Last updated on August 26th, 2022 at 03:02 pm
Any investor in the United States, Germany, and Italy among other advanced economies who wishes to their business to Africa, will most likely put Nigeria on their list despite many challenges confronting the country.
Nigeria has a large and ever growing market, availability of hydrocarbon resources, and commendable FDI policy, yet poorly developed transport system and never ending poor power supply since 1960 can hamper your business operation in Nigeria.
In this post, we’ll be discussing the benefits of investing in Nigeria and the challenges you will face as you explore the largest market on the African continent
- Consumer market: largest in Africa
- Population: 211,400,708
- Legal protection of FDI: Yes
- GDP: Over 400 billion USD
- GDP 2021 Projection: $440 billion
If you have the financial capacity to grow your business or services and you want to tap into the market potential in Nigeria, it’s very important to know some of the benefits your business can derive by investing in Nigeria and some of the challenges you would face.
It isn’t enough to jump on the market potential or because you heard about sweet stories of foreign investors who recorded success here, some companies have had to close shops because of some of the challenges we highlighted here..
Before investing, Foreign Direct Investors lookout for a number of things before taking a decision, which can be divided into two:
- Positive factors
- Negative factors
The positive factors are some of the potential investors can tap into, they are the impetus for an investor, they are called the strong points which basically answer the question: what are the gains of investing in Nigeria etc. While the negative factors are the challenges and the impediments that may hinder you from meeting your business goals.
Things to consider before investing in Nigeria:
- Size of consumer market
- Africa’s highest GDP
- Hydrocarbon resources
- High agricultural potential
- Favourable FDI policy
- Existing labour
- Promoting public-private partnerships
- Poorly developed transport system
- Poor power supply
- Slow judicial process
- Faulty dispute settlement mechanisms
- Double taxation
- Vulnerable economy
- Religious division
- Ethnic crisis
- Terrorism and banditry
- Political violence
- Poor data
Let’s discuss the positive factors first…
Size Of Consumer Market
Nigeria’s population is 211,400,708 at the time of publication and could be higher than that because of many unregistered births and poor head counting (population), this is a huge market for foreign investors.
The cardinal reason of production is for the market, for the people, if you have the product, Nigeria has the market.
By 2030, Nigeria’s population is projected to reach 262,977,337, data obtained from Statista says, this means the opportunity continues to grow.
What does this mean:
Foreign investors are given the freedom to exploit the market and expand without restriction.
If you want to exploit Nigeria’s market to its fullest, don’t tamper with their religious beliefs. Don’t come up with products that will erode their cultural or religious doctrine
Don’t go to the Sokoto, Bauci or Kano in the Northern region to establish an alcoholic brewery.
Africa’s Highest GDP
Nigeria has the largest Gross Domestic Product (GDP) in Africa and it’s projected to reach $440 Billion by the end of 2021.
The last data released by National Bureau of Statistics (NBS) in August 2021 also showed that the economy has grown by 5.01% in the second quarter of 2021.
Why should Nigeria’s GDP matter to a foreign investor?
Check the sector that’s adding more to the economy. Check the sectors that have not been fully explored. If you’re planning to dive into the a competitive sector, you must be ready to do things differently, bring innovation, bring a superb service delivery.
For instance, in the NBS data shows that the non-oil sector grew by 6.74% while the oil sector declined by 12.65%, showing that the non-oil sector grew from 90.75% recorded in the previous quarter to 92.58% in Q2 2021 while the oil sector contribution declined from 9.25% to 7.42%.
Bottom line: It’s important to tap into the GDP data
Nigeria is one of the largest oil reserves in the world, there are opportunities in its under-explored hydrocarbon resources.
For instance, the six major oil companies operating in the country – Shell, Chevron, Mobil, Agip, Elf and Texaco – are not sufficient to dominate the oil fields.
At the time of publication, recoverable reserves are estimated at 28.5 billion barrels, with average productivity of about 2.5 million barrels per day.
