Doing Business in Nigeria

Presentation By
Mr Larry E Ettah
GMD/CEO
UAC of Nigeria PLC
To
Tiger Brands South Africa


Thursday, 4
th
August 2011

Presentation Outline
Introduction
Nigerian Economic Overview
Business Environment Challenges
The Art and Science of Succeeding in
Nigeria
About UACN
Conclusions
2
Introduction

In this presentation, I will give an overview
of the Nigerian economy and business
environment; highlight the socio-economic
and political challenges of doing business
in Nigeria; and offer my prescriptions on
the art and science of succeeding in the
Nigerian business environment.

3
Nigerian Economic Overview
Nigeria is Africas second largest economy in
terms of GDP ($194Bn as at 2010) second only
to South Africa.
GDP growth has averaged 6-7% since 2003.
The country is the largest in terms of
population in Africa (20%), with population
estimates now approaching 158 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.
4
REVISED 2011 PROJECTIONS
5
GDP Structure
6
Manufacturing-3.93%

Telecommunications
& Post-4.79%

Real Estate-1.89%

Building and
Construction-2.01%

Solid Minerals-0.35%

Hotel & Restaurants-
0.51%
Crude
petroleum
& Natural
Gas-15.7%

Agriculture
-42.32%

Wholesale
& Retail
Trade-
16.19%

Finance &
Insurance-
4.16%

GDP Structure (contd.)
Three sectors make up 75% of Nigerias
domestic production and output:-
Crude Petroleum & Gas -15.70%
Agriculture -42.32%
Wholesale & Retail Trade -16.19%
TOTAL - 74.21%
Those 3 sectors, as currently structured
have minimal domestic linkages and
minimally affect poverty and
unemployment

7
GDP Structure (contd.)
Crude Petroleum and Gas
Limited Domestic Refining
Non-leverage of petro-chemical resources
Sub-optimising vast gas resources
Industry largely crude extraction and export
Agriculture
Sub-modern and dependent on rainfall patterns:
Given our resource endowment, we should be Africas bread
basket but now a basket case that can no longer feed itself.
2010, we spent $1 billion importing 10 year old rice from Indian
grain reserves while as with most crops, 40% of domestic
production lost at post harvest due to poor road infrastructure
and lack of processing capacity.
Wholesale and Retail Trade
Mostly imported goods
High import content of manufactured goods
Low domestic value addition
8
GDP Sectoral Growth Rates
9
Telecommunications &
Post-33.74%
Hotel & Restaurants-12.10%
Building & Construction-
12%
Solid Minerals-11.85%
Wholesale & Retail Trade-
11.40%
Business & Other Services-
10.65%
Real Estate-10.48%
Manufacturing-7.35%
Agriculture-5.84%
Finance & Insurance-4.28%
Crude Petroleum & Natural
Gas-3.96%
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 $1,229 by December 2010 reflecting
economic growth, but wealth distribution is
heavily skewed with 54% of the population
classified as living below the poverty line.
Telecommunications has experienced a
revolution with tele-density at 64.7%; 103.3million
mobile/GSM; 11.8million mobile/CDMA and
2.16million land lines as at April 2011, from just
400,000 total lines in 2001. One million Nigerians
have Blackberries.
10
Tele-Communications Sector
Indicators
Indicator
2010
GDP (N Millions)
29,108,024.45 ($ 194 Bn)
GDP PER CAPITA
184,458.4 ($1,229.72)
Operator
April 2011
Connected
Lines
Mobile (GSM) 103,347,158
Mobile (CDMA) 11,793,523
Fixed
Wired/Wireless
2,162,479
Total 117,303,160
Active Lines
Mobile (GSM) 83,643,903
Mobile (CDMA) 5,985,163
Fixed
Wired/Wireless
957,719
Total 90,586,785
Installed
Capacity
Mobile (GSM) 134,356,690
Mobile (CDMA) 17,232,725
Fixed
Wired/Wireless
9,351,108
Total 160,940,523
Teledensity 64.70
11
Nigerian Economic Overview
(contd.)
Nigeria 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, especially after the 2003 and 2007 elections.
The recent 2011 General Elections were however largely
perceived as credible, and the national electoral body
appears to have recovered a lot of credibility. Local and
international observers agree that the elections reflected the
will of the electorate
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 the power
sector privatisations which is now proceeding under a re-
invigorated power sector road map.
12
Nigerian Economic Overview
(contd.)
But the macroeconomic picture is weakened by a
dependency on oil ($40 billion revenue per annum)
which provides over 75% of the national budget and
over 90% of export earnings. Sadly of government
budget goes to recurrent expenditure leaving little for
capital investment in infrastructure.
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. De-industrialisation has hit quite hard in recent
years (textile, tanneries, tyre industry, vehicle assembly
etc.).
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)
13
Federation Account: Composition of
Revenue (NBn)
14
BUSINESS ENVIRONMENT CHALLENGES
SOCIAL

Corruption!!
Crime and Insecurity
Armed Robbery and Kidnapping in Eastern Nigeria
appears to have clearly trended downwards
Militancy in the Niger-Delta has subsided based on an
amnesty programme
Religious and sectarian crisis in parts of Northern Nigeria is
however increasing especially with Boko Haram and
post-election violence (our Pakistan?)
Education and Health Services suffered from under-
investment during military rule
Absence of social protections
An underlying problem is the high and rising
unemployment, believed by most analysts to be higher
than the official statistics revealed on the next slide :-
15
Demography and Unemployment
Year Total Population Unemployment
Rate
2004 134,131,224 13.4
2005 138,468,013 11.9
2006 140,003,542 12.3
2007 144,483,655 12.7
2008 149,107,132 14.9
2009 153,878,560 19.7
2010 157,802,674 21.1
16
Political
The 2011 elections re-emphasised regional and religious fault
lines especially in the presidential elections.
Post-election violence in parts of the North may (at least
partly) reflect Northern resentment at victory of a Southern
Christian
Slow pace of governance and manifest official fidgeