Discuss the issues and difficulties for an Australian firm undertaking market research in Nigeria. How would you decide whether to use an Australian based or local research firm?
With the onset of the ever dynamic world, international trade could never have been more different. Growing opportunities give rise to increased challenges. The world is getting smaller by the hour, and more and more accessible markets are ever evolving. At the same time, variables increase in multitude that make this situation ever more complex.
In such a time, any country wishing to formulate trade links within the domains on another country has to make a very thorough analysis. A market evaluation becomes imperative in order to ascertain the best course of actions for both countries in general, and the investor in specific.
A similar condition comes under scrutiny when Australia considers to invest in Nigeria. It is not only about another country, but about another continent, another culture, another geopolitical scenario.
So the economic stance takes somewhat of a back seat unless other important issues are taken care of. Under mentioned is an analysis of the investment scenario in Nigeria vis-à-vis Australia, and what can be the most effective strategy for market research in the former.
Market of Nigeria – An Overview
The Directorate of Foreign Affairs and Trade, Australia, while explaining the country profile with respect to trade describes on its site:
“Over the 45 year period since gaining independence from Britain in 1960, Nigeria experienced many years of civil conflict, political upheaval and a succession of military governments. In May 1999, the democratically elected government of President Olusegun Obasanjo assumed power and was then re-elected for a second term in May 2003. However, ethnic and religious tensions remain and this sometimes leads to outbreaks of sectarian violence. The imposition of Islamic Sharia law in several northern states led to deep divisions within the country.”
This depicts the stance that Australia has about Nigeria. Nothing negative, but factually speaking, when one has to conduct marketing research and ultimately trade in a country, it is very important to consider the political scenario within the country. In light of the same, they further add, “Nigeria’s economic development has been uneven. Despite the country’s relative oil wealth, poverty is widespread. The potential benefits of the oil boom of the 1970s were severely diminished because of corruption and mismanagement and the Nigerian Government is assessed by many as failing to deliver basic services effectively.” (DFAT).
Nigeria is Africa’s most populous country with over 120 million citizens and arguably the most culturally diverse society in the world. The country is basically a mono-cultural economy, which is highly dependent on oil. “The oil and gas sector accounts for over 90% of the country’s foreign exchange earnings. GDP for 2003 was $43 billion with agriculture and the manufacturing sector contributing 34.6% and 38.2% respectively” (BUYUSA). The decline in Nigeria’s agricultural and manufacturing capacities has continued to increase the country’s dependence on imports. Therefore it has become all the more important for Australia to discover new frontiers. “The country’s major import partners as at 2003 were US 15.6%, UK 9.6%, Germany 7.3%, China 7.2%, Italy 4.3%. The United States controls at least 80% of the imports in the oil and gas sector” (BUYUSA).
Like many African states in its proximity, Nigeria has been plagued by turmoil within the country due to many reasons. It feels all the more due to fact that it was Blessed with the ultimate natural resource of oil, yet they could not make much of it as a country. Lack of developed infrastructure, a still poor and inadequate regulations and security issues continue to deter many prospective investors. And Australia needs to keep that in view while considering this undertaking. The bright light at the end of the tunnel is that the country in the recent past has strived for reforms, and continues on the same path. GDP growth is likely to boom due to the oil and gas sector.
The Nigerian Investment Promotion Commission states that, “There are over 2000 industrial establishments in the country. Among these are a giant oil industry, Iron complexes, steel rolling, pharmaceutical industries, food processing, car assembling and the up-coming Export Processing Zone (EPZ).” This helps Australia mark out the major area of activity that is prevalent in the country. In addition to those mentioned before, what is interesting is that Government economic policy favours and places priority on greater investment in agricultural production and manufacturing and exports of production. Human Resource, is by far one of Nigeria’s strong points, in both the skilled and unskilled cadres.
