mining emergy market knowledge - nigeria - chinedu obeleagu 2009

7/30/2019 MINING Emergy Market Knowledge - Nigeria - Chinedu Obeleagu 2009

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TappingNigerias

Market

Ezedinachi Chinedu Obeleagu

Kennys Consult Limited50 Zik Avenue Uwani Enugu

P.O. Box 9548 Postcode 400009

[email protected]

234-8052804543


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Nigeria, officially the Federal Republic of Nigeria, is a country

in West Africa and the most populous country on the African continent withan estimated population size of 140,003,542 million people made up of

71,709,859 Men, and 68,293,083 Women; and growing at an average

annual rate of 3.2%1. According to the United Nations population

estimate, Nigeria is the ninth most populous country in the world, and

even conservative estimates conclude that more than 20% of the world's

black population lives in Nigeria.

Nigeria, thus far known for its oil and gas deposits, is richly endowed with agricultural resources and a whole

range of 34 solid minerals including precious metals, base metals, rare stones and minerals but unfortunately,

the mining industry in Nigeria is almost non-existent. Statistically, the level of exploitation of these minerals is

very low in relation to the extent of deposits found in the country. Uranium, bitumen, limestone, coal(Nigeria

has proven deposits of over 1.5 billion tons, after only partial exploration), tin, Columbite, silver, lead-zinc,gypsum, glass sands, clays, asbestos, graphite, iron ore, gold, Bentonite and Baryte and tantalite among others

are some of the solid minerals available in Nigeria.

Nigerias political environment is stable and In spite of the falling crude oil prices across the globe, what we

see in Nigeria is a slow down from around five per cent to three per cent growth as in other African countries.

There is a likelihood of a slow down to 2.5 per cent in 2010 says Jorg Decresion an IMF official2 speaking on

the sidelines of the 2009 Spring meetings of the World Bank and the IMF. Continuing he said, Nigeria has put

in place sound fiscal policies to keep the economy on a path of growth.

Nigeria, which accounts for 47%3 of West Africas population is certainly not a bad location for investments at

all. Nearly all of the country's neighbours such as Republic of Benin, Togo, Niger, Ivory Coast, Cameroun etc.

depend on her for their economic needs. This suggests that once you are able to penetrate Nigerias market

(the second largest economy in Sub Sahara Africa and accounts for 41% of the regions GDP) you have also

accessed the entire West African sub-regional market. Companies operating in Nigeria are also availed of

several other advantages including very low labour cost, large domestic market; abundant raw materials;

speed, responsiveness and supply of skilled/ unskilled workforce.

However, in order to take advantage of these opportunities, there are critical elements that need consideration

for guaranteed success in Nigeria.

1. Foreign companies should build trust by having strong relationships with the government and the people.Politics can affect a firm in many ways: it can determine who owns it, how big it can grow what it can

produce profitably, how it raises capital.and how authority is distributed inside the firm. Embracing

Nigerians therefore, by generating opportunities for their advancement throughout their global

organization through innovative training programs, performance based compensation and personalized

benefit packages, will help reduce any notion that the company is only there to take advantage of the

opportunities available in Nigeria.

1 Census report carried out between 21st and 27 March 2006 by the Nigeria Population Commission and published in Lagos on 19

January 2007 by Federal Republic of Nigeria as Official Gazette No. 4 Vol. 94.

2 Meltdown: Nigeria Has Sound Fiscal Policies, Says IMF Newspaper 04.23.2009

3 World Bank Country Brief Last updated March 2008, The World Bank Group 2008.

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2. By localizing at every level thereby making sure local acquisitions have a strong business fit. Researchesdone by several leading consultancy firms have shown that, multinationals often make the mistake of

counting on expatriates to guide their entry into emerging markets. Granted that companies have a clearly

defined set of goals, the compelling need to have their feet on the street cannot be overemphasized. Sothink global, but hire local. Localize, be more Nigerian that the Nigerian Companies. Homegrown

companies have several incumbent advantages including consumer loyalty, lower costs, and sympathetic

