on of the current renewable energy market entry and opportunities for Finnish small and medium-sized enterprises (SMEs) in the Nigerian economy. The goals is to support growth and accelerate the internationalization of small and medium-sized Finnish renewable energy companies within developing countries and to determine how they can achieve market entry in the renewable energy resource business in Nigeria.
There is great demand for electricity in the country due to its high consumption, and this thesis will study the demand for renewable energy resources in Nigeria, identify the main competitors and discover the best periods for market entry in Nigeria.
A qualitative method of analysis was used in this thesis project, and a questionnaire survey was sent to three energy organizations in Nigeria. These included the International Centre for Energy, Environment & Development; the Energy Commission of Nigeria (ECN); and the Council for Renewable Energy in Nigeria.
The investigation of this thesis project provides information needed to establish renewable energy in rural and urban areas in Nigeria.
The Nigerian government is encouraging energy companies to invest in the country and special energy policies for foreign investors have been organized, such as a tax reduction plan for energy investors, and the relaxing of energy policy. Nigeria is a nation with great potential for renewable energy solutions, such as sunlight which might be productive for solar power solution, and plentiful bio-waste for biomass energy production.
The renewable energy solutions that Nigeria requires most are solar power, hydropower, wind power, and biomass energy power and the best solution for the energy crisis in Nigeria is through the use of solar power solutions. Key words renewable energy, energy situation, load shedding schedule, energy policy, market entry, operating environment. Table of Contents
The Project research was conducted to the CONNECT project of Laurea University of Applied Sciences. The process deals with investigating the current renewable energy market and situations for Finnish SMEs business investors in Nigeria. There is higher demand for electricity in the country due to the high consumption and need for electricity, and this project is the plan to study the demand for renewable energy resources in Nigeria and to find out the main competitors and discover the best periods for market entry in the country via the micro and the macro environmental analysis.
The Nigerian government is wooing energy companies to come and invest in the country. Special energy policy for foreign investors is being organized, such as tax reduction for energy investors in the country, softening all policies related to energy. Nigeria has a lot of renewable energy potential such as sunlight, which might be productive for solar power, and abundance bio-waste for biomass energy production. The renewable energy products that Nigeria requires most are Solar, Hydro, Wind, & Bio-energy. 1. 1 Objectives and Research questions
The objective of the thesis is to contribute to the CONNECT project research by analyzing the discovering operating environment of investment and business in the energy sector of Nigeria, i. e. to know if the Finnish SMEs companies can invest in the country and the possibilities of renewable energy market entry in Nigeria and how to helps the inter-nationalization of the Finnish Small and Medium scale Enterprises (SMEs) to invest in Nigeria. The research questions of the thesis are based on the operating environment of investment and business in the energy sector of Nigeria.
The key research questions are as follows: Is it advisable for the Finnish renewable energy companies invest in Nigeria? What renewable energy sources have a better potential to be a growing and developing investment in Nigeria? 8 1. 2 Methodology The method used in thesis projects is qualitative research method, which can be refers as scientific researches that consist of investigation that collect evidence, produce findings that are undetermined in advance, need answers to a question, producing information’s that are application beyond the immediate areas of study and use a predefined set of procedures to answer the question.
It is also important for information collections to maintain clear boundaries between information they received by the participant and what they ask the participant. Furthermore, questionnaire was carefully prepared and directed to renewable energy NGO’s (International Centre for Energy, Environment & Development and Council for Renewable Energy in Nigeria) and the Nigerian government organization called the Ministry of Energy. The questionnaire was vital for the aims and objectives of the thesis as part of the CONNECT project requirement.
Majority of the questions asked were related to the PESTELS factors. The questionnaire format is related to questions based on suggestions, energy situation and government incentives and support in establishing a company in the Nigerian market. The questionnaires are based on their understanding of the energy situation, the availability of renewable energy resources, the level of energy competition companies in the country, the economic and environmental competitive, which were sent to them, via their email address and there was also a follow up by telephone in other to hastening them for responses.