Australia’s Trade with Nigeria
“Since the restoration of democracy in Nigeria, relations between Australia and Nigeria have been warm. Our links are steadily expanding and areas such as trade, capacity building assistance, research and development cooperation and sporting ties will feature during the talks.” (John Howard)
“Nigerian President Olusegun Obasanjo visited Australia in February/March 2002 and agreed with Prime Minister Howard on ways to enhance the relationship in areas such as mining technology, sports training, education and emergency management. Australia established its diplomatic mission in Lagos at independence in 1960, and moved the mission to Abuja in 2003”
Based on Australia’s position in the Commonwealth, Australian relations with Nigeria are active. Further this fact cannot be eluded that Nigeria is an economic and political leader in Africa. As the current Chair in Office of the Commonwealth, Nigeria plays a substantial role in Commonwealth affairs creating opportunities for close participation with Australia in a broad range of Commonwealth issues. Furthermore, Nigeria is a strong economic and political force in Africa and within the African Union and is increasingly active in various international circles where Australia also shares common interests.
NIPC further adds, “Australian exports to Nigeria were over $35 million in 2004-05, primarily in dairy, agricultural products and metal machinery. Imports from Nigeria in 2004-05 were just over $168,000.” While Australian investment in Nigeria is still in the developing phase, some companies are now showing increasing interest in the growing minerals and petroleum resources sectors. “Direct Australian aid to Nigeria in 2003-2004 was $377,000, which included $250,000 from the Africa Governance Facility (AGF) to help implement a national voter education program. This followed previous Australian assistance to support the
Nigerian Electoral Commission’s running of the April 2003 elections” (NIPC).
Market Research in Nigeria
The Federal and State governments in Nigeria have endeavored to play an active facilitating role in the economy by initiating and acting as sizeable stakeholders in a number of core industries. This does not mean nationalization, but actually security of trade and industries. The 1997 Budget announced that all laws that inhibit competition in certain sectors of the Nigerian economy would be repealed, giving a big sigh of relief to the interested parties. Subsequently, with effect from 1998, private sector investors are now free to join or compete with government-owned public utility corporations.
As part of the efforts to provide an enabling environment that is conducive to the growth and development of industries, inflow of foreign direct investment (FDI), shield existing investments from unfair competition, and stimulate the expansion of domestic production capacity; the federal government of Nigeria has developed a package of incentives for various sectors of the economy. These incentives, it is hoped, will help revive the economy, accelerate growth and development and reduce poverty.
Nigerian government accepts the private sector as the engine of growth and the creator of wealth, while the government’s major responsibility is to provide the enabling environment for the private investors to operate. In this regard, laws which had hitherto hindered private sector investments have been either amended or repealed and a national council on privatization has been established to oversee orderly divestment to private operators in vital areas of the economy such as mining, transportation, electricity, telecommunications, petroleum and gas. Nigerian government’s policy of economic deregulation and liberalization has opened up new windows of opportunity to all investors wishing to invest in the country’s economy.
Supportive of the real sector of the economy as well as an exchange rate that is market determined are the object of government policy. The security of life and property of the citizens are being vigorously pursued with the reorganization and strengthening of the Nigerian police force. In addition, the Nigerian investment promotion council has been strengthened to enable it serve as a one-stop office for clearing all the requirements for investment in the country. The tariff structure is being reformed with a view to boosting local production.
NIPC states that, “The Public Enterprises Promotion and Commercialization Act, is being prepared to authorize the partial privatization of government enterprises in the following sectors: Telecommunications, Electricity ( Generation and Distribution), Petroleum Refining, Coal Bitumen Production (mining, Processing and Export), Tourism generation (Tour and Travel, Hospitality, etc).” Within the context of this liberation policy, both foreigners and nationals are to participate and invest in the privatization of the public enterprises.
Within the past few years following the end of military dictatorship in Nigeria, government has progressively introduced a number of incentives designed to promote investments.
Taxation – Fiscal measures have been drawn to provide for deductions and allowances in the determination of taxable income of manufacturing enterprises, including Pioneer status, which is a concession to pioneer companies located in economically disadvantaged areas, providing a tax holiday period of five to seven years. These industries must be considered by the government, to be beneficial to the country’s economy and in the interest of the public. Companies that are involved in local raw material development; local value added; labour intensive processing; export oriented activities; in-plant training; are also qualified for additional concessions.
