Risk of Doing Business in Nigeria

risk of doing business in nigeria

Foreign companies looking to enter the Nigerian market might have a few concerns regarding the risk of doing business in Nigeria. However, multinational companies expanding into the Nigerian market should not look at the journey of establishing a business in Nigeria as a daunting and confusing process that contains many potential pitfalls.

 

Outside of learning more about the business culture and etiquette in Nigeria, once you understand the market and how Nigerians perceive you as a foreign entity, then you will be able to mitigate any risk of doing business in Nigeria.

 

Perception of Foreign Companies

How Nigerians perceive employees coming into the country to conduct business on behalf of a foreign entity poses some advantages and disadvantages for said employees. Gaining an understanding of how you will be perceived while operating a business in Nigeria will help you adapt to the environment and make an easier entrance into the Nigerian market.

 

Advantages: Nigerians are typically very nice and respectful towards foreigners. Therefore, since Nigerians like to discuss business matters face-to-face, they are typically even more responsive to foreign professionals if you make an effort to oversee operations in-person. Being physically present in Nigeria to work on business matters indicates that you are serious about building and growing a successful enterprise in Nigeria.

As a manager at a multinational firm, you will be leveraging your industry experience and expertise to grow your business in this market. Also, you most likely have experience working in other countries and have developed a transferable skill set that can be used to build your business in Nigeria.

It is also important to keep in mind that Nigeria is a very import-dependent country, which means people are more willing to partner and do business with a foreign entity that can easily help procure products needed locally.

 

Disadvantages: As someone who is not from Nigeria, you will be entering the market with little knowledge or insight about the market landscape. Also, your professional network might be small or non-existent, which means you are less likely to have a guide in Nigeria who can help you mitigate the professional pitfalls and roadblocks.

Furthermore, you will not fully understand the cultural differences that vary from location to location and business to business in Nigeria initially. This lack of understanding could prevent you from making the professional connections you need to grow your business as a new entrant.

 

Currency Risk

The volatility of Nigerian currency (Naira) poses the greatest risk of doing business in Nigeria. The devaluation of the Naira during the 2016 recession, along with a policy to “peg” the exchange rate by the Central Bank of Nigeria, widened the gap between the official exchange rate and the black market exchange rate. This disparity greatly impacted most Nigerian businesses, particularly those that trade with foreign entities.

 

This disparity between exchange rates poses a huge risk to international businesses in two ways: (1) it affects how you price your goods in the market and (2) it interferes with the payment and repatriation process as funds are transferred out of Nigeria. In April of 2017, the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) Window, which has also been referred to as the “Investors and Exporters FX,” was introduced to stabilize the rate and make it more predictable so that investors and exporters could trade on it.

 

Fully understanding the current risks associated with Nigeria’s fluctuating exchange rates will help you plan ahead and create a plan that will allow your company to bounce back from economic disruptions. To mitigate this risk, keep an eye on commodity prices and global rate fluctuations. When it comes to your business in Nigeria, try to keep an eye on oil prices as well. Since the Nigerian economy is highly dependent on oil exports, you will find that the local currency is directly affected by the changes in global oil prices.

 

Changes in the Law and Expropriation

The risk of doing business in Nigeria is synonymous with what you’ll see in comparable emerging markets across the globe, the country’s laws regarding commerce are more susceptible to change. A lot of times, these laws are changed without adequate consultation from business owners, hence the repercussions are very damaging to businesses and sometimes detrimental. These changes also include the expropriation of investments to avoid compensating foreign businesses. Therefore, you have to evolve into a business that can handle sudden policy changes.

 

In general, however, it is crucial that you make sure that your business is set up in such a way that it adheres to Nigerian business standards and regulations. In order to do this satisfactorily,  you should work to fully understand regulatory risks by seeking legal guidance and working with credible experts that will help you avoid any regulatory pitfalls that could adversely affect your business.

 

Security and Political Risk of Doing Business in Nigeria

Nigeria, just like any other emerging market, could pose some security challenges for you and your team. Terrorist activity in the Northeastern part of Nigeria does impose a certain amount of risk when it comes to doing that region, as terrorist groups threaten the lives and well-being of citizens who live in close proximity to that region. Although you can be isolated from these risks by staying away from these troubled areas, make sure you find the appropriate security protocol if you or your team members have to be deployed to these areas.

 

The political risk of doing business in Nigeria is also apparent. Nigeria is a democratic country, with two dominant political parties that have varying priorities. Government agendas, that drastically shift from one administration to the other, could damage local and international enterprises. Therefore, companies looking to conduct large-scale operations in the country should consider taking out insurance to mitigate this risk. Your organization should also pay close attention to election season because doing business during an election cycle could significantly add an amount of uncertainty for your business.

 

Performing a risk assessment is a necessity as you venture into the Nigerian market. You can perform this assessment by surveying comparable businesses about their major security challenges and how they work to overcome them.

 

Setting up your business in Lagos is also a good initial point of entry into the Nigerian market. As the major commercial hub located in Southwestern Nigeria, it is safe and very business-friendly once you learn how to navigate the local terrain and understand the business culture.

 

Market Risk

Nigeria is a big market, but…

Is it big enough for the product or service that you are offering?

 

Is your target customer base large enough in Nigeria to make building a business there worth your time and effort?

 

These are questions that you have to ask before deciding that the Nigerian market is an ideal location to execute your organization’s international expansion plan.

 

New entrants run the risk of not finding quality business information to guide their expansion plan in the region. Due to the lack of a well-developed data infrastructure for businesses, it will be difficult to find the market information you need for your business. It is also important to note that even if you do locate the necessary information, you will have to continuously monitor the market to keep track of changing trends due to the Nigerian market’s high level of activity. To mitigate these risks try to use these specific tactics to find quality business information in Nigeria.

 

Another market risk of doing business in Nigeria involves working with the wrong business partner. You should avoid working with partners that are not trustworthy, bad at business, or simply unprofessional. Working with such people can ultimately taint your image of business in Nigeria. Aside from understanding the pros and cons of engaging with business partners in Nigeria, make sure you properly vet all business partners before getting into a commercial relationship.

 

Thriving in Nigeria’s Business Environment

Although your perception of Nigeria’s business culture and how you are perceived in return will vary depending on which country you are coming from, it is still necessary for you to know how you will be perceived, as well as the risks involved with doing business in this new environment. Leveraging the strengths of your skill set and bolstering your weaknesses by partnering with trusted professionals can place your business on the path of success in the Nigerian market.

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About The Author

Nifemi Aluko

Connecting global organizations with quality information and insights to help them succeed in the Nigerian market… Passionate about business, technology, and music.

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