Doing Business in Nigeria: Pros and Cons

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Table of Contents

Introduction
Country under Consideration
Analysis of Proposal and Recommendation
References

Introduction

Nigeria is a large country in West Africa that has been greatly influenced by the British colonial reign, as well as political and religious tensions. The country is located on the shore of the Gulf of Guinea and borders four other African Countries: Benin, Cameroon, Niger, and Chad. The country has a total area of 923,768 sq km and a population of 190,632,261, with a population distributed primarily in urban clusters (Central Intelligence Agency [CIA], 2018). The country has a high prevalence of Muslim and Christian people, as well as some people with Indigenous beliefs. The official language of Nigeria is English, although people also speak over 500 additional Indigenous languages (CIA, 2018).

Nigeria is a federal presidential republic, divided into 36 states and one territory. Despite being the largest country in sub-Saharan Africa, Nigeria is ridden with poverty and instability. The Nigerian naira is the official currency in Nigeria, and it equals 0.0028 US dollars as of 31 October 2018. According to the CIA (2018), over half of the countrys population lives in extreme poverty. Some economic development has been achieved through the development of agriculture, telecommunications, and the service industry (CIA, 2018). Even though the countrys economy is reviving after the latest recession and that certain industry areas are experiencing rapid development, expanding an international business to Nigeria would be risky due to poverty and widespread corruption in the region.

Country under Consideration

Friendliness Toward International Businesses

The political landscape of Nigeria is relatively stable, with presidential elections running every four years. There are six main political parties, and currently, the All Progressives Congress is the largest party (CIA, 2018). Religious tensions are evident in some parts of Nigeria, and there are two major active terrorist groups: Boko Haram and ISIS-West Africa (CIA, 2018). There are no legal impediments to foreign ownership of businesses in Nigeria, which opens opportunities for investment.

Nevertheless, scholars confirm that the issue of corruption in Nigeria is prominent. According to Mohammed (2013), corruption in Nigeria was initiated as a result of ethnic inequality but soon spread further, posing challenges to the sustainable development of businesses. This could affect companies with foreign ownership and create ethical concerns. For instance, if bribery is necessary to establish retail points in a desirable location, business owners will face the conflict of supporting corruption versus halting business development.

Despite widespread poverty in Nigeria, its economic environment is favorable for new business ventures. Nigeria is considered to be one of the most fast-growing in West Africa, with a GDP of 510 billion US dollars in 2015 (Doing business in Nigeria, 2016). After the recession in 2016, the countrys economy is recovering. The real GDP growth rate in 2017 was 0.8%, an increase from the previous years value of -1.6% (CIA, 2018).

The high inflation of 16.5% rate contributes to business costs, much like multiple taxations. Nigeria has several types of federal taxes that apply to companies, including Companies Income Tax (CIT), Value Added Tax (VAT), and Capital Gains Tax (CGT). However, there are also over 500 state taxes and levies that apply to businesses (Ihugba, Odii, & Njoku, 2013). Multiple taxations is a negative factor for business, as it increases the costs of operating in Nigeria.

Cultural Issues and Considerations

The main cultural issue to consider when doing business in Nigeria is that the country is home to many ethnicities, religions, and cultures. Indigenous people, Muslims, and Christians all vary in terms of their business culture and traditions. Thus, it is critical to find out more about potential business partners before meeting them. As a general rule, Nigerians do not haste the negotiations as they want to get to know the potential partners and agree on terms that are favorable for all parties (Business etiquette in Nigeria, n.d.). Addressing Nigerians with their full title is also preferable to avoid misunderstanding.

Although punctuality is highly valued, Nigerians tend to be relaxed in their attitude to time and thus can be late to business meetings (Business etiquette in Nigeria, n.d.). With regards to verbal and non-verbal language, Nigerians tend to enter other peoples personal space freely. It is also important to note that the thumbs up should be avoided at all times, as it is considered to be offensive in Nigeria (Business etiquette in Nigeria, n.d.).

Attitudes towards women, education, and work differ a lot depending on peoples cultural backgrounds. For example, Muslim communities are usually patriarchal, and thus Muslim people might not expect to see women in high business positions. Education is generally valued by all business people in the country, but the overall educational attainment level in the country is poor. As mentioned by the CIA (2018), only 59.6% of people aged 15 and over are literate. Education is also an important factor in work attitudes, as most people in Nigeria work in positions that do not require specific qualifications and might expect new businesses to offer similar job opportunities.

Analysis of Proposal and Recommendation

Based on the information above, there are four key benefits of expanding the business to Nigeria. Firstly, there are no legal impediments of governmental regulations that prevent foreign ownership, which is beneficial for international companies willing to explore market opportunities in Nigeria. Secondly, the overall economic development of the country is promising, as Nigeria was able to return to positive GDP growth shortly after the recession.

Thirdly, the political environment in the country is stable, despite tensions among different cultural and religious communities. This means that the governments friendliness toward foreign businesses is likely to continue in the long term, which would have a positive impact on the projects sustainability.

Nonetheless, there are also some important drawbacks of this opportunity with regards to possible costs and profitability. More than half of the countrys population lives in conditions of extreme poverty, which reduces their buying power and thus limits the potential growth of new businesses. Moreover, Nigeria has a complex system of taxation and faces high inflation, which is likely to increase the costs of operating in the country.

Multiple taxations can be a serious issue for large enterprises as it leads to increased tax expenditure and results in lower profits. Another prominent issue that will affect new business development is corruption. This problem will make it more difficult for the business to obtain the required licenses and permits, as well as to receive various services from the Nigerian government. Corruption also creates ethical concerns because refusing to pay bribes might make it more difficult to enter the Nigerian market and achieve profits. Therefore, due to poverty and corruption, as well as increased business costs, the expansion of operations to Nigeria is not recommended.

References

Business etiquette in Nigeria. (n.d.). Web.

Central Intelligence Agency (CIA). (2018). Africa: Nigeria. Web.

Doing business in Nigeria. (2016). Web.

Ihugba, O. A., Odii, A., & Njoku, A. C. (2013). Challenges and prospects of entrepreneurship in Nigeria. Academic Journal of Interdisciplinary Studies, 2(5), 25-36.

Mohammed, U. (2013). Corruption in Nigeria: A challenge to sustainable development in the fourth republic. European Scientific Journal, 9(4), 118-137.

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