Tax relief for research and development (r&d) – Up to 120% of expenses on r&d are tax deductible provided that such r&d activities are carried out in Nigeria and are connected with businesses to which allowances are granted. The result of such research could be patented and protected in accordance with internationally accepted industrial property rights.
Local raw materials utilization – 30% tax concession for five years to industries that attain minimum local raw materials utilization as follows:- – agro 80% – agro allied 70% – engineering 65% – chemical 60% – petro-chemical 70%
Labour intensive mode of production – 15% tax concession for five years. The rate is graduated in such a way that an industry employing one thousand persons or more will enjoy 15% tax concession while an industry employing one hundred will enjoy only 6%, while those employing two hundred will enjoy 7%, and so on.
Local value added – 10% tax concession for five years. This applies essentially to engineering industries, while some finished imported products serve as inputs. This is aimed at encouraging local fabrication rather than the mere assembly of completely knocked down parts.
In-plant training – 2% tax concession for five years, of the cost of the facilities for training.
Infrastructure – 20% of the cost of providing basic infrastructures such as roads, water, electricity, where they do not exist, is tax deductible once and for all.
Abolition of excise duty – All excise duties were abolished with effect from the 1st of January, 1999. A 25% import duty rebate was introduced in 1995 to ameliorate the adverse effect of inflation and to ensure increase in capacity utilization in the manufacturing sector. Investors are however, advised to ascertain the current operative figures at the time of making an investment, because these concessions have undergone some amendments in the past few years.
Re-investment allowance – This incentive is given to manufacturing companies that incur capital expenditure for purposes of approved expansion of production capacity; modernization of production facilities; diversification into related products. It is aimed at encouraging reinvestment of profits.
Investment tax allowance – Under this scheme, a company would enjoy generous tax allowance in respect of qualifying capital expenditure incurred within five years from the date of the approval of the project. Dividends derived from manufacturing companies in petro-chemical and liquefied natural gas sub-sector are exempt from tax. Companies with turnover of less than n1 million are taxed at a low rate of 20% for the first five years of operation if they are into manufacturing. Dividend from companies in manufacturing sector with turnover of less than n100 million is tax-free for the first five years of their operation.
Investment guarantees/effective protection – Transferability of funds section 24 of nipc decree provides that a foreign investor in an enterprise shall be guaranteed unconditional transferability of funds through an authorised dealer in freely convertible currency of:
Dividends or profit (net of taxes) attributable to the investment; payments in respect of loan servicing where a foreign loan has been obtained; remittance of proceeds (net of all taxes)and other obligations in the event of a sale or liquidation of the enterprise or any interest attributable to the investment.
Guarantees against expropriation – By the provision of section 25 of the same nipc decree, no enterprise shall be nationalised or expropriated by any government of the federation, unless the acquisition is in the national interest or for public purpose; and no person who owns either wholly or in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other person. Payments of fair and adequate compensation; and
right of access to the courts for the determination of the investor’s interest or right and the amount of compensation to which he is entitled.
Access to land – Any company incorporated in Nigeria is allowed to have access to land rights for the purpose of its activity in any state in the country. It is, however, a requirement that industrial companies comply with regulations on use of land for industrial purposes and with environmental regulations. Land lease is usually for a term of 99 years unless the company stipulates a shorter duration.
Oil & gas sector – The following fiscal incentives have been approved by the government in the gas production phase: Tax rate under petroleum profit tax (ppt) act to be at the same rate as company tax which is currently at 30%; capital allowance at the rate of 20% per annum in the first 4 years, 19% in the 5th year and the remaining 1% in the books; investment tax credit at the current rate of 5%; royalty at the rate of 7% on shore and 5% offshore.
Gas transmission and distribution – Capital allowance as in production phase; tax rate as in production phase; tax holiday under pioneer status.