The investigation of this thesis project provides information needed to establish renewable energy in the rural and urban areas that are in need of energy in the country. Literature reviews is still part of the methodology used in the PESTEL analysis of the project where information are being gathered from different sources, documented, evaluated and presented. 1. 3 Key definition Renewable energy can be refers to as a natural energy at which its energy supply is limited. Renewable energy can never run and can be used again and again.
Renewable energy has been in use for so many years in different ways. An example is how the primordial human used the application of wind for sailing; rather the same wind is now used for electricity generation in the modern era. 9 Some of the renewable energy resources are as follows. Wood, Biomass, Wind, Hydro, Wave, geothermal, tidal and solar. (Clean Energy Ideas, 2012) 1. 4 Structure of the thesis Figure 1 Thesis structure The Introduction and Objectives of the thesis was described in chapter one. In chapter two, PESTEL analysis of Nigeria has been examined.
In chapter three, the energy market situation in general and rates of demand and supply was analyzed. In chapter four, the renewable energy market demand, its vital resources have been concluded. In the chapter five, research method analysis was conducted via interview questions to different organizations related to renewable energy business. 2 The Business Operating environment in Nigeria (PESTEL Analysis) The PESTEL factors consist of the Political, Economic, Social, Technological, Environmental and Legal.
It is a strategic technique that gives useful information for analyzing the environmental tension in a particular environment. For example, in this project, it means to analyze the Nigerian business operating macro environment for renewable energy opportunities. 10 Figure 2: PESTEL analysis Political Factors refers to changes in government impact, its priorities for the Nigerian relationships with other countries which closes or open the market bond between them which includes the forms of government, bureaucracy, international relationship, corruption, public ownership right and many more.
Economy factors refers on how the economics of a particular place can affect business such as changes in wage rate, inflation, Economic stability, employment rate, labor force, division of income. Social Factors refers to changes in trends which include lifestyles, behavior, attitude, business culture, cultural changes, family change, demographics and expectations. Technological factors refers to as the level of technology in Nigeria which will helps with the introduction of renewable energy solution in the country which Includes, electricity, infrastructures and modern communications.
Environmental factors includes geographical sites and locations, climatic changes, natural resources related to renewable energy solutions, level of infrastructures, Public opinion, cost implications and frequency of environmental catastrophe. 11 Legal factors includes the Nigerians rules and regulations related to energy, Ecowas and African union legislations and Nigeria directives 2. 1 Political factors 2. 1. 1 Politics and Administration
Nigeria is a republic nation which operates a Federal system of government, with three different authorities- The Federal, State and the Local government. The division of power is among the three arms of government. The Federal Government consist of the Judiciary which interprets the laws, for examples supreme court, court of appeal and the district court; the executive enforces and carry out the laws, for example federal and the legislature makes the laws for example senate and house of representative.
The state government consist of (36 States including the Federal Capital Territory Abuja) some of the states in the northern Region consist of Kano, Kaduna, Sokoto, Borno, Adamawa, Katsina, Gombe, Zamfara and others can be shown on the map. The western region consists of Lagos, Ogun, Ondo, Osun, Ekiti, Oyo, Kwara etc. The states in the South and East consist of Abia, Bayelsa, Delta, Anambra, Rivers Imo; Enugu (Teach anywhere 2009). Figure 3: Map of Nigeria 12 The Nigeria government consists of 774 local government areas (CIA 2012).
The political terrain is becoming attractive to business in Nigeria since the country became a democratic system in the year 1999. For the past 13 years, Nigeria has been experiencing an uninterrupted democracy and the latest election was held from the month of April to June 2011 which was a democratic form of choosing a representative to the Nigerian government and its various states. Those elected on the federal level are the head of states (The President and Vice President) and legislature system which is (National Assembly). The Nigerian President is elected by the People via election voting system.
