Doing Business in Nigeria

A Hot Tip about Business Administration in Nigeria

Last updated: 13 Mar 2011

Market Overview

Nigeria can be a very rewarding market for U.S. companies that take the time and effort to understand market conditions and opportunities, find the right partners and clients, and take a long-term approach to market development. With strong growth prospects in many industry and service sectors, underserved market segments, a growing and increasingly sophisticated consumer base, and a strong affinity for U.S. products and American culture, opportunities are impressive; but so are the challenges including inadequate energy and transportation infrastructure, weak institutions, the threat of crime and corruption, and reoccurring episodes of regionalized political instability and violence. Nevertheless, those U.S. companies that take a careful and informed approach to the market can do well and develop longstanding and profitable business relationships and operations in Nigeria.


Nigeria ranks among Africa’s largest consumer markets. It is the continent’s most populous country and arguably one of the most culturally diverse societies in the world, with approximately 250 ethnic groups among its 150 million people. The country’s economy is highly dependent on oil which accounts for approximately 20 percent of GDP and over 90 percent of the country’s foreign exchange earnings, but Nigeria’s long-neglected non-oil sectors have been growing faster than the oil sector in recent years. The country’s GDP for 2009 is estimated to be $183 billion, with the following estimated sector contributions: agriculture 33 percent, industry 29 percent (including the petroleum sector), and services 38 percent. Year-on-year inflation rate of about 12 percent and foreign reserves of $42 billion (down from $64 billion reported same time in 2008).


Over the past several decades the country suffered a long-term decline in agricultural and non-oil industrial capacity which has continued to exacerbate its dependence on imports and compound its food security issues. The country's major import partners at the end of 2008 were China 10.7 percent, United States 8.4 percent, Netherlands 6.2 percent, UK 5.8 percent, France 5.6 percent, Brazil 5.1 percent, and Germany 4.5 percent. The United States accounts for approximately 80 percent of the imports in the oil and gas sector. The statistics for 2009 were not available at the time of compiling this guide, but much difference is not expected in the market share distribution and import statistics.


Interest rates remain very high (ranging from 20 percent to 35 percent) despite government efforts to lower them. A “Wholesale Dutch Auction System” for foreign exchange trading was introduced in 2006, which has helped slow reserve losses while allowing the exchange rate to be more market determined.


While the official exchange rate of the Naira to the dollar is about 150, the rate at the parallel market (black market) swings between 152-155 depending on location and demand.


Market Challenges

High costs associated with inadequate power and transportation infrastructure, underperforming or weak government institutions, corruption, safety and security issues, restrictive import regulations, and regional unrest are Nigeria’s most critical market challenges. According to Nigeria’s Minister of the National Planning Commission, to adequately address infrastructure needs, the country would need to invest from 2009 to 2015 over $100 billion in four key sectors: power generation ($18-20 billion), railways ($10 billion), roads ($14 billion), and oil and gas ($60 billion). Considering that the Government of Nigeria (GON) does not have all the resources it needs for development, the GON is willing and ready to collaborate with the private sector under a structured public-private partnership (PPP) model.


Currently, Nigeria generates on average less than 3000 megawatts of electricity for its population of over 150 million people growing at an annual average with estimates ranging from 2 to over 3 percent annually. The World Bank advised Nigeria at the Nigerian Economic Summit in November 2009 to deal decisively with the challenges posed by collapsing infrastructure and the rising demands of consumers in the power sector. About $50 billion is estimated to be needed to build the systems to generate the 20,000 mega watts of estimated current Nigerian consumer demand. Currently, significant portions of that demand shortfall are met by expensive diesel off-grid power production.


Nigeria maintains a list of products that are prohibited to import into Nigeria.


There are no legal barriers preventing entry into business, except the minimum qualifications required by the various professional bodies. However, existing laws and other legislation being considered impose limits on foreign management and content in the petroleum industry. Foreign companies seeking to do business in Nigeria are expected to do so with incorporated companies or otherwise incorporate their subsidiaries locally.


U.S. firms interested in the Nigerian market are strongly advised to seek the assistance of experienced commercial lawyers.


Enforcement of international property rights remains a problem in Nigeria despite official pronouncements, existing copyright laws and enforcement efforts.


