INTERNATIONAL BUSINESS MANAGEMENT

Nigeria
The Giant of Africa
Growing through intense interruptions
Robert Kennedy College 17/7/2011

The largest African nation needs to make so many improvements to become the Giant of Africa. Is the time right or not, and do they have the potential to be who they say they are. It is a nation who has experience more bad times than good times, and relies on a single industry to give them their recognition. Government is the only drawback to release the power of Nigeria

Giant of Africa International Management CONTENTS

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Executive Summary ................................................................................................................................................................ 3 a Brief History of Nigeria ...................................................................................................................................................... 4 Development and Growth ............................................................................................................................................... 4 Competitiveness and Rankings ..................................................................................................................................... 4 Business Sector......................................................................................................................................................................... 6 Trading and Improvement .......................................................................................................................................... 6 Success Factors ................................................................................................................................................................ 6 References and Bibliography ..................................................................................................................................... 8 Appendix A ........................................................................................................................................................................ 9 Appendix B ...................................................................................................................................................................... 10 Appendix C....................................................................................................................................................................... 11 Appendix D ...................................................................................................................................................................... 12

Giant of Africa International Management

EXE CU TI VE S UMM AR Y

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1. How difficult is it to invest and repatriate profits from Nigeria? Is the context more or less beneficial for certain types of industries? 2. Is Nigeria currently following appropriate policies to encourage global brands to work with local companies? 3. What is currently the ideal corporate structure and industry in order to make the most of business with and in Nigeria? Justify your answer.

Nigeria is said to be the Giant of Africa but over the last two centuries it has struggled to make that impact everybody expects. Since being declared independent from the United Kingdom in 1960, it has seen many leaders (civilian and military), it has been associated by violence, corruption and unstable government policies. The country is ranked 127 on the global competitive list and can only improve from this. It has seen positive changes over the last to government periods with strong GDP growth and industry sectors. The oil accounts for 95% of exports and 43% of GDP which should be a concern if this is the only global competitor based form an investors interest. Nigeria has been focused on improving certain areas such as infrastructure and the banking system but should focus on the development of new technologies as well if they want to improve their total performance. Even though they have made several attempts to attract multinational investors in terms of privatizing some sectors such as energy and road works. The only promising industries to repatriate profits to some degree are the oil and agriculture sectors, whereas the latter would also not be very promising due to the importing statistics of food and livestock. It is currently not save to invest into Nigeria due to problems with debt repayment and high inflation. The country is making substantial efforts to put policies in place to attract foreign investor but rebellious tension have a major effect on the outcome and time needed before positive returns can be shown. Nigeria should focus on primary education which will have a huge effect on the future of the nation. It will create specialized opportunities creating a much higher competitiveness environment; the government should also support research and development facilities to improve the multinational trust and improvement of the countries abilities. The government should support privatization during the next generation and decentralize their ability to control. Nigeria have all the potential in the world be become a top 20 Competitive country with the market development share possibilities, but FDI should be based on the return and maximizing of the value. It is time for the Giant to awake.
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Giant of Africa International Management