All investments necessary to separate oil from gas from the reserves into suitable products is considered part of the oil field development; capital investment facilities to deliver associated gas in usable form at utilisation or transfer points will be treated for fiscal purposes as part of the capital investment for oil development; capital allowances, operating expenses and basis for assessment will be subjected to the provisions of the ppt act and the revised memorandum of understanding (mou).
Gas utilisation (downstream operations) – Incentives for encouragement of exploitation and utilisation of associated gas for commercial purpose include: An initial tax free period of three years renewable for an additional two years; 15% investment capital allowance which shall not reduce the value of the asset; all fiscal incentives under the gas utilisation down-stream operations in 1997 are to be extended to industrial projects that use gas in power plants, gas to liquid plants, fertilizer plants and gas distribution/transmission plants; the initial tax holiday is to extend from three to five years; gas is transferred at 0% ppt and 0% royalty; investment capital allowance is increased from 5% to 15%; interest on loans for gas projects is to be tax deductible provided that prior approval was obtained from the federal ministry of finance before taking the loan; all dividends distributed during the tax holiday shall not be taxed.
3 to 5 years tax holiday – deferred royalty payments depending on the magnitude of the investment and strategic nature of the project; possible capitalization of expenditure on exploration and surveys; provision of 100% foreign ownership of mining companies or concerns;
in addition to roll-over relief under the capital gains tax (cgt), companies replacing their plants and machinery are to enjoy a once-and-for-all 95% capital allowance in the first year with 5% retention value until the asset is disposed of, etc.
State governments are prepared to facilitate acquisition of land through the issuance of certificate of occupancy for the purpose of tourism development; 25% of income derived from tourists by hotels in convertible currencies are tax-exempt provided such income is put in a reserve fund to be utilized within 5 years for expansion or the construction of new hotels, conference centres, etc that are useful for tourism development.
Further, the Nigerian Investment Promotion Council has been strengthened to enable it serve as a one-stop office for clearing all the requirements for investment in the country, and subsequently facilitate the new investor. The tariff structure is being reformed with a view to boosting local production. The Government has introduced a new visa policy to enable genuine foreign investors to procure entry visa to Nigeria within 48 hours of submission of required documentation for the respective visit. This is a very positive step forward. Existing “expatriate quota” requirement for foreign nationals working in Nigeria is in the process of being replaced with “work permit” which will be administered by the NIPC.
Challenges for Australia
There are no restrictions to imports except those in the import ban list, which do not form a strong majority. There are also no legal barriers preventing entry into business, except the minimum qualifications required by the professional bodies; this inturn is a step to curb corruption. Foreign companies seeking to do business in Nigeria are expected to do so with incorporated companies or otherwise incorporate their subsidiaries locally inorder maintain a thread with the mainstream if trade in the country. Australian firms interested in the Nigerian market are generally advised to seek the assistance of experienced commercial lawyers. This factor is worth the ponder. If an external agency is to operate in an alien land, the legal information is a must. This forms a fundamental beginning for the market research process.
Enforcement of international property rights remains a problem in Nigeria despite official pronouncements and existing copyright laws, so it is all the more necessary to seek legal guidance before coming to the country and not feel complacent or ignorant. Clearance of goods at the ports can be slow, cumbersome and highly bureaucratic as a result of the corrupt trends of officials.
This reaffirms the notion that someone local should be on the side of the foreign investor. Infrastructure in Nigeria is poor, laws are inconsistent, and corruption is pervasive all the way. The rail system is outmoded, air transport service within the country is still limited to major cities, most roads are in bad condition and power supply is erratic. However, telecommunications has improved with the liberalization of the sector which engendered the introduction of the Global System for Mobile Telecommunications (GSM) and other private telecom networks, which is a positive sign.
Prospects for Australian business in Nigeria are especially promising in the following sectors: oil & gas equipment, electrical power generating equipment, computer hardware/software, telecommunications equipment, automobiles, parts and accessories, construction and earth moving equipment and agricultural products and equipment. Australian businesses should be aware that many genuine opportunities exist in Nigeria, even if the atmosphere does still seem difficult and certain extra screening steps must be taken. Most Nigerians are positively disposed toward Australia and have a strong affinity for foreign products. Nigeria has many honest businessmen and women eager to form partnerships with Australian counterparts.