While the attention is on the oil reserves because of the country’s dependent on revenue from crude oil, other sectors that look more promising than crude oil have been neglected.
One of such areas, foreign investors can hugely tap into is its large coal reserves, which is estimated to be at least 2 billion metric tons, climatescorecard.org says in a report.
High Agricultural Potential
Nigeria has 923,768 km² land size. It has 34 million hectares suitable for arable crops, yet a large portion of the land in Nigeria remained ungoverned, this is an opportunity, land for the location of the industry isn’t a problem.
In choosing where to carry out agricultural activities, foreign investors must place importance on security, think twice before investing in states that have been ravaged by Boko Haram, banditry, or communal clash unless you’ve done your risk evaluation perfectly well.
Favourable FDI Policy
Foreign investments are protected by laws and policies because the government knows it can’t do it alone. To accelerate the development of industries in Nigeria, the Cap N117, LFN 2004 section 22 Nigeria Investment Promotion Act allows foreigners to invest and participate in operations of any Nigeria enterprise 100 per cent without restriction.
In the military regime of Late Gen Sani Abacha in 1995 dismantled control limits on Foreign Direct Investment (FDI) through the Nigerian Investment Promotion Commission Act, thereby opening Nigeria’s door to foreign investors.
In 2020, 23.2 million Nigerians are unemployed, according to NBS. It was also revealed that one out of three Nigerians searching and willing to work but had no jobs.
Nigeria has the second-highest rate of unemployment in the second quarter of 2020, while this is something to be worried about, it also shows that there is existing labour for new companies in Nigeria.
Companies don’t really need to source labour from other countries, you have them within reach.
Promoting Public-Private Partnerships (PPP)
The economy allows for public-private partnerships which lead to lower taxes. In Nigeria, PPP is usually found in transport infrastructure.
Some o the challenges you are going to face as an investor in Nigeria are discussed below:
Poorly Developed Transport System
The poor road network is one of the challenges impeding industrial development in the local areas. Apart from state capitals, other locations across the country where major agricultural works are done are neglected.
Poor Power Supply
Since its independence in 1960, the country is still battling with an epileptic power supply despite the fact that it’s the potential to generate 20,000 megawatts from its existing large oil, gas, hydro and solar resources.
It still produces less than 4,000 of MW which is insufficient for a population of more 200 million people compared to South Africa with a population of less than 70 million which generates 58,095 megawatts (MW)
Most times, companies spend more on running costs arising from the purchase of generators and fuel in Nigeria.
Slow Judicial Process
Nigeria’s judicial system is slow and faulty, a foreign investor must try as much as possible to avoid litigation because of the slow judicial process and inability of authority to execute court pronouncements. Related to this are also faulty dispute settlement mechanisms.
Nigeria has one of the most friendly taxations in the world, yet there are instances whereby company taxes to the Federal Government, State, and local government.
Nigeria’s economy is vulnerable and reacts to the shock of oil price fall whenever there is low demand from the global market.
This isn’t surprising because oil and gas account for over 90 percent of export revenues, thereby making the economy vulnerable to volatility in global markets and too large swings in energy prices.
The country is largely planning blindly because of poor data. It depends on the old headcount for its planning. While the official figures put Nigeria’s population at over 201 million, the figure could be more than 50% more.
Since the inception of democracy in 1999, there has never been a general election that didn’t lead to bloodshed. A mere ward election led to killings, arson, and the destruction of property.
The government claims that it has digitised modes of doing business including business registration, sometimes saboteurs don’t make the system work, forcing business owners to approach their offices for resolutions where official corruption takes place.
One of the major problems facing the country that addresses itself as the giant of Africa is insecurity largely caused by the actions of the selfish political class.
Nigeria now houses one of the world’s most dreaded terrorist organisation Boko Haram which has now split into banditry in the Northern region.
In the South West and South-South, kidnappings are under-reported as families of victims prefer to raise the ransom to free their loved ones than to report to the helpless police officers who have themselves being victims of abduction.
To foreign investors willing to invest in Nigeria, we urge them to closely with trusted partners