government regulators so a strategic acquisition can accelerate a multinational's entry into Nigerias

market by adding popular local brands to its product lineup, strengthening its distribution network, and

lowering operating costs. Moreover,empowering local teams fosters loyalty and ensures a local talent

pool to tap. Acquiring, buying into or forming alliances with established companies in Nigeria will

accelerate the penetration of the Nigerian Market in view of the fact that they will now also benefit from

the marketing and distribution capabilities of the Nigerian company4. For example:

a. Heineken International having localized its operations in Nigeria through its local company NigeriaBreweries Plc has been posting good returns. Nigeria Breweries Plc declared a total of N18.1billion as

Profit before Tax (PBT) for the half year ended 30 June 2008 representing a 43% increase over the

N12.6 billion, which it declared as PBT for the same period in 2007. The companys un-audited and

provisional result for the half year released also shows that it made a turnover of N68.1 billion,

representing a 31% increase over the N51.9 billion achieved for the corresponding period of 2007. Its

share price has remained strong at N50.30 (trading 3,834,708 shares valued at N 191,775,431.69

in 133 deals as at 25-05-2009) even in this perilous time, as against its value of N 45.00 last June

(see www. nigerianstockexchange.com).

b. Atlas Copco, the Swedish maker of compressors, generators, construction and mining equipment, inApril 2009 announced the opening of its first customer centre in Nigeria.

The new centre, Atlas Copco CMT & CT Nigeria Ltd, is to market products such as drill rigs, portable

and stationary compressors, and consumables for the construction and mining industry. "Nigeria is a

potentially very large market for Atlas Copco, with its growing construction segment among other

industries,"said Bjoern Rosengren, Business Area President at the company's construction and mining

technique division. We will now be able to fully serve our Nigerian customers and extend our already

strong presence in the region5.

3. Develop a "good enough" cost mentality and establish a market position. Feeding the good-enough marketrequires that companies develop innovative approach taking advantage of local suppliers packaging and

distribution networks. However, most Companies erroneously believe there is no need for high quality

products for markets like Nigeria hence some manufacturers or service providers prefer shipping sub

standard products thereby excluding products and services that are innovative or of high technology from

the Nigerian market. Unfortunately, the recent blacklisting of several pharmaceutical companies in India

and China by the National Food and Drug Administration and Control (NAFDAC) for producing sub standard

drugs though with the connivance of some desperate Nigerians has certainly robbed those companies of

the enormous gains they would have made and still be making doing business in Nigeria. RememberBusiness has only two functions - marketing and innovation6 and "If you want to serve people with world

class products; and I used the word world class, not luxury. The same standards of quality you and I would

like, and at the same time at affordable prices, the only way to do it is through innovation, says C.K.

4 Euromonitor International's Packaged Food in Nigeria

5News article Atlas Copco Invests in Nigeria http://www.ipaworld.com/index.cfm Date sourced 17 May 2009

6Milan Kundera quotes (Czech Novelist, Playwright and Poet, b.1929)

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Prahalad7. Continuing he says, "I think there has been a reluctance to make a fundamental change in

business models. We try to protect our cost structures and forgo opportunities." Given the nature of

transactions in Nigeria which are mostly cash based, and the low disposable income available to rural

dwellers, companies should ensure their products or services are innovative and affordable by introducingfor example small unit packs which consumers would easily afford. Companies producing leading

consumer brands such as Unilever, makers of (Close up toothpaste, Blue band butter, Omo detergent,

Coast, Nunu, & Olympic Milk); PZ makers of (Morning Fresh, Joy, Imperial & Premier Soaps, Excel &

Nigerian Baby Care Jelly); And Dangote industries, makers of (Ziza milk, Spaghetti, Dansa Juice, Uncle

palm salt) all have small unit packs of their products in the market. Note that Unilever has - three brands

of milk with varying prices and quality specifically targeted at the high, medium and low-income groups in

the society. These products have established a market position and are dominating their various market

segments.

