Understanding The Business Environment in Nigeria To Fuel Business Expansion Success

Lagos Skyline View of Nigeria's Business Environment

Every market has its own peculiarities – something that makes the business environment unique from every other market. It could be the regulatory landscape, the infrastructure, the Governance, the business culture. Well, in this regard, Nigeria is no different. The Nigerian market also has its own unique ‘Nigerian-ness’ about it.

For organizations trying to build solid businesses in Nigeria, it is important to understand the business environment in Nigeria. Understanding how similar or different it is from other markets that you are familiar with will help you quickly ramp up your business activities in the region.

Here are some things to know about Nigeria’s business environment that will help you properly navigate the business landscape and build a unique business model that fits Africa’s largest economy.

Size and cultural complexity

Nigeria is the most populous country in Africa and one of the most diverse countries in the world. It is home to 190 million inhabitants and houses over 250 ethnic groups, each with their indigenous language.

This cultural complexity might sound daunting to someone new to Nigeria, but for anyone doing business in Nigeria, it can be easily navigated with the proper guidance. For starters, English is widely spoken across the country as the official language. Most of the correspondence for businesses and at organizations will most likely happen in English.

Regional breakdown of the business environment

Now that you know you can easily communicate with business people in Nigeria, your next question in navigating the business environment might be – so where exactly do we go first to conduct business in such as large and diverse country?

The answer to that is dependent on the type of business you are in. Typically, you’d want to start in the major hubs and cities – Lagos, Kano, Port Harcourt, Abuja, Kaduna, or Ibadan. You can then leverage your presence in one of these hubs to build your business and expand into the surrounding areas.

A good point of entry is usually Lagos. Lagos is the commercial hub of Nigeria located in the southwest of the country along the Atlantic coast. With a population of 22 million inhabitants and the largest port in the country – Lagos accounts close to 16% of Nigeria’s 36-State GDP. Lagos’ economic contribution makes it the 7th largest economy in Africa.

By having a regional focus, you can strategically approach the business environment in Nigeria in smaller, focused, and less overwhelming steps.

Political landscape

It is worth mentioning that governance in Nigeria follows a democratic process. Since 1999, when Nigeria returned to a democratic state after years of military rule ], Nigerians have peacefully gone to the polls to elect their leaders every four years.

During the months leading up to each election, it is good to note that business decision-making generally slows down in Nigeria’s business environment. The uncertainty around election season causes businesses, in general, to take a more cautious role as they wait for the outcome of the elections before finalizing plans for the rest of the year.

Keep this in mind, as you plan your business expansion during an election year. This is also particularly important if your business’ target base is in the public sector.

Currency – a risk in this business environment

The Nigerian market is heavily dependent on imports. If a Nigerian business is product-based, there is a good chance that somewhere along the value chain some product or intermediary had been imported to produce the final product.

Hence, Nigerian businesses are at risk of global currency fluctuation. The Naria, Nigeria’s currency, is highly influenced by Nigeria’s main source of revenue – exported crude oil. As the 8th largest supplier of crude oil in the world, 83% of Nigeria’s revenue comes from this one product – and petroleum prices are highly influenced by global factors.

As a business looking to succeed in Nigeria’s business environment, keep an eye on Nigeria’s currency fluctuation and have a sense of global oil prices, along with the inter-country management of national revenue that influence this fluctuation.

Infrastructural issues & power outages

There are certain factors that could easily make business more challenging for you in Nigeria’s business environment. Below is a short list of the major challenges of business in Nigeria:

  • Limited pool of talent: There is a mismatch between the skills acquired by prospective employees in Nigeria’s educational system and skills required by employers. This makes it quite challenging to find the talent an organization needs to scale its business.
  • Poor infrastructure: Frequent power outages and bad roads are a major hindrance to business productivity in Nigeria.
  • Ever-evolving regulatory landscape: The constantly changing legal and regulatory framework that governs business in Nigeria makes it difficult for some businesses to keep up. With multiple agencies and sometimes unclear guidelines, the lead time to full operation can be significantly increased.
  • Limited access to financing: High-interest rates on business loans (as high as 25%) limit the amount of capital local business have access to. This hinders business growth.

Market segmentation

The Nigerian business environment is very segmented. There are only a few industries that have a good amount of consolidation, i.e. an industry that has a well-built ecosystem that supports itself.

Although consolidating fragmented markets does present a lot of opportunity for entrepreneurs and business builders, this market fragmentation presents an initial challenge of building a profitable business in a market where the large market players are few and far apart.

Another clear fragment in the market is along the quality-price spectrum of goods. The average Nigerian consumer is very price-sensitive – typically bargaining to find the most value for the lowest price. To succeed, you have to be very clear on whether your business is catering to customers in the premium end of the market or catering to the mass market that’s extremely price sensitive.

With a stagnant middle class, due to the 2016/17 economic recession, it has become increasingly hard to find consumers that are in the middle of that quality-price frontier. So the best approach is to be clear what side of the spectrum you would be playing in.

Your professional network matters a lot

This is not so unique to Nigeria’s business environment, but having a strong network holds a lot of weight as the business culture is still distrusting. A good referral from your network will do a huge job of getting you into the door, as the barrier to building trust is significantly reduced by going through your network.

Having a good professional network become particularly important when you are selling through Business-to-business (B2B) marketing in Nigeria. Securing meetings with decision makers that approve budgets for your products or services, is easier when you are introduced by a fellow colleague. Having good business contacts also goes a long way when you are gathering market information and navigating the regulatory landscape for your business.

Marketing channels (Informal vs. Formal vs. Online):

The marketing channels that you decide to focus on will also be key in determining your success in Nigeria’s business environment. It should not come as much of a surprise that most of the purchases made (close to 85%) in Nigeria are still done in traditional (informal) markets – open markets, street kiosks, and vendors.

If you have a product that needs to get into the hands of consumers that frequent these markets, then you need to set up your sales and distribution channels with wholesalers and retailers in these markets.

Other channels include formal markets such as supermarkets, malls, and neighborhood stores. Both markets should be kept in mind, along with the small but growing online marketplaces, as you find the markets and distribution channels that match how you want to position your business.

Understanding Nigeria’s unique business environment

Nigeria is Africa’s largest market and most populous country. The challenges in its business environment, in general, are quite similar to challenges that you’d experience in other African countries.

That being said, it is important to familiarize with the size, cultural complexity, and its unique challenges. These factors in Nigeria’s business environment will help you get prepared for what to expect and how best to navigate your way to business success in the country.

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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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