goods. "The potential here is unbelievable," said Taylor, a regional director of brand-activation agency Exp. "The question is: How do you get the product to the people?" Middle-class consumers can afford to buy a tube of toothpaste, which lasts a month, but working-class consumers buy a sachet, which is enough for three or four days. Understanding the market is important, as is living with what he terms inefficiencies. "We came in with certain standards, because of the way we were brought up, but 90% of Nigerians have never been exposed to anything outside Nigeria ."

But those companies that get the market right are printing money. Shoprite's first supermarket opened in Lagos at the end of 2005 and was profitable within the first year. Its deli section, where cold meat is sold, reputedly makes more money than any other deli in the group, including South African stores. Although most of the products it sells are imported, local products are marked with stickers of the Nigerian flag on the shelves. Shoprite also works with local farmers to source fresh produce from within Nigeria .

Nando's, which has partnered with local company UAC, opened its sixth restaurant in Lagos this month and credits UAC's local knowledge with its success. Marc Schreuder, a director of UAC Franchising, said his company doubled its share value in the past year and it has 230 franchise applications now, the same number as UAC's existing restaurants. With Famous Brands and St Elmo's, South African companies now dominate the fast-food market. South African companies have targeted mainly the retail, environment and food sectors of the economy. Johncom bought Business Day Nigeria and moved its Nu Metro cinemas and media stores into Lagos . Success doesn't come easy, though. One South African expat said that at the end of every week he and his partners tally scores in the continuing game of Nigeria versus Us. "For just one week in two years we beat Nigeria 4-0. And the following week we were kicked out of our offices for the next three weeks," he said.

Although credit cards are available now, visitors are cautioned to use cash to avoid scams. Rumour has it that MasterCard had to suspend its card offering for a few months after several top businessmen maxed out their cards and refused to pay what they owed. "Making money in Africa is a long-haul process. There are no quick bucks. And growth is still in very limited areas. You need to be careful what you invest in," said the commentator.

De-oiling the economy

There's certainly a lot of money available for investing, helped in part by the booming oil price. Oil and gas contributed 21,5% of Nigeria 's GDP last year, according to the country's National Bureau of Statistics. Oil also contributed 95% of foreign exchange earnings and 65% of budgetary revenues, said the CIA Factbook for Nigeria . Rumour has it that Nigeria is home to more sterling billionaires than the United Kingdom . In Lagos , the commercial capital, luxury cars are as evident on the roads as the beaten-up minibus taxis. Those who have wealth flaunt it and are expected to help out their less fortunate relatives. The country is trying to break away from its over-reliance on oil revenue with a tiny manufacturing sector, an endemic lack of skills and high poverty rates. Inequalities are stark. Just more than a third of the 140-million strong population is formally employed. The astronomical growth of the mobile market -- which has reached 30-million users in less than six years, according to Reuters -- has proved that there is money to be made and that the Nigerian middle class is huge.

MTN is the country's biggest operator with 45% market share. Former president Olusegun Obasanjo's government kick-started a process of democratic economic liberalism with the auction of cellphone licences. More importantly, stability was introduced when the banking system was restructured from more than 100 small banks to 25. In recent years this has consolidated further. With this there has been an increase in banks' capitalisation and a focus on retail banking products. For the first time credit cards, hire-purchase agreements and mortgage bonds are available, leading to a surge in disposable income. "I'm investing in banking stocks," said UAC franchising director Marc Schreuder. He said the stocks have tripled in value in the past three years.

sourced from Nigeria 2Day Friday September 7th 2007

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