Which Research Firm to Choose?
Naijanvest believes that the major areas to be considered while planning to invest in another country include:
1. “Brief Description of Business.
2. The Company (Background and business experience).
3. The Market (Customers, Market size, Market trend, Competition, Estimated Market share, Sales projection, sales plan, distribution, transportation, Tariffs, quotas etc.).
4. Detailed description of Business (Production Process, Site/land ownership, production facilities, Utilities and infrastructure, raw material, Manpower, Production forecasts, Development programme).
5. Management(Board of Directors, Management, Management structure and experience)
Cost( Estimated project cost, working capital)
6. Finance(Financial Plan, Investors, Cash flow statement, Balance sheet, Income statement).”
These issues are imperative to be considered, as any country that wants to invest elsewhere, must undergo this process. As is evident, it cannot be accomplished without help and expertise from the localites.
As concerns Nigeria, the four most crucial Industrial Sectors that are considered priority areas of development because of their linkage effects on the other sectors and potential catalytic role in the overall growth of the industrial sectors are very important to be considered. NIPC further adds, “These priority areas which are most favoured in the administration of government industrial incentives are:
a) Metallurgical/Engineering Industries
b) Agriculture (Forest-based and agro-allied activities)
c) Chemical/Petrochemical Sector
d) Construction Sector
“Specifically the industrial projects desired from these sectors include: Foundries and Forges, Metal Fabrication/Machine Tools, Pharmaceuticals, Rubber and Plastic, Leather and Leather products, Textiles and Weaving apparels, Cement, Other non-metallic material building materials, bricks, ceramic glass, Food Processing, Sugar, Confectioneries and Beverages, Cereal and Grain Milling, Fruits, Vegetables, Vegetable Oils, Oil Seeds, Roots and Tubers.
“In addition to the twelve identified priority areas mentioned above, investors are encouraged to also participate wholly or jointly with Nigerians in the following specific projects:
Gemstones cutting and polishing; Gold processing; Mini-sugar production plants; Multi-mineral plant for gypsum, talc, kaolin, marble/dolornite, baryte etc; Cement production (700- 1000 metric tonne per day), Lead and zinc project, Processing of salt from sea water; Sodium trisphosphate production, Small medium scale plant for sheet metal reduction, Mining of industrial minerals; bitumen etc; Stone cutting/polishing; Fabrication of spare parts; Exploitation of coal with known reserve of 293 140 000 tonnes in Enugu, Kogi and Adamawa States timber/wood processing.”
Keeping all this in view, it only seems rational and pragmatic to rely as much as possible on Nigerian market researchers. The fact of the matter remains, that it is not a country with an ideal infrastrusture of communication and regulations. Therefore, the theoretical marketing research that a book of marketing may teach, may not be wholy applicable upon Nigeria. The importance of local knowledge in this instance cannot be over emphasised.
This does not necessarily mean that Australians should depend entirely upon the data provided by the localites. A country wanting foreign investment and with a history of corruption should be invested into cautiously. Therefore, the best method would be to establish a local experts team in the area of trade required. To the same team, respective Australian representatives and specialists of the investors should be added. These will not only monitor the proceedings, but will act as quality control officers who shall consider the interest of the investor at all times while refraining to compromise upon the scientific research ethics within the country. Conversely, any data obtained solely by Australian researchers based in Australia will not suffice at all. It would represent data that would be devoid of all the necessary cultural and local input.
Therefore, for establishing a presence in Nigeria, it is recommended that Australian firms use an agent/distributor relationship with a locally registered company. Many foreign manufacturers and suppliers appoint one or more agents/distributors to accommodate Nigeria’s geographical size and ethnic complexities. In Nigeria’s complicated environment, all relevant terms and conditions of such arrangements must be carefully negotiated.
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Cite this Market of Nigeria
Market of Nigeria. (2017, Mar 30). Retrieved from https://graduateway.com/market-of-nigeria/