The national assembly is a form of two chambers, House of Representatives with 360 seats and the Senate which has 109 seats and all are elected for a four years term each. The political terrain is becoming positive except for the northern region of Nigeria that is experiencing instability due to religions unrest, security operatives are deployed to the region in other to neutralized the situation and the government have begun in negotiating with the religious crisis cabals (BOKO HARAM) in the northern region in other to address the annoyance of the group which will improve the business day to day in the region.
The southern region of Nigeria is very suitable for businesses day to day which control the economy power of the country. 2. 1. 2 Government Policy The government policy in Nigeria varies in different situations, for example changes in government regime every four years. According to the Industry analysis in Nigeria, government policies usually have a great impact. For example, starting a form of business in Nigeria from Finland or any country, once the government opens their interest to anything that is
related to yours business, you will have to change your business model or your company competitive advantage will be declining in no time. So you will need to understand the government structure, find and work along with a politician’s parties, individuals, politicians, public consultant and Lobbying decision makers in government that can represent your company interest. 13 2. 1. 3 Central and Local Government Arrangements
The central and Local government system of doing business in Nigeria is arranged in a way whereby for a company start business in a state region, they have to inform the local government of the state and do the necessary steps, and the local government will inform the central government which is the state government about the registration and investment of the new company in the state. 2. 1. 4 Bureaucracy
Bureaucracy is one of the problems being faced in Nigeria, over the last decade the bureaucracy acts is declining and despite the continuous act of bureaucracy and corruption the international business community drastically sees Nigeria as a central blueprint of a vast African market that remains the least under-developed commercials market in the world and the current government administrations decided to focused on developing the non-oil economy and controlling red tape and corruption acts which give foreign companies assurance that potential can be turn into a reality.
(Trade Investment Nigeria 2010) Figure 4: Taxing Task Source:Doing Business 2011 World Bank 14 2. 1. 5 International Relations Nigeria is the leading country and the largest economy in West Africa with its natural land human resources. It also has the potential to become the region powerhouse for economy growth. Nigeria is the largest population in Africa 170 Million is one of the founders of the Africa Union (AU) which was formerly called Organization of Africa Unity created in the year 2002.
(CIA Fact 2012) It is the engine of West Africa with the creation of the (ECOWAS) Economic Community of West Africa State in the year 1975; Nigeria has taken the responsibility of the conflict solution in many West African civil wars for examples, Liberia, Sierra Leone, Sudan, Sao Tome, and Ivory Coast. It has become an important country for international conference centers in the recent years hosted by a number of large international conferences like AU, Commonwealth Summits and the ECOWAS summit which is usually located in Lagos and Abuja. Nigeria joined the United Nation in the year 1970.
Nigeria is an important country to the European Union politically and economically. Nigeria plays a major role in exporting petroleum and agricultural products to the European countries. Nigeria also plays a major role in importing European Products. (Ambassador Ollikainen 2000) Nigeria became a member of the United Nation (UN) Security Council on 1966 – 1967, 1978 – 1979, 1994 – 1995, and 2010 –2011, Nigeria also has a diplomatic relationship with more than 150 Countries, and it is among other member of some non-regional agencies like ILO, WHO, FAO, G-15, G-57, G-24. 2. 1. 6 Corruption
According to Corruption Perception index (CPI) report which stated that corruption in Nigeria shows to have slightly improved but is still the main problem of the country growth and development which discourages investment outside the oil sector. Corruption had been one of the key issues in Nigeria, which declined growths and developments in all sectors “in the Nigerian economy”, for examples, Fraud, Bribery, Lobbying for personal interest, nepotism and graft are the key factors that affect the increase in growths and developments of the country. 15 Since the introduction of Economic and Financial Crimes commission in the
year 2004, by the former President Olusegun Obasanjo, many corrupt individuals have been arrested and jailed after being found guilty and the crime agencies are vibrantly working in tacking the corrupt acts in the country. According to Corruption index 2011 from Transparency International, Nigeria has been removed from the top 20 most corrupt country in the whole world, due to her government fight for corruption. l Table 1: Corruption Perception Index Source: Transparency International/UnAid 2. 1. 7 Public ownership In Nigeria, there are no restrictions of public ownership of local companies and businesses.
