INTERNATIONAL

BUSINESS MANAGEMENT

FINAL EXAM
MBA-57592

Prepared by: Student

Date: 10.04.2011
 INTERNATIONAL BUSINESS MANAGEMENT FINAL EXAM
ROBERT KENNEDY COLLEGE MBA-57592
STRICTLY CONFIDENTIAL DATE: 10 APRIL 2011

TABLE OF CONTENTS

Foreign Investment in Nigeria.................................................................................................3

General Business environment for FDI...............................................................................................3

Conditions per Industry type.................................................................................................................4

FDI Policy Conditions...............................................................................................................6

Policy and Business Impact over the years...........................................................................................6

Examples of Global Brands in Nigeria.................................................................................................7

Getting the Best out of Nigerian Investments.......................................................................9

Recommend Entry Structure.................................................................................................................9

References...............................................................................................................................10

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 INTERNATIONAL BUSINESS MANAGEMENT FINAL EXAM
ROBERT KENNEDY COLLEGE MBA-57592
STRICTLY CONFIDENTIAL DATE: 10 APRIL 2011

FOREIGN INVESTMENT IN NIGERIA

General Business environment for FDI

The general attractiveness of a country for inflowing foreign investments can be analysed
using Porter’s determinants of country competitiveness and the factor driven economy
basic requirements as per WE (World Economic Forum – Global Competitive Report 2010-
2011) 1. These models as well as Porter’s Diamond model are very relevant where
investors are assessing their country options for investment. Below is the overview of the
Nigerian country context for foreign direct investments (FDI) and each area includes
known government initiatives that have been put in place to improve that aspect of
Nigeria’s competitiveness as a FDI recipient.

Note: The assessment is based on the assumption that Nigeria is still a factor based
economy that is working towards transitioning to an efficiency based economy looking by
2020. This assumption is based on the WEF measure of the GDP per capita ranges1.
Nigeria is at $1142 as per WEF.

NIGERIA - COUNTRY ASSESSMENT

Social
Macro Economic Infrastructure Institutions Quality of National
Environment (Infrastructure & Health (Political, Public, Private) Business Environment
& Education)
WEF Ranking out 83
97 135/137 121 (business sophistication &
of 139 countries innovation)

• Country Debt low •Large local market – over

(case study)
• Savings rate is high
• Credit rating
Positive for FDI
acceptable
• Sectoral tax
incentives
• Exporter incentives
• Civilian rule and 4
democratically elected 154 million
government • Tax system effective
None • Hiring and Firing easy
•Investors are highly • A high number of local
1
protected: ranked 45 suppliers
• Export Processing Zones
(NEPZ)

•The overall Ease of doing

business rank is still
negative at 137 out of 183
•Low life expectancy • Still ranked high in countries (see indicators
5 4
= 47 years corruption
2
in exhibit 2)

• Tax complexity2 •Literacy only at 68% 5

• Ranked low in •Electricity supply poor and
• Policy instability1 •Poor Quality of governance
2 takes more than 250 days
3
Negative for FDI overall infrastructure to get it working
• Inflation is high 1 • State and Federal • Enforcement of IP laws
= ranked 134 governments have
• Non exporter difficult
marginalisation •Poor ranking on poor collaboration
2

primary and higher •Waste of productive hours

education • Government agencies due to traffic and bad
2 3
enrollment
1 inefficient roads
• High cost of doing business
due to poor infrastructure,
regulation and corruption
Government - Foreign exchange - Upgraded Apapa - NEEDS - Central bank guidelines
Support
from DAS to port in Lagos for - Corrupt Practicesand and regulatory
Wholesale Dutch better other related offences requirements for private
Auction System 4 6 4
import/export act of 2000 credit bureaus
6
(WDAS ’06)
- Economic and - Registration of business
- Presidential Financial Crimes made easier through the
committee to Commission (EFCC) internet = 34 days to
review Incentives, 6 register and operate a
‘03
Waivers and 4
new business
Concessions (’07)
6 - Implemented

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 INTERNATIONAL BUSINESS MANAGEMENT FINAL EXAM
ROBERT KENNEDY COLLEGE MBA-57592
STRICTLY CONFIDENTIAL DATE: 10 APRIL 2011

- Operation 30/30 = 30
working days to obtain a
4
construction permit
- NEPZA act of - Established NEPZ
6 Extractive Industries Authority
6
1992 Transparency
- Import tariffs on
Initiative (EITI)
6 - Funds transfer governed
finished goods by a favorable Foreign
decrease from 40% - Nigeria Vision 20:2020
6
to 20% - Established Nigerian exchange act of 1995

- Adoption of
Copyright Commission
(NCC)
- Established Nigerian
ECOWAS tariff Investment Promotions
6
regime
6 Commission (NIPC) in ‘95
- Bilateral trade treaties6
- One Stop Shop
6
Investment Center (’06)

*Exhibit 1: Country assessment for FDI – Adapted from WEF – Global Competitiveness and Micheal Porter’s Determinants of
Country Competiveness

Indicator over/183
Protecting investors 59
Getting Credit 89
Enforcing contracts 97
Closing a business 99
Starting a Business 110
Paying taxes 134
Trading accross boarders 146
Dealing with Contruction permits 167
Registering property 179

5
Exhibit 2: Ease of Doing Business – Extracted from Doing Business Org

Conditions per Industry type

One source notes the local Nigerian market as big as it still has a preference for foreign
brands.3 This means that manufacture of foreign brand consumer goods locally would
make investment sense since the focus of the Nigerian government in their 2020
strategy includes competitive manufacturing of non-oil products. It can be anticipated
that the government will thrive to improve the business conditions in the manufacturing
industry to stimulate the desired growth in the non-oil sectors.

