It is autumn and the weather in Lagos oscillates wildly between sweltering humidity and torrential downpours that flood roads, masking potholes deep enough to maroon any car unlucky enough to drive into them at the wrong angle. Miles-long queues of lorries, waiting sometimes weeks at a time to get into the main port, snarl up the bridges connecting the islands and peninsulas that make up a city that is home to an estimated 12-20 million people (it’s impossible to know for sure). Traffic can feel endless.
In a small but airy showroom, racks are stocked with brightly-patterned silk separates, kimono-style shirts and structured dresses. An elegant middle-aged woman – in town to attend a plethora of annual arts events – enters, and is greeted with hugs from the staff. It is a welcome, air-conditioned escape from the busy highway outside.
Rukky Ladoja founded Grey Projects in 2009, after struggling to find ready-to-wear clothes for her job at a bank. She moved back to Lagos in 2008 from London, where she studied for a masters in economics and development studies. Fashion for young professional women was just one of the countless untapped business opportunities at the time. "Nigeria was such a low-hanging fruit for people… to try out things that weren’t available locally yet," she says.
During October and November, artists, entrepreneurs and elites from around the world criss-cross Nigeria’s commercial capital, home to an economy that is larger than Kenya’s, to visit Lagos Fashion Week (sponsored by Heineken) and other annual arts festivals. International collectors, high society types and guests flock to Art X Lagos. On display in 2018 was Tutu, a portrait by Nigerian modernist Ben Enwonwu, which was auctioned for an African record of £1.2m at Bonhams in London earlier this year.
Nigeria, like Lagos, is a place of contradictions, energetic and exhausting. Before its most recent recession it was the biggest consumer of champagne in Africa, yet it has the largest number of extremely poor people in the world. It pumps around two million barrels of oil a day yet has no properly functioning refineries. Imports of subsidised petrol cost the government an estimated $522m in 2017, while the grid generates just 4,000 megawatts of power a day on average (4 per cent of the capacity of the UK’s power stations).
Aliko Dangote, Africa’s richest man, has plans to change that, spending an estimated $12bn building a refinery in Lagos that could process 650,000 barrels of oil a day. If the cement-to-sugar magnate succeeds it will be the biggest of its kind in the world. It could, if the petrol he produces is sold without government subsidies, transform Nigeria’s economy. But the project’s completion date keeps being pushed back and, for now, its transformational effects remain a dream.
Nigeria’s bureaucrats are legendary for their obstructiveness and opacity, yet the country is home to some of the world’s hardest-working, most creative and optimistic people. Though reliable data is hard to find, its film industry, dubbed Nollywood, pumps out around 1,000 movies a year, second only in number to India’s Bollywood. According to Okada Media, organisers of NollywoodWeek Paris which showcases the best of the Nigerian film industry, the sector is the country’s second-largest employer after agriculture and accounts for 2 per cent of Nigeria’s GDP.
Nollywood is the country’s second-largest employer after agriculture and accounts for 2 per cent of Nigeria’s GDP
"Afrobeats", meanwhile, the genre of urban pop music that fills dance floors across Africa, is going global due to Nigeria’s vast diaspora, as well as its popularity on social media and streaming platforms.
The country’s reputation precedes it. "If you say you’re going to Nigeria, I think there’s a perception among people internationally that you’re heading towards a war zone," says Philip Southwell, a former investment banker and Brit who co-founded an infrastructure fund that listed on a local securities exchange last year. "Depending on where you go, that couldn’t be further from the truth."
Parts of Nigeria’s north-east are still ravaged by the militant Islamist group Boko Haram. But those areas are far from the country’s main urban centres. Corruption and "Nigerian Prince" scams do still exist. Businesses, however, are just as, if not more, likely to get tangled in a web of Byzantine bureaucracy as they are to be shaken down for bribes.