Foreign investment is actively allowed both in private and public sectors in the Nigerian economy. Nigerian economy has a free-based market environment, with some areas being control by the state. According to the World Bank, “Nigeria is among the most open countries to foreign ownership in the Sub-Saharan Africa region. All the industry sectors are 100 percent open to foreign capital participation. Banking industry is the only exception, in which 40% is the maximum share allowed to be acquired by foreign investors in any of the existing Nigerian bank” (World Bank 2012)
16 2. 1. 8 Environmental policy In the 1999 constitution of the Nigerian government policy on environmental, its state to improve, empowered and protect the environment, safeguard the forest and wildlife, water and the air and land of Nigeria. They also state that the private and public sector in the Country economy will not authorize project activities without considering the effect of their plan in the environment. States and local government also set their own environmental rules and regulations for the protection and development within their state.
Investors must make an agreement with the three government bodies (federal, state and local government) before any freedom of energy activities or operation can begins at any targeted region. There are laws and regulations enforcement bodies that planned to safeguard the environment by the federal government of Nigeria. (Aluko & Oyebode, 2007) 2. 1. 9 Taxation policy According to the English Webster dictionary, it defines ‘Tax’ as a Charge imposed by the government authority to individuals, property and transaction to generate fund for public uses.
Paying tax in Nigeria is imposed mainly on groups and not individuals. In Nigeria taxation rate is minimal and Oil Company’s tax varies. The tax policy in Nigeria has been ineffective for years. It added to the reduction of the economy growth due to its administrative burden, Compliance Burden, lack of equality and poor taxation zeal from the government. These challenges make difficult to know the amount Company’s pay in taxes and how the tax payment is prepared.
According to NTP, An introduction of a new tax policy in Nigeria by the National Tax Policy (NTP) was set to provide firms that will focus on tax policy and improve it efficiency by introducing rules and regulations for paying tax in the country which will enhance a friendly environment for doing business in Nigeria. FIRS (Federal Inland Revenue Service) were the new body that is being introduced to develop and enhance the taxation policy in Nigeria, where policy will be followed with tax compliance requirements that will be needed to comply by all companies before the approval of investment in the country.
This new taxation policy provides a new tax system operation by recognizing the responsibility, obligations and roles of all stakeholders in Nigeria tax system. This new system that is being introduced will reduce any difficulties of tax payment in Nigeria for local and international investors. It will also reduce the level of corruption in the tax system. Nigeria Econo17 mies ranking on the ease of tax payment is at 138 out of 183 which are still behind countries like Ghana and South Africa.
According to the Leadership Newspaper on the 11th of May, 2012, at the chartered Institute of Taxation of Nigeria (CITN) 14th Annual Tax in conference in Abuja with the theme called ‘Taxation as a Tool for Economic Transformation. The Nigerian president Good luck Jonathan the government has strategies to diverse the country sources of revenue by strengthens the tax policy. He also stated that strengthen of tax policy in the country will reduce or even eradicate the Nigerian dependency on oil revenues to weaken the tax policy for the past decade.
He also said production activities in other sector will be encouraged by changing the situation. According to Doing Business (2012,70), An average of 35 tax payment per year with 938 hours of filing per year and preparation; and payment of taxes is a total of 22. 3% profits in Nigeria. INDICATOR DB 2006 DB 2007 DB 2008 DB 2009 DB 2010 DB 2011 DB 2012 RANKING n/a n/a n/a n/a n/a 109 138 PAYMENT (Number per year) 35 35 35 35 35 35 35 TIME (Hours per year) 1,120 1,120 1,120 938 938 938 938 Total tax rate (% of profit) 31. 5 32. 2 32. 2 32. 2 32.