Currently the country is still struggling with oil mining and manufacture being the most
favored sector for investment because of the history of FDI restrictions. Due to this
skewed economy Nigeria introduced different reform and measured to try and stimulate
growth in the other neglected sectors. These schemes might change (or might have
already changed since sources are dated 2008) with all the reviews conducted by the
current government and the new development strategy. The new focus is on stimulating
competition and innovation internally by removing over time the protective barriers
erected through high import tariffs and sector based incentives.

INDUSTRY TYPE
Manufacturing Agriculture Services Oil& Gas Mining
(3%) (33%) (27%) (39%)
Positive Tourism pioneer
Export Processing Zone Export Processing Zone 3 year tax holiday
Factor services taxed at
has 0% tax has 0% tax
10%
Investment tax credit up Earnings are tax free
to 25% for local original if kept in a local
component account

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 INTERNATIONAL BUSINESS MANAGEMENT FINAL EXAM
ROBERT KENNEDY COLLEGE MBA-57592
STRICTLY CONFIDENTIAL DATE: 10 APRIL 2011

manufacturers
Rapid depreciation of
capital investments.
Plant & machinery get a
10% investment capital
allowance
Pioneer business at
Pioneer business at 18%
14%

Negative 38% tax rate

31% tax rate standard 28% tax rate standard
Factors standard
Tourism services at
28%
Horizontal
Incentives
Research
and 10% of profits aimed at R&D are allowed as tax deductable
Developmen Commercialisation of R&D costs get 20% investment tax credit
t
Exempt from minimum tax, exempt from dividend tax
SMEs 20% tax in the first 5 years
SME Investment Equity scheme forcing banks to set aside money to new ventures.
Profits from exports are tax free if re-invested
Export Dividends also tax free
businesses If business exports 50% of its output it qualifies for ‘pioneer’ status
Businesses in the EPZs are exempted from most taxes where investment is more than $500 000
Pioneer
5year profits and dividends tax holiday
industries
6
Exhibit 3: Business Fiscal Incentives – Adapted from UNCTAD report

Conclusion:
The most favorable industry just in terms of tax costs (that add substantially to costs of
doing business) until all incentives are revised remain the oil mining industry, followed by
anything that qualifies under pioneering industries.

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 INTERNATIONAL BUSINESS MANAGEMENT FINAL EXAM
ROBERT KENNEDY COLLEGE MBA-57592
STRICTLY CONFIDENTIAL DATE: 10 APRIL 2011

FDI POLICY CONDITIONS

Policy and Business Impact over the years

Policy and government reforms have had a measure impact on business and economy
development in Nigeria. The current government introduced the Vision 20:2020 that was
build on the foundation of the previous regime that introduced the NEEDS program that
failed due to corruption and self enrichment of government officials and the president.

Nigeria over the timeline has moved from total nationalisation of the economy from the
60’s to the 80’s that focused on a government driven and controlled economy
development agenda; to the most open economic policies that are aimed at attracting
Foreign investment in all sectors of the economy.

The latest 7 key point development strategy embodied in the Vision 2020 (even if still on
paper and not actualised) will definitely improve the business investment environment in
Nigeria and provide the much needed encouragement to foreigners to invest in the non-
oil and commerce based businesses. If executed and implemented as per paper this new
strategy will see the eradication of the negative micro economic business conditions in
Nigeria such as: Poor human capital factors, Poor physical infrastructure, Culture of
corruption and disrespect of the rule of law, Land ownership and Political instability.

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 INTERNATIONAL BUSINESS MANAGEMENT FINAL EXAM
ROBERT KENNEDY COLLEGE MBA-57592
STRICTLY CONFIDENTIAL DATE: 10 APRIL 2011

1960’s 1970’s 1980’s 1990’s 2000’s

• State Led Needs 2003/Seeds/

Leeds
• 25% Foreign Growth begins • Industry • Change to FDI
owned • Foreign Incentives policy • Reform Govt
structure for
• 70% Exchange & • Reduction in •Nigeria efficiency, service
manufacturing licensing controls exchange controls Enterprise delivery
sector • Government • Agri is eroded & Repeal Act No.7 • Private Sector to
• Agri = 90% of ownership of food imports start • Foreign drive economic
Exports productive assets Exchange act growth,
•Small
• Country food • Foreign Investor No.70 infrastructure &
manufacturing
sufficient restrictions Social Services
sector growth •Democracy/Civili
• 1st Indigenisation an Rule (1999) • Social Charter
• After • Reform starts in
decree (‘72) 1986 • Reduction in state
Independence authority &
• Limit dependency •2nd Indigenisation • Structural
Nigerian Investment influence
on foreign trade (‘77) Adjustment Promotions Committee • Removal of
(1968) •Big Foreign firms Programme (‘95) barriers in non-oil
• Tariff Structure to diversify (‘79) launched sectors
discourage imports • Privatisation, • CBN – 2004
• Political Turmoil market Banking sector
liberalisation on reform
Agri Exports • 2005 – Debt
forgiveness
• 2006 – Fitch rating
of BB
• 7 Point Agenda

6
*Exhibit 3: Timeline of Policies and Reforms in Nigeria Adapted from UNCTAD report

Examples of Global Brands in Nigeria

International company brands that are doing well in Nigeria are listed below:

Global Brand Sector Local

Partnerships?
Shell Oil Exploration No
Mobil No
Chevron No
Total Oil/Gas Refinery & ?
Retail
Virgin Atlantic (Virgin Transport Yes
Nigeria)
(Airline technical
services)

A.P Moller (Maersk No

Group)
(Airport management
services)
AES Corporation Power Yes
(independent power
producer)
Siemens No

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 INTERNATIONAL BUSINESS MANAGEMENT FINAL EXAM
ROBERT KENNEDY COLLEGE MBA-57592
STRICTLY CONFIDENTIAL DATE: 10 APRIL 2011

(independent power
producer)
Exxon/Mobil No
(independent power
producer)

Eskom No
(independent power
producer)
MTN Telecomms Yes
(Mobile network
services)
Celtel No
(Mobile network
services)
Shoprite Retail No
KPMG Business Services No
Ernst and Young No
Deloitte No
Unilever FCMG No
Cadbury No
Pepsi Beverages No
Coca Cola No
Heineken No
Guiness No
Standard Chartered Banking No
Bank
Citi Bank ?
*Exhibit 4: List of a few Global Brands in Nigeria – (Created from sources in reference 6 and 7)

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 INTERNATIONAL BUSINESS MANAGEMENT FINAL EXAM
ROBERT KENNEDY COLLEGE MBA-57592
STRICTLY CONFIDENTIAL DATE: 10 APRIL 2011

GETTING THE BEST OUT OF NIGERIAN INVESTMENTS

Most investors have been to-date investing in the oil related sectors since the Nigerian
policies restricted foreign participation in non-oil sectors to Nigerian citizens. Since the
complete abolishment of FDI participation restriction in 1995 transnational companies
have been slow to take up investments in non-oil sectors, simple because oil is still the
most lucrative due to high oil prices.

The other options that seem lucrative and more organized like oil are the banking/finance
sector as well as the now prioritized sectors of utilities and commercial agriculture. These
are the industries that are in alignment to the Nigeria Vision 20:2020.

Recommend Entry Structure

Due to corruption culture and social connections network in Nigeria, it makes sense to
use an investment structure that always involves local interest in order to gain local
expertise and advantage in the system. The suggested investment structures are listed
below:

1. Agri business: Processing of raw agricultural products (local sourcing) to other

finished products (local production), local partners.

2. Construction business: Manufacture combination with imports of building material

and construction services, local partners

3. Banking Sector: Acquisition of a controlling stake in an existing local bank

4. Telecoms: Total acquisition or controlling stake in Mobile Network operator

companies and develop added value chain businesses acquired from or setup with
local owner partners.

5. Alternative energy product supply: Import and setup a local marketing and
distribution network with local partner with a minor stake.

6. Utilities- Power supply: Partner with Government distribution company to secure

demand or gain right to sell directly to consumers like Eskom in South Africa.

7. Non-oil Manufacturing: Structure to qualify under the Export Processing Zones

where there are incentives and relaxed money extraction rules

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 INTERNATIONAL BUSINESS MANAGEMENT FINAL EXAM
ROBERT KENNEDY COLLEGE MBA-57592
STRICTLY CONFIDENTIAL DATE: 10 APRIL 2011

REFERENCES

1. http://ww3.weforum.org [Accessed 18 April 2011] - Global Competitive Report

2010-2011

2. http://www.ischbs.edu/pdf/20090723_Nigeria.pdf [Accessed 18 April 2011] –

Presentation ‘Creating a Competitive Nigeria -:Towards a shared economic vision’,
by Professor Michael E. Porter, Harvard Business School, 23 July 2009.

3. http://www.business-travel-nigeria.com/business-in-nigeria.html [Accessed 11 April

2011]

4. http://www.doingbusiness.org/data/exploreeconomies/nigeria#protecting-investors
[Accessed 08 April 2011]

5. http://www.indexmundi.com [Accessed 18 April 2011]

6. http://www.unctad.org [Accessed 18 April 2011] – ‘Investment Policy Review of

Nigeria’ , 2007

7. http://www.m2weekly.com/feature/insight-on-nigeria-at-world-marketing-forum/
[Accessed 18 April 2011] – ‘Insights on Nigeria at World Marketing Forum’ , by
Kunle Ogedengbe, 22 December 2009

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