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The Real African Dilemma

Posted in Finance Articles, Total Reads: 1682 , Published on November 01, 2014

Many termed MTN’s move to pay $285Mn in 2001 for a mobile licence sold at the auction by the Nigerian government as an insane move. Though the country had rich reserves of oil reserves but at the same time it had been under military rule for close to half a dozen decades or so. It had a deteriorating infrastructure and the business climate was more often than not unstable.

MTN had 10 Mn customers at that moment of the time, a figure which might not have interested many including the investors and shareholders. But within five years MTN raised it’s customer bracket to a whopping 32 Mn, an increase of 29.4 per cent per year spreading over the 5 years period. This change was somewhat credited to their acquiring the pay-tv , a witty step according to the Business pundits.

Image Courtesy: freedigitalphotos.net, Salvatore Vuono

With an increasing population of 2-3 per cent per annum, it won’t be wrong to call Nigeria as a real test for business fraternity, who wish to make it big in Africa. A test that promises rich dividends if passed. Unilever, SABMiller, Procter & Gamble and even Indian telecom company Airtel have been expanding their operations in this Sub-Saharan African country.

But every positive has a negative connected with it too. For instance an outbreak of Ebola , attacks by BOKO HARAM ,crumbling power and transport infrastructure are just a few chilling reminders of the fact that you cannot take conflict out of Africa no matter how hard you try.

According to “Doing Business” survey, out of 189 countries it is ranked 185th for the ease of getting electricity. Power station does not produce enough electricity to meet the growing demands of growing economy.

That’s not it; registering land is a herculean task if you’re in this part of Africa. Lands are too expensive for one’s liking and tussles over titles are common too .Building a shopping mall costs a fortune and the rule of banning the import of cement in order to protect local producer’s interests have added to the woes of construction industry.

Even the retailing sector has taken a hit. No retail company chain has a thorough national presence. Even Lagos which caters to the needs of over 20 Mn people has only two shopping malls that it can call world class.

Supply chains are erratic and inefficient. Companies normally employ a third party carriers variety of languages acts as a barrier too in distributing the finished products. Consumer businesses have to keep plenty of reserves in warehouses and go downs to counter this problem. Lux a unilever product keeps stock of about three months in its storage warehouses.

All these problems along with the falling prices of final products have only added to the woes. For instance UAC foods has kept the price of its sausage rolls constant since 2006 which is quite rare considering the rate of inflation of 12.38 per cent to be exact(as I write this article).

So at the end of the day three lessons emerge for outsiders trying to enter the Nigerian market. First would be to choose your partner carefully. If the partner turns out to be inefficient or disloyal, then even the best of business plans can fail. For example Nando’s chose UAC Restaurants to run its franchise even though it already owned M. Briggs, a rival to Nando’s.

Secondly, this very assumption that the business model working elsewhere would work in Nigeria too would be wrong. A renowned clothing firm was shut down due to humongous rents and inefficiency in supply chain. Besides this the company failed to adhere to changing environment as in Nigeria it was hot throughout the year and that cloth retailing chain had 70 per cent turnover via winter clothing.

Thirdly, you cannot remote control your business sitting elsewhere. Therefore it’s a prerequisite to have a local manager to handle all your operations.

However there is light at the end of the tunnel as e-commerce business is growing at a rapid pace. Nigeria’s internet users would overtake American users by 2045. So if above mentioned risks are weighted against the opportunities in growth this densely populated African country offers are immense.

This article has been authored by Abhishek Kaushal from UBS Chandigarh


• http://en.wikipedia.org/wiki/Africa

• http://www.factmonster.com/country/nigeria.html

• www.economist.com

• http://www.doingbusiness.org

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