4. Customer behaviour and service is crucial. Nigerians are extremely brand loyal therefore, extensiveamount of sampling, care and consumer education is important when launching a new product into the

market. An excellent package of customer service and after-sales support is a major driver of buyer

patronage in Nigeria therefore foreign companies must be willing to do as much as they can to support

their local representatives to respond positively to customer complaints. By taking time to master local

complexities, multinationals can gain a competitive edge even if it requires fundamental changes to their

product offering.

Nigerians have a strong demand for processed and packaged traditional ethnic food since that means

they can prepare and consume such food more quickly. Hence products that are very convenient and

quick to prepare experience strong demand. The Nigerian consumer reacts positively to foreign brands and

has strong inclination and demand for foreign brands especially products with labels from top designers or

U.S. made products preferably with the U.S. flag printed on them. All sales, promotional or marketing

materials should be in English, which is the official language for transacting business in Nigeria. For

example, Marten Pieters, CEO of Celtel International, while commenting on the acquisition of a controlling

stake of 65% in Vmobile, one of Nigeria's leading mobile telecom operators, for USD1.005 billion, said

This agreement marks Celtel's largest ever acquisition and expansion of Celtel's presence to 15 markets

on the African continent to date. Nigeria is one of Africa's biggest and fastest growing markets and we are

delighted that we can bring our extensive expertise and resources to offer Nigerians the best possible

quality of services8.

5. The availability of alternatives from Asian suppliers, makes pricing a key determinant of success in Nigeriaand a major challenge for business owners. Since 2005, the Nigerian market for United States of America

and European products and services has come under heavy pressure from Asian exporters and investors

who are setting up local presence in Nigeria. Other Asian investors who have not yet localized their

presences in Nigeria are increasing the frequency of their visits, participating in local fairs or hosting

private seminars and workshops. With Nigerias economy fast expanding, albeit from a very low-incomebase, lifting more people out of poverty every day and pushing many into higher income brackets, the sales

of consumer goods such as cars, fashionable clothing, air conditioners, computers, satellite television

decoders, mobile phones, music play stations etc has increased suggesting that the middle class is

growing at a steady pace. Given also the fact that rural markets are growing twice as fast as the urban

markets, it is reasonable to expect that similar demands will continue and by hitting the pricing sweet spot,

7 Prahalad -- author of the book "The Fortune at the Bottom of the Pyramid, Eradicating Poverty through Profits"

8Celtel International acquires controlling stake in Vmobile Nigeria

http://www.zain.com/muse/obj/lang.default/portal.view/content/Media%20centre

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businesses can achieve a comfortable lead/market share in their respective segments. For example,

irrespective of the fact that MTN Nigeria, Econet and M-Tel had rolled out their networks with the licensing

of 3 digital mobile operators in January of 2001, Globacom when rolling out in August 2003 changed the

competitive landscape of the industry through its innovative tariffs and products like the per second billingplan which other operators had said was impossible. This drove the nations GSM subscriber base to

3,149,472 lines as against 1,569,050 lines in 2002. Globacom is currently still maintaining its lead in the

sector.

6. By understanding the market and putting updedicated markets capabilities. Understanding thecharacteristics that make the people and the market can help corporations to enter Nigerias market with

success. Kia motors for example in partnership with some banks in Nigeria are currently offering lease

options to customers on their various brands of automobile and are making the sales. Other motor

manufacturing companies operating in Nigeria have incorporated this marketing option pushing up the

demand for brand new vehicles. LG Electronics has opened up sales outlets in major cities cross Nigeria in

order to get closer to the consumers; De United Foods Ind. Ltd makers of Indomie noodles owned and

operated by Chinese entrepreneurs employs over 700 Nigerians in two factories. The company has over

300 distributors, 100,000 retailers throughout Nigeria servicing their over 38 million consumers in the

country. These companies are all undertaking strategic investment in high-profile sponsorships, aimed at

developing strong brand awareness in urban markets in which it operates or rural markets where it plans

to expand.