2 32. 2 32. 7 Table 2: Doing Business, Nigeria) the ease of paying taxes in Nigeria over time The Diagram below shows the rank of Nigeria on the ease tax payment compared with other countries in the list from 2006-2012 18 Figure 5: Doing Business database Source: Doing Business database 2. 1. 10 Role of NGOs and community initiatives NGOS and other community initiatives acted a long role in Nigeria communities. NGO is a freelance system. In Nigeria NGOs is always allowed to operate as it is not sponsors by the government but by individuals.
This has made an outstanding impact in different sectors of the entire system for examples Health, Energy and Agriculture. According to the NGO Council order for renewable energy for Nigeria (CREN), they are non-profitable multi-stakeholders associations which develop and promote the substantial use of renewable energy technology in Nigeria. They cooperate with stakeholder in discuss the challenges of availability, cost, awareness and appropriate implementation in Nigeria. They create foster emergency available for economic value via, renewable energy system for public awareness.
There are also many others NGOs are mainly involved in the renewable energy in Nigeria which were sponsored by international NGOs. NGOs play crucial roles in encouraging and helping the Nigerian government by taking actions that have been endorsed by the international community. NGOs have been important factors before, after or during the Nigerian government decision making period. These are lists of Roles of NGOs and Community initiatives in Nigeria. 19 Communication with Formal Private Sector Communications with the State Government A Healthy State-NGO Partnership Foster an enabled environment in the country.
Ingredients of an enabling environmental policy 2. 1. 11 Relationship between Nigeria and Finland The republic of Finland is a Nordic country that is located in the northern part of Europe. it has borders with Norway in the north, Sweden in the west, Estonia in the south across the Gulf between Finland and Russia in the east. Its economic development grows speedily in the last two decades. It’s well balanced and extensive welfare between the east and the west in global politics and economics is the main characteristics of Finland, whose rank the country among the most Competitive, livable and peaceful country in the world.
(Finland Wikipedia 2012) Finland recognized Nigeria on the 7th of October 1960 after Nigeria got independent from the United Kingdom. The diplomatic relationship between Finland and Nigeria started on 18 January 1963. (Ministry of foreign affairs of Finland 2006) In March 2009, former Finnish President Madam Tarja Halonen visited Nigeria with 14 delegations to discuss developing a strong bilateral agreement between the two countries.
After meeting with the Late Nigerian President Umar Yar’Adua, she stated “The subject the interest to both countries is based on environmental issues, and we also want to know what can benefit and exist in both countries and how the technical knowhow will be used to meet the need in other to solve them” (Tarja Halonen 2009) The Late Nigerian President Umar Yar’Adua stated “Finland has developed renewable energy and it excelled in tackling the problems of pollution and environment and these are problems and issues that Nigeria presents it for investment in these areas.
The business and trade relationship between Finland and Nigeria got boosted when the President, His Excellency Dr. Goodluck Jonathan who was the Vice President then; led a Nigerian business delegation on an official state visit to Finland and was followed by the Finnish Minister for Foreign Trade visit to Nigeria in May 2009. (Finpro 2009) The introductions of business trade, partnership, and investment between Finland and Nigeria have been instigated by the Finland–Nigeria chamber of commerce which brings positive business opportunities in both countries.
20 According to Finpro webpage, Active trading begins in the year 2006 between Finland and Nigeria in importing and exporting of products such as paper and plastic products, sound and telecommunication equipment’s, power generating equipment’s, transport equipment, machineries, mineral manufactures and many more. Finland open an official trade Centre (FINPRO) in Abuja, Nigeria in the year 2010 after the Minister for Trade of Finland came to Nigeria for a strong business relationship bond between the countries.
Finpro is a global expert organization that helps in promoting the international recognition of Finnish company’s in other countries. They have representative in Nigeria by name Mr. Olu Raheem who brings the business relationship between Finland and Nigeria into a reality. Nokia and Wartsila are the active companies in the Nigerian market. Nigeria is among the top five African countries in trade partners of Finland, but the trade statistics is very low. 2010 is the lowest year rate of importi
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