Clearance of goods at the ports can be slow, cumbersome and highly bureaucratic. Reports indicate that corruption and congestion are significant issues at the ports. Reportedly, in an attempt to remove or at least minimize corruption as a market barrier, Nigeria’s Economic and Financial Crime Commission (EFCC) began investigations into allegations of corruption in January 2005.


In June, Mr. Lamido Sanusi was appointed Governor of Central Bank of Nigeria to succeed Professor Charles Soludo, whose five-year tenor expired the same month. Since becoming the CBN Governor, Mr. Sanusi has embarked on an aggressive program to strengthen the banking system, expose and address weaknesses in the system and individual banks and provide financial backing where necessary. The CBN has overseen reorganization of several troubled banks, removed management of troubled banks, and taken other steps, at times controversial, to contain problems in the sector and prevent widespread damage to the country’s overall economy.


The state of infrastructure in Nigeria generally is poor. For example, the rail system is outmoded and mostly no longer functional; air transport service within the country is limited to major cities; most roads are in bad condition; and the power supply is erratic. However, telecommunications services have improved with the liberalization of the sector, which brought about the introduction of private mobile and fixed cellular telecom networks. According to the Nigerian Communications Commission (NCC), the estimated total number of phone lines (both mobile and fixed line) in Nigeria at the end of December 2009 was about 70.3 million with a teledensity of 50.24. This is an improvement from the September 2008 figure of 57.07 million lines and a teledensity of 40.77. Industry watchers report that telecommunications services generated over $10 billion in revenue from various services during the year.


Market Opportunities

Despite the global recession, ongoing reorganization and difficulties in Nigeria’s banking sector, and political uncertainties, prospects for U.S. business in Nigeria are promising in the following sectors:

• oil and gas equipment;

• healthcare services and medical equipment;

• electrical power generating equipment;

• computer hardware and software;

• telecommunications equipment and services;

• automobiles, trucks and busses;

• automotive parts and accessories;

• Marine vessels;

• Safety and security equipment;

• Aircraft, services and parts;

• construction and earth moving equipment;

• agricultural products and equipment; and

• franchising.


However, the continuing massive influx of Asian, especially Chinese, suppliers and manufacturers into Nigeria constitutes a major competitive challenge to U.S. interests in some industry sectors such as computer hardware/software, telecommunications equipment, building and construction equipment, and consumer electronics.


It is worth repeating that many genuine business opportunities exist in Nigeria, even if the business climate may seem difficult and certain additional screening steps must be taken with potential business partners. Nigeria has many honest, well-educated and prepared businesspeople eager to form partnerships with U.S. counterparts.


Nigerian and U.S. authorities are working together to combat the country’s well-known fraud industry, but fraud, especially internet, credit card and marketing fraud, remain serious concerns that all U.S. companies must take into consideration and take appropriate steps to protect themselves against. In 2005, a National Cybercrime Coordinating Committee was established under the office of the National Security Advisor at the Presidency to coordinate the activities of several local agencies charged with the responsibility to eliminate or at least help minimize cyber crime. Some U.S. companies are excluding Nigeria from their African commercial strategy based on alarmist, misleading and often incorrect information, and may miss out on commercial opportunities as a consequence.


If U.S. business travelers prepare prudently, a business trip to Nigeria can be an enjoyable and rewarding experience. The U.S. Commercial Service at the U.S. Consulate General in Lagos is the front-line U.S. trade agency in Nigeria. Its professional team, American officers and Nigerian commercial specialists, are ready and willing to support U.S. suppliers and manufacturers interested in this growth market.


Market Entry Strategy

The best way for U.S. manufacturers and suppliers to penetrate the Nigerian market is to combine the benefits of the network services and programs of U.S. Department of Commerce Export Assistance Centers with the extensive knowledge, industry contacts and services of the U.S. Commercial Service at the U.S. Consulate General in Lagos, Nigeria . We encourage seeking the assistance of a USEAC before exploring an opportunity in this market. For establishing a presence in Nigeria, we recommend that U.S. firms use an agent/distributor relationship with a locally registered company.


Many foreign manufacturers and suppliers appoint one or more agents/distributors to accommodate Nigeria’s geographical size and ethnic diversity. In Nigeria’s complicated environment, all relevant terms and conditions of such arrangements must be carefully negotiated.



Read the full market research report

Posted: 10 May 2010, last updated 13 March 2011

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