A BRIEF HISTORY OF NIGERIA
DEVELOPMENT AND GROWTH

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It was in the early 1800s when the Islamic people had a Holy war and entered into Nigeria to grow and become Africas highest populated country and the 8 largest in the world. During the same time the Brits caught millions of people to sell to America to work as slaves. The slave trading was gradually replaced overtime (till 1860s) and other products such as cocoa and palm oil were traded instead. The country is divided (religiously) into the northern and southern part. The northern part of Nigeria is the Islamic rule, which accounts for 50% of the population and is mainly where the military forces are located. The southern part (coastal) is the Christian and animists rule (40% and 10% respectively), the south is where most of the education is located, this part also mainly dominate the business environment in Nigeria. Central Nigeria is a mixture of all religions and cultures and this is where the Capital (Abuja) is situated. Nigeria became independent in 1960 after being ruled by Brittan even though the first commercial oil discovery was made in 1956. Two parties was created, the one being heavily Muslim and the other being heavily Christian this lead to the first military coup 6 years later. The first election only created the start of the unrest in Nigeria. Part of this unrest was caused by the unequal allocation of resources and corruption. Two years later (1965) a dispute in the election set the country to have its first civil war, which forced military officers to seize power from the federal government. This was the beginning of the Biafra war (1966) which was a full scale civil war. The United Stated did not get involved unlike for the Brits and the Soviet Union. The leaders fled to Ivory Coast after the collapse of the Biafra rule in 1969. The country was ruled by military leader for 16 years, until 1999 when a new constitution was adopted. The government still faces daunting tasks to improve and reform the economy, and the last two elections were marred with violence and unfair elections. The second republic (1970) had a strong GDP (33th) ranking and was said to be less corrupt and brutal, but saw the country declining to become the 13 poorest country in the world by 1997. This has been a result of high inflation (29%), increasing corruption and being uncompetitive (not completing projects government). The oil corporation was established in 1971 and started to take control of the countrys oil, the organization grew until the state controlled all the oil. The Nigerian Stock exchange was found in 1960 and currently have 300+ listed companies whereas 8 of the top 10 are banks.
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COMPETITIVENESS AND RANKINGS Nigeria has 150 million (8 ) people and a workforce of 48 million (11 ) and an unemployment rate of 4.9% (45 ) compared to South Africas unemployment rate of 24% but having a much higher GDP per capita. The country had a GDP of$377billion (32 ) almost growing by $30billion from 2009 at 8% real GDP growth, while the per capita
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standing at $2500 (178 ) gives a good indication that 70% of the people lives below the poverty line. The inflation saw in improvement from 21.8% (2002) to 6.7% (2007), but jumped back to 13.4% (119 ) due to three various reasons (explained throughout). The country had an $18billion budget and $29.5billion expenditure which is also part of the rise in inflation. The country is well known for various reasons and incidents (good and bad) all over the world, some of which is their richness of natural resources, especially the oil sector which is currently the 15 largest producer in the world and ranked 6 in terms of exporting oil (2,327million/ bpd). The Nigerian oil is of a very high quality with more than 65% of the oil is above 35 API. The oil industry accounts for 95% of total exports and 43% of annual GDP. The country faces economic, social, and political troubles but recent reforms seem to open perspective for economical growth. The government has been targeted with short periods of rule (coups and resignations or deaths), causing the nation to fall behind in so many aspects in terms of global competitiveness. An incorrect barrel price resulted in foreign reserves at a strong growth ($60.8billion) reducing their debt, from 78% GDP (2003) to 14% GDP (2006). The Niger delta contains around 80% of oil produced in Nigeria, which makes part of the onshore/shallow shore basins a low risk for ventures, but the deep water drilling became a high risk due to increasing development and exploration opportunity for new technology. This is part of the international (border) conflict Nigeria is facing with neighboring countries. Instability in the macroeconomics environment had a major effect on their overall performance ended up being 127 (2010), other areas of concerns was the credit rating (91 ), Infrastructure (135 ) primary education (137 ), poor corporate ethics (125 ) and weak auditing and reporting standards (130 ) in both public and private sectors. Nigeria do have some promising rankings like the relative large market (30 ) making it attractive for FDI. Nigeria has been the 39 largest in exporting, exporting goods and services to U.S 34%, India 9.8% and Brazil 9%, in 2010, trading mostly oil, rubber and cocoa. Their imported mostly machinery, chemicals and transportation from China 13.9%, U.S 9.3% and Netherland 8.6%. The currency has performed poorly over the last couple of years. This is said to be the Giant of Africa who can be 20 on the competitive list in 25 years but yet when one looks at the statistics it tells another story for potential FDI investments and ease of return. The country is highly corrupt (134 ) and does not guarantee any ease when doing business (137 ). Additional to that do they not enable smooth trading (120 ) and moderate in Logistics performance (100 ) which is essential for global trading. Finally the Political leadership level (management index) is below average and political and economical transformation is slow (84 ).
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BUS IN E SS SEC T OR TRADING AND IMPROVEMENT Nigeria singed an IMF stand-by agreement in 2000 to restructure their debt from the Paris Club and a $1billion credit to improve economic performance and growth, but had to pull out due to failing to meet expenditure and exchange rate targets. Abuja regained approval in 2005 for a debt relief which will eliminate $18billion if $12billion is paid in cash. This deal has already showed improvements through modernizing the banking system, curbing inflation and solving regional disputes in the oil industry. President Jonathan unveiled a power sector which included privatization of run state generators and distributors in the electricity sector. Another improvement is that the government is already starting to develop stronger public-private partnerships in the road industry, as well as the central which took measures to strengthen their financial sector after the recession (which had a major effect on the country). Developing Countries or so called third world countries should make themselves highly attractive by foreign investors to gain valuable information and front line technology, to develop new clusters and improve current sectors. Nationalism of sectors does not attract foreign investors in so many ways due to the risk in return on investment. Nigeria has and had many problems and issues in connection with growth and competitiveness even though the above figures do show a positive future ahead if managed correctly. Some other factors to be noted where Nigeria should focus on and are concerning is the neglecting of local production techniques, over pricing of industrial equipment and centralization of R&D facilities in the advanced countries. During the oil boom in the 1970s did the government not re-invest the profits back into the industry leading to such problems as these being mentioned. SUCCESS FACTORS The country is well known for demanding so little from their scientists and technologist throughout all the industries. The country should focus on the current strong sectors to be more labor intensive and to increase income levels for less people to live below the poverty line. Poverty is a well known trait in the whole of Africa and this causes problems like crime and corruption, and decreases the life expectancy of the people. Creativity will lead to the development of new technology, such as machines and fabrication techniques. These developments should be focused on the agriculture and natural resource sector due to the size and impact it has on the country. 80%v of Nigerian Engineers and scientists are employed in Universities and only 4% are distributed amongst various industries. Multinational input should be welcomed to assist in the development of these technologies; this will increase the intrinsic satisfaction level of the employees, feeling as if they make a contribution to the economy.

