The number of businesses created in Nigeria has increased year by year despite the challenges faced by citizens of the country. According to pwc.com, SMEs in Nigeria contribute to about 48% of the national GDP. 96% of businesses in the country are SMEs and are responsible for 84% of employment.
Recently we have seen SMEs in Nigeria turn to Unicorns despite facing those challenges. Despite some unique challenges, business owners in Nigeria still find ways to thrive. If you are an Expats coming to Nigeria to invest, then there are a few things you need to know. This article will analyze the ease of doing business in Nigeria and list factors affecting it.
The short answer to this query is that Nigeria is one of the top investment destination in Africa if you are into sales of consumer items. It has the highest GDP in Africa, and by far, they have the strongest purchasing power with.
The ease of doing business in Nigeria (an analysis)
When finding the ease of doing business in a country, you look at many actors. The Ease of doing business (EoDB) is an index ranking system that was established by the world bank group. The EoDB index contains higher and lower-rankings that represent the current state of doing business in a country. For example, a country with a higher ranking (lower numerical value) will have better regulations and stronger protection of property rights.
The EoDB analyzes and aggregates data from 12 areas of businesses. These areas are:
- Starting a business
- Getting electricity
- Getting credit
- ease of dealing with construction permits
- Registering a property
- Paying taxes
- Employing workers
- Resolving insolvency
- Contracting with the Government
- Protecting Minority investors
- Trading across borders
- Enforcing contracts
These parameters determine the EoDB of a country. If the EoDB is high, it means the regulatory environment is good for starting or operating a business.
So, after all this talk, you might want to know the EoDB of Nigeria. An article published on Statista by Simona Varrella stated that Nigeria EoDB ranking is 131st out of 190 countries in 2019. Countries with rankings of 20 have better and simpler regulations for doing business. This result doesn’t still mean that it is impossible to do business in Nigeria, as shown by the rise of tech companies in Nigeria as this industry has amassed over $400M in the first 3 quaters of 2021, per findings by TechCrunch.
Factors that make Nigeria a good place for business
This section outlines the factors helping Nigerian businesses. These factors are responsible for the growth of Nigerian businesses.
1. Huge Population and Highest Purchasing Power
The purchasing power of a country is the value of a currency. Purchasing power is the number of goods and services that one unit of money can buy in a given country. Nigeria’s Purchasing power parity (PPP) currently ranks at 24th place as of 2021.
Why is PPP important?
PPP takes into account the relative cost of local goods, services and inflation rates in a country.
How does it affect a business?
For example, an increase in inflation lowers the purchasing power of a country, which reduces the power of its currency. Inflation affects everybody from consumers to business owners to investors.
Population is also a factor contributing to the growth of businesses in Nigeria.
How does population help?
It helps by creating higher demand for products and services. While a high population can increase demand, it also comes with its problem, and if not handled properly, can affect a business.
2. Huge Natural Resources Reserve
There is no doubt that Nigeria is very rich in Natural resources, which makes it very lucrative for investment. Some of Nigeria’s resources include natural gas, iron ore, coal, limestone, niobium, zinc and lead, these are just a few according to Britannica encyclopedia.
3. Ease of doing business
In Nigeria, the ease of doing business is getting better, as digital technology is now creating solutions that help a business become more effective.
Nigeria is known as the fintech capital of Africa because of the number of financial service companies it has. Per TechCrunch findings, 90% of Nigeria’s tech investment goes to the FinTech companies. These companies have made transactions very easy without or without the internet.
Private companies in Nigeria are the major players increasing the ease of doing business in the country, from financial, to logistics to the community. Although for Nigeria to have a better EoDB, many more B2B solutions are needed.
4. Because other businesses are already doing well
One way to know for sure if Nigeria is good for business is to take a look at its existing businesses. Both old and new companies have seen tremendous growth over the years. We have seen companies that are barely ten years old almost reach unicorn status. A glowing example of this is Jumia Nigeria which was listed on the New York Stock Exchange.
We have seen billions invested into the country in just a short time. Nigeria saw 77% growth in a total investment of startups with about 85 startups receiving funding despite the pandemic.
Some Multinational companies that have seen tremendous growth in Nigeria are Tecno, LG, Samsung, Huawei, MTN, and Dstv.
- In the Q2 of 2021, Tecno had a 45.8% of the phone market share in Nigeria.
- Samsung had a 46.3% jump in Profit in 2021.
- Huawei provides 85% of the infrastructure for our telecoms.
- MTN made N215 billion before tax in the first 6 months.
A growing economy with huge demand for infrastructure projects, solar energy, manufacturing which makes investing in Nigeria a sensible thing.
With the population and yearly growth in Nigeria, investing in Nigeria has never been better. The need for better infrastructure projects and state of the art manufacturing is increasing. Investing in these sectors will give you more bang for your money because these sectors will solve countless business and consumer problems. Another sector in Nigeria with huge returns in investment is energy, like solar or renewable energy.