7. The Nigerian Commercial Law, a derivative of the British Common Law, governs joint venture agreementsand relationships in Nigeria. The federal government of Nigeria is aggressively promoting joint ventures,

particularly in the oil and gas, and maritime industries, information and communications technology

industry, manufacturing and distributive trade. The objective being to encourage knowledge and

technology transfer while improving local content. The number of Nigerians who hold partnership/joint

venture agreements with Chinese firms has increased due to the influx of Chinese firms especially in the

telecommunications, transportation, oil and gas and distribution sectors.

8. Lastly, carrying out due diligence check on prospective partners is important. Please avoid anytransactions from Nigerians that has any or a combination of the following indices

i. Request for secrecy and urgency of the transactionii. Use of colourful certificates, seals, bonds, and other official documentsiii. Official correspondence full of grammatical errors and spelling mistakesiv. Promise of millions of dollars in profit for little investmentv. Having official meetings at eateries, hotels and public places instead of offices.

Direct marketing is not yet a popular concept or method of sales in Nigeria due to the countrys lack ofappropriate infrastructure such as efficient and effective transportation service, logistics and trade-facilitation

services, including delivery and tracking means for secondary and tertiary markets where much of the

populace resides. As a result trading in Nigeria takes place in small corner stores, at massive open markets or

by roadside sellers. The marketing chain of distribution in Nigeria is Manufacturer - Wholesaler (distributor)

Retailer Consumer with distributors playing a major role in the marketing chain.

The estate sector in Nigeria is under developed but gradually gaining grounds. The reason being the

phenomenal rise in population, number and size of our cities in Nigeria over the past few years given rise to

acute shortage of dwelling units resulting in overcrowding, high rents, poor urban living conditions, and low

infrastructure services. The current housing deficit in Nigeria is about 17 million homes. To appreciate

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Nigerias mortgage market, if we take the current population of 140 million Nigerians and the working adult

population of 30%, we have 42 million estimated working adults. Assuming about 45% or 18.9 million of the

working adults qualify for mortgage loans, and assume an average house final selling price at about 2.8 million

Naira ($23,500 USD) for a 2-bedroom flat, suggesting a mortgage market size of about 53 trillion Naira($44billion USD).

It is heart warming to note that His Excellency President Umar YarAdua is reviewing the Land Use Act to make

land transactions easier and available for investors to do business in Nigeria. Nigerian laws allow any company

or non-resident individual(s) to buy land rights for a maximum of 99 years as long as the government

beforehand properly documents the purchase.

Corruption a major endemic and institutional problem for many years in Nigeria is taking the back stage now

and the common held assumption that you cannot successfully do business without offering bribes is wholly

untrue. Millions of Nigerians in the public and private sectors execute their jobs every day without

contemplating soliciting for bribes. Offering bribes is not part of our culture. If anyone indicates, he or she

would like something in return just politely ignore the request or, seek to see the head of the establishment. If

all these fail, report your experience to the independent and corrupt practices commission (ICPChttp://www.icpc.gov) or Economic and Financial Crimes Commission (EFCC http://www.efccnigeria.org) for

prompt action. That many things have gone wrong in the past does not mean nothing should go right.

Remember, Giving bribes or encouraging corruption and fraud can adversely affect how well a company can

operate in a country and inevitably impact on profits. Companies can play their part in tackling these issues by

being transparent in the way they do business - DFID business for development. Nigerians are naturally

friendly people and receptive to visitors. A vast majority of visitors have a safe and crime free experience in

Nigeria. But for those who would want to demonize Africa (particularly Nigeria), they can jump effortlessly from

one contrary position to the other without a ping of conscience; but what we lack in established channels

(norms) of development is more than compensated by our drive for enterprise. Nigeria has many honest

businessmen and women eager to form partnerships with U.S. companies. 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 excellent emerging market opportunities as a consequence. If U.S. business

travellers prepare prudently, a business trip to Nigeria can be an enjoyable and rewarding experience9.

Nigeria has a vibrant and firmly established free press (most of them privately owned) that is not afraid to hold

governments, its officials and politicians accountable. There are no legal barriers preventing entry into any

business sector in Nigeria, except the minimum qualifications required by the various regulatory agencies and

professional bodies. Therefore, foreign companies seeking to do business in Nigeria can incorporate their

subsidiaries locally or partner with local companies.