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The best way to leverage the economy would be to revolutionize the locality of businesses and the privatization of the government enterprises. Privatization will allow Nigerians and foreigners to become partners and work together, which in itself will create more entrepreneurs and give greater authority in decision making processes. Even though Nigeria is heavily dependent on developed countries to improve their technology and economy, will this allow the people to explore and develop? Currently the mindset is that only the state can run the industrial development of the nation and that distrust of local private investors might create power bases. The majority of Local investors are more willing to invest in commerce than in to industry.

There are risks associated when investing in Nigeria. These can be grouped into three main categories, political activity and civil unrest, border disputes and government underfunding. There is also the continuing problem of corruption within the system. Other factors which should be considered are the refugees, drug trafficking and international disputes with neighboring counties which have not been resolved. Nigeria has a lot to learn in terms of the long term value adding which primary education gives. Specialization increase efficiency and productivity, doesnt matter which industry of environment, where delegation increase the need to control and coordinate. The country has a strong centralization approach and need to change to a more decentralized environment to give the people more power to control the sectors, meaning that a democratic environment will be created. This will increase the competitiveness amongst employees, which will result in higher quality performance and more global interest. Privatization of certain sectors (such as Industry) would give the government a narrower span of control but will give them more opportunity to improve where they fall behind, even if they create committees or institutes which will control certain aspect. The oil and mining or the energy and telecoms sector would be the ideal industries to implement such an approach. The ultimate goal would be to maximize the shareholders value and return to crate more opportunity.

Giant of Africa International Management

REFERENCES AND BIBLIOGRAPHY
The Business environment of Nigeria. Stanford Graduate school of Business. IB-90. 2010.

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C. Christian, Ukaegbu.The Structure of Nigerian Industries and the Utilization of the Science and Technological Development, University of Nigeria. Volume 33, No. 1, 1991. Annual Report and statements of accounts. Central Bank of Nigeria. 2002 https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html - CIA World Fact book 12/07/2011. http://globaledge.msu.edu/countries/nigeria/ - Global Edge 12/07/2011. http://search.worldbank.org/all?qterm=nigeria World Bank 12/07/2011.

Giant of Africa International Management

APPENDIX A
Top Products Exported in 2008 by Nigeria
Product Trade Value (thousands) 2709 - Crude Oil 2711 - Petroleum Gases 2710 - Non Crude Oil 1801 - Cocoa 1207 - Oil Seeds & Oleaginous Fruits 4001 - Natural Rubber 2901 - Acyclic Hydrocarbons 4105 - Sheep Skins - No Wool 4106 - Goat Leather - No Hair 3901 - Polymers of Ethylene 153,146,074 17,292,069 3,395,703 1,067,325 266,939 266,801 237,418 224,097 214,126 148,022

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Market Value: 355,359 (millions)

Share (%) 43.10 4.87 0.96 0.30 0.08 0.08 0.07 0.06 0.06 0.04 Growth (% 5yr) 435.26 908.63 474.24 247.33 666.09 523.37 5,013.14 125.14 136.80 63,696.26

Oil - pr oducti on: 2.211 million bbl/ day (2009 est. ) countr y compari son to the worl d: 15 Oil - consumpti on : 280, 000 bbl/ day (2009 es t. ) countr y compar i son to the worl d: 46 Oil - expor ts: 2.327 million bbl/ day (2007 est. ) countr y compari son to the worl d: 6 Oil - i mports : 170, 000 bbl/ day (2007 es t. ) countr y compari son to the worl d: 52 Oil - pr oved reserves : 37. 5 billion bbl (1 January 2010 es t. ) countr y compari son to the worl d: 10

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APPENDIX B
Country Comparison :: Oil exports This entry is the total oil exported in barrels per day (bbl/day), including both crude oil and oil products. Rank country (bbl/day) Date of Information

Saudi Arabia

8,728,000

2007 est.

Russia

5,430,000

2009

United Arab Emirates

2,700,000

2007 est.

Iran

2,400,000

2010 est.

Kuwait

2,349,000

2007 est.

Nigeria

2,327,000

2007 est.

European Union

2,196,000

2008 est.

Venezuela

2,182,000

2007 est.

Norway

2,150,000

2009 est.

10

Canada

2,001,000

2008 est.

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APPENDIX C
Nigeria : Competitive Rankings
Corruption Perceptions Index 2.4 (ranked 134 out of 178)

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Ease of Doing Business Rankings ranked 137 out of 183

E-readiness Rankings 3.88 (ranked 61 out of 70)

Freedom of the Press 54 (ranked 110 out of 196)

Global Competitiveness Report 3.38 (ranked 127 out of 139)

Global Enabling Trade Report 3.05 (ranked 120 out of 125)

Index of Economic Freedom 56.8 (ranked 106 out of 179)

International Logistics Performance Index (LPI) 2.59 (ranked 100 out of 155)

Inward FDI Potential Index 0.156 (ranked 88 out of 141)

Management Index (Political Leadership towards Democracy and a Market Economy) 5.02 (ranked 62 out of 128)

Status Index (Political and Economic Transformation) 4.92 (ranked 84 out of 128

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APPENDIX D

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