Business Environment and Challenges in Nigeria

Presentation ByMr Larry E Ettah

GMD/CEOUAC of Nigeria Plc and Chairman CAP Plc

at the Akzo Nobel Conference

Presentation Outline

• Introduction• Nigerian Economic Overview• Business Environment Challenges • Expectations of Akzo Nobel as Business

Partner• Conclusions

Introduction

Nigerian Economic Overview

• Nigeria is Africa’s second largest economy in terms of GDP ($175Bn as at 2008) second only to South Africa.

• GDP growth has averaged 6-7% since 2003.• The country is the largest in terms of population in

Africa, with population estimates now approaching 150 million people!

• The population distribution is weighted in favour of younger citizens with 52% nineteen years and below; and over 80% below 40 years of age.

Nigerian Economic Overview (contd.)

• Nigerians are entrepreneurial, dynamic and amenable to global lifestyles and consumption-oriented.

• Per capita GDP has improved from under $700 in 2004 to $1,418 by December 2009 reflecting economic growth, but wealth distribution is heavily skewed with 54% of the population classified as living below the poverty line.

• Telecommunications has experienced a revolution with tele-density at 58%; 95.7million mobile/GSM; 11.7million mobile/CDMA and 2.7million land lines as at August 2010, from just 400,000 total lines in 2001.

Nigerian Economic Overview (contd.)

• Nigerian has experienced its longest period of uninterrupted civilian rule after independence in 1960 since 1999 even though there are questions about the quality of the electoral process.

• There has also been various economic reforms since 1999, particularly between 2003 and 2007 in telecommunications, banking, pensions, insurance, downstream petroleum, mines and minerals etc.

• The current president appears to be resuming reforms suspended by his late predecessor, particularly in the power sector and privatisation.

Nigerian Economic Overview (contd.)

• But the macroeconomic picture is weakened by a dependency on oil which provides over 75% of the national budget and over 90% of export earnings.

• In addition GDP growth is disproportionately based on oil export; un-modernised agriculture and trading; with manufacturing now contributing less than 4% of national output.

• The major constraint to manufacturing is power-national power generation is around 3,700 MW versus possible demand in excess of 20,000 MW (including suppressed demand)

Business Environment Challenges:Social

• Rising Crime and Insecurity– Armed Robbery and Kidnapping in Eastern Nigeria– Militancy in the Niger-Delta– Recurrent religious and sectarian crisis in parts of

Northern Nigeria• Education and Health Services have suffered

from under-investment during military rule• Absence of social protections

Political

• Elevated political risk as 2011 elections approach

• Regional and ethnic tensions associated with power rotation

• Political Corruption• Multiples Taxes, Charges and Levies from

Federal, State and Local Governments and Agencies

Economic

• Weak Infrastructure, particularly power and transportation

• Businesses have to provide alternatives to public services:-– Alternative Power Generation– Security Services– Courier and Postal Deliveries– Water Boreholes

• Problems associated with export and import logistics-ports; customs; inspection services; etc

Economic (contd.)• Mostly Imported Inputs• Exchange Rate Risk– In December 2008, the Naira was devalued from

N117/$ to N150/$ – With Falling External Reserves, further

devaluation is a possibility• High Interest Rates (Prime Lending Rates

around 18%)• High Inflation (13.7% as at August 2010)• Strained Financial and Capital Markets • New law on local content (Game changes)

Expectations of Akzo Nobel as Business Partner

Conclusions• Nigeria is a huge potential market which continues to experience

GDP growth averaging 6-7% through the global recession.• In spite of its environmental and infrastructural constraints and

challenges, Nigeria remains a high return business environment, and one which stands poised to experience economic and social transformation. “Challenges exist, we don’t mourn them, we don’t complain about them , we take those into account as reality as we design our business models”.

• Akzo Nobel can work with UACN/CAP Plc to mitigate some of the challenges assured that the medium to long term prospects for our market is very positive.

Thank you for listening!