Africa’s most populous country has anywhere between 160 million and 200 million people (the last census was in 2006 and was probably heavily manipulated for political reasons). But it is highly fragmented, with at least 250 ethnic groups, split roughly between Christians in the south and Muslims in the north. The ancient trading city of Kano, close to Nigeria’s northern border with Niger, is a world away from the cosmopolitan bubble of Lagos, the oil-rich, riverine Delta a different market to the lush farmlands of the central Middle Belt.
In a country so vulnerable to fluctuations in oil prices, cycles of boom and bust are inevitable. Five years ago Nigeria was booming in an era of expensive oil. The sector represents less than 10 per cent of GDP, according to official government figures, but accounts for most exports and government revenue. So when oil prices fell in 2014, the economy was hit hard.
This was compounded by the central bank defending the currency, the naira. That led to a shortage of foreign exchange, tightening the screws on a country that imports most goods. The economy shrank for five consecutive quarters from the beginning of 2016. Inflation spiked to 18.7 per cent in January 2017 and the following month you could buy dollars on the black market at a rate 70 per cent weaker than the official one. Since then inflation has fallen to around 11.28 per cent, according to latest figures, with the IMF forecasting growth of 1.9 per cent for 2018.
"That really affected us, I’ll confess," says Ladoja. Importing fabric became much more expensive. So Ladoja worked with another brand to source cotton locally from Kano, where the remnants of a once-mighty textile industry, mostly killed off by cheap smuggled fabrics and oil dependency, still cling on. She pivoted from aiming to make the most affordable ready-to-wear outfits to a more premium strategy, trebling her prices. And she is scaling up exports: around 10 per cent of Grey Project’s sales are now international, up from 5 per cent last year. Ladoja still shifts just 250-300 units a month, up from around 200-250 two years ago, but raising prices has meant higher revenue.
A national election is around the corner in February, pitting the austere, statist president, Muhammadu Buhari, against Atiku Abubakar, a former vice president and businessman, who has long been trailed by unproven allegations of corruption. It is unclear yet who will win, although incumbents have a huge inbuilt advantage in countries like Nigeria.
Actress Ajayi-Lycette sits in the make-up chair while filming Dazzling Mirage on the outskirts of Lagos
A change in the presidency could feasibly mean important changes for business, such as a free float of the currency or the abolition of fuel subsidies. Or it could mean no major policy changes at all. It may be prudent for companies thinking about investing in Nigeria to wait until after the election but, generally, businesspeople advise investors to look beyond the country’s four-year political cycles.
"It’s better to be patient, to have a five- to 10-year plan," says Adekunle Adebiyi of MBO Capital, a private equity firm. For example, he says, foreign exchange volatility tends to even out over time. "If you are investing for the long-term, short-term severe fluctuations in currency don’t have as much impact as you’d otherwise think."
The aviation industry sums up much of what it means to do business in Nigeria. Virgin was burned a decade ago when it set up a national airline with the Nigerian government. In 2008, three years after launching Virgin Nigeria, Richard Branson accused the authorities of "mafioso" tactics, claiming the government was forcing it to use both the domestic and international terminals in Lagos airport despite its contract to use just the international one.
In mid-2016 international airlines were owed more than $600m from ticket sales, according to an industry body, as the central bank hoarded dollars. Iberia and United Airlines pulled out of Nigeria, while Emirates cut back flights. The recession "definitely hurt us," says Sam Lindfield, regional manager for Virgin Atlantic.
But Virgin stuck it out, continuing to fly once a day from Heathrow to Lagos. "It’s one of our top-performing routes," says Lindfield. In fact, Virgin would expand its flights to Nigeria if it wasn’t for a government agreement designed to protect Nigerian airlines – none of which actually fly to the UK at the moment.
Despite the difficulties, however, for companies with deep enough pockets and a long enough investment horizon to withstand the unexpected, and the foresight to look beyond the stereotypes, the rewards of investing in Nigeria can be enormous.
The cast of 2014 movie Dazzling Mirage dressed in traditional attire
The vast majority of Nigerians live in poverty, yet aviation is also evidence of a significant upper-middle class. Virgin, like other international airlines flying to the country, offers two free checked bags per passenger, for example, thanks to Nigerians bringing all manner of gifts and household goods from abroad for their families and friends. "Of all our routes we carry the most bags per passenger to and from Nigeria," says Lindfield.
While the ready-to-wear market, for one, has become increasingly competitive since Ladoja launched her brand Grey Projects, there are still plenty of available niches for entrepreneurs looking to sate the tastes of Nigeria’s consuming class.
Nigerians drank 16 million hectolitres of beer in 2017 and overtook Ireland to become the second-largest market for Guinness globally back in 2007. But there is still huge room for growth: South Africa drinks twice the amount of beer with less than a third of Nigeria’s population. Budweiser launched in the country in April 2018 to take on Heineken, which sells its eponymous beer as well as local brands.
Legally, Nigerian beer has to be brewed in-country and it is, overwhelmingly, tasteless, something Andrew Seward has taken advantage of. Bored of the watery lager, Seward and two friends –Irish and British development consultants – began brewing themselves, selling at music festivals in Abuja, the capital city. Bature, or "white person" in Hausa, the main language of northern Nigeria, was registered as a company in December 2016. In August last year the company opened a microbrewery in Abuja. Its beers include NEPA (Naija Electric Pale Ale, but also Never Expect Power Always, shorthand for Nigeria’s unloved national power company) and Black Gold, a 10 per cent coffee-infused stout to rival Guinness, named for Nigeria’s oil wealth.
"There’s a gap in the market," says Seward. "There’s a large upper middle class that wants a different product."
Seward and his co-founders have so far funded the venture with their own money and £17,000 raised from a crowdfunding campaign but they hope to expand. They have requests to stock their beers from hotels such as the Hilton in Abuja and they want to open a 15 hectolitre brewery, with a bar, in Lagos in the second quarter of next year, for which they will need to raise as much as $900,000 (from both national and international investors, but the former are "by no means the majority").
For now Bature has to stay small, brewing just 1,500-2,000 litres a month and selling in five under-the-radar bars in Abuja. That is because of one of the major obstacles to doing business in Nigeria: government.
Until September, Bature was struggling to secure regular supplies of malted barley, which cannot be sourced in Nigeria. The government supports the production of sorghum, which can be used to make beer. But, says Seward, sorghum is only suitable as a partial ingredient. Finding their regular malt supplier was a matter of "who you know". Meanwhile, their own shipment of malted barley was delayed for five months at Lagos’s port.
Shooting a gritty scene for the thriller October 1 directed by Kunle Afolayan
There are numerous government agencies that can hold up containers at the port if bribes are not paid. Customs officers impounded a shipment of dried mango en route to Lagos from Ghana and left it to rot in the rain, says Affiong Williams, the founder of healthy snack company ReelFruits. Five per cent of the goods were destroyed.
Then there are the lorries queuing to get into the port, jamming up traffic elsewhere. One can skip the line, of course, if enough backhanders are doled out. But, according to one businessman, it costs $2,000 on average just to get a 40-foot container from the port to the industrial zone near Lagos airport.
The state of the port road itself is so bad (thanks to years of feuding between the federal government, which controls the road, and the state government) that Dangote, whose businesses have benefitted from protectionism and generous tax breaks, has pledged to fix it himself.
Bature has also run into problems getting its products registered – it has been trying to get a license from Nigeria’s food and drugs agency (NAFDAC) for one-and-a-half years. Williams, too, has her fair share of NAFDAC horror stories. It took her 18 months, for example, to get a two-year license renewed. As ReelFruits grew, she also attracted the attention of the Standards Organisation of Nigeria (SON), which said it needed to license the products too. Except it didn’t have any standards for dried fruit.
One SON mandarin demanded that Williams pay to create the standards. She refused and hasn’t heard from them since. The risk of a new, previously unheard-of regulation is always there, however. "It’s so difficult to be truly compliant," she says. "One big tax could literally be the difference between the beginning and end of your [small] business."