Some investors and business entrepreneurs might also be concerned with perceived racial prejudice of their

potential foreign clients, customers or business opportunities in Nigeria. Such ambivalence is understandable

but does not reflect in any way the reality on the ground. The answer to your fears lies in your mind. Your fear is

psychological. In itself, it is a catalyst. It could induce a feeling of insecurity on one hand, or apathy occasionedby the inglorious activities of fraudsters on the other.

The fear induced by a feeling of insecurity in Nigeria is vastly exaggerated. The country contrary to popular

opinion is substantially safe and certainly not more dangerous than most African countries including South

Africa for the average business visitor. Incidences of kidnappings occur mainly in the Niger-Delta area where

Nigeria's oil industry is based but unfortunately, one of the poorest regions in Nigeria. While it is little comfort

9 2008 Country Commercial Guide for U.S. Companies: Doing Business in Nigeria. Last paragraph in Market Opportunities section of

Chapter 1: Doing Business in Nigeria.

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that, the vast majority of these kidnapping have ended without the victims being harmed or killed.

kidnappings, in the view of the militants, is the most effective weapon in bringing international awareness to

the region's problems and bringing pressure to bear on the Federal Nigerian Government to ensure a more

equitable deal for the Niger Delta's indigenous population.Whereas the fear induced by apathy occasioned by the inglorious activities of fraudsters, has no tolerance for

constructive engagement of business interaction that could put its conviction to the test. The inglorious

activities of less than 2% of the population are not reflective of our altitude as a people. Nigerian professionals

striving to make a difference in their different spheres of human endeavours abroad are examples of the other

98%. Millions of people all over the world interact and conclude genuine business deals every day by e-mail,

fax etc. with genuine Nigerian businesses. From a mere 4 South African companies operating in Nigeria prior to

1999, there are now within a 10 year period well over 100 South African companies acting as major players in

almost every sector of the Nigerian economy the biggest investment being in the telecommunications sector by

MTN. In 2004 alone, MTN recorded an after-tax profit of over R 2.4 billion in Nigeria. Such profits have ledother South African telecommunications companies to set up shop in Nigeria in a bid to get a piece of the very

lucrative pie. Other companies including Famous Brands, St Elmo's, and Nandos having out-competed

companies from both the European Union and the United States also control almost 50% of the US $ 2.5

billion a year10fast food franchising industry in Nigeria.

As every country has its own style and long established ways of doing business that are a reflection of its

distinct cultural heritage, Nigerians expect to have close relationships with trading partners and so it is

important not to rush or push things. Try to be patient at all times in Nigeria - the more you push, the further

away the decision might become. Business decisions are often put off most times until the last minute as

plans can quickly change. If meetings seem a little informal and non-business focused, do not worry - the more

time spent on relationship building, the better11. Visitors should verify their contacts well before departure from

their countries of origin.

Nigerians are inherently friendly people and entertainment, food, the joys of life etc. are of great importance. If

invited to lunch or dinner by a trusted contact you should accept if invited by anybody you do not know well,

be very wary and if you are entertaining local business people, make sure you do it with style in a very good

restaurant. Your level of hospitality directly correlates to the seriousness of your desire to do business together.

Nigeria has the raw materials needed for your manufacturing requirements and the human potential ready to

be harnessed for profitability. My friends, Whenever you see a successful business, someone once made a

courageous decision12. Nigeria is waiting for you.

10 South Africa's Role in Nigeria and the Nigerian Elections by Shawn Hattingh. http://mrzine.org/ Date accessed 17/05/2009. Shawn

Hattingh works for the International Labour Research and Information Group (ILRIG) in Cape Town

11 Source: World Business Culture, Doing Business in Nigeria

12Peter F. Drucker quotes (American Educator and Writer, b.1909)

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mining emergy market knowledge - nigeria - chinedu obeleagu 2009

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