It is not just small companies that can run afoul of the Nigerian authorities. MTN is Nigeria and Africa’s largest telecoms company. But it has attracted unwelcome attention from politicians, many of whom are unsure that the South African business should be making so much money; in 2017 it made a profit margin of 38.9 per cent on revenues of 36bn rand (£1.9bn).
In 2015 MTN was fined $5.2bn for not deactivating unregistered SIM cards that the government argued could be being used by Boko Haram fighters. Many observers think that fine, which was eventually negotiated down to around $1bn alongside a promise to list its local unit on the Nigerian stock exchange, was MTN’s fault: it should have known better than not to comply with regulation.
Africa’s most populous country has anywhere between 160 million and 200 million people
However, most are more sceptical of the authorities’ latest attack. In August the central bank ordered the telco to return $8.1bn it alleged had been moved illegally out of the country in dividends, plus another $2bn in taxes. There are reports that MTN may be close to doing a deal with Nigeria’s central bank, but it will probably still have to pay in the region of hundreds of millions of dollars to maintain access to the lucrative market.
The lesson, say businesspeople, is to steer clear of government, whether federal, state or local, as much as possible. "One of the things we look for when we’re dealing with entrepreneurs is how focused they are on working with government. Because for us that’s a red flag," says Adebiyi, the private equity investor. "There’s just no continuity."
Nonetheless, there will always be some need to deal with the authorities, whether that’s paying taxes or shepherding goods through customs. Many entrepreneurs employ consultants to deal with regulation. Finding trustworthy middlemen can be difficult, although corruption is probably not as bad as an international investor new to Nigeria might expect, in the private sector at least.
"If you’re doing a lot of business with government, then having somebody in-house is important," advises Andrew Alli, the former head of Africa Finance Corporation, an infrastructure investor backed by 17 African governments.
"If you’re using a third party, you don’t have so much control over what they may be doing. In some areas, it’s probably quicker and easier, particularly at the beginning, if you’re willing to engage in corrupt practices. Which is why they still exist," he says, but adds: "People who choose not to do it in the long run are actually better off. You get a reputation for not paying bribes. Then people stop expecting it of you or bothering you."
For any business starting up in Nigeria, having a local partner to help navigate local norms is useful. "We’re not a quantitative people, we’re more of a qualitative people," says Feyi Olubodun, the head of Insight Publicis, an advertising agency. "Here you’ve got to know somebody, you have to have the right relationship networks, you’ve got to know the right nuances of respect and hierarchy. That’s what gets you in the door. You don’t even have to have any quantitative results to show."
There is a debate as to just how different Nigeria is from other African markets. Olubodun argues that it is possible to have a multi-country branding strategy, using ideas that resonate across the continent, like the importance of family and a love of "conspicuous consumption". He uses the example of an advert for Airtel, a telco, that features a mother praying for her son over the phone as he showers, works and socialises to demonstrate its generous call packages.
"There are common themes that you can apply," says Alli but, he cautions, "the difference between doing business in, say, Tanzania and doing business in Nigeria is probably as different if not more different than, say, Italy and the UK."
Ladoja agrees: "Spend some time here and not as a tourist. It’s important to understand how much doing business in Nigeria is different, even from other African countries."
Another oft-repeated piece of advice is the importance of having good local staff. "I don’t think it’s an accident that all of the best international businesses in Nigeria have Nigerians running them," says Southwell, who works with a local investment bank.
Companies that do well in Nigeria, then, are those that do their homework, invest for the long-term and either find a valuable niche or tap into the poor but huge population, as companies like Unilever have done.
Whatever their strategy, however, many expats find themselves falling in love with Nigeria, with its boundless chaotic energy. "It’s been an incredible place to work, because people here are incredibly energetic, industrious, entrepreneurial and dynamic," says Lindfield, Virgin’s country director.
"Adopt the courage of a Nigerian. Don’t be afraid," advises Olubodun. "Nigeria is a country that you can only win in if you take a long view to it. It’s a high risk but also a high reward environment."
Image credits: Akintunde Akinleye/Reuters
This article was first published in the December 2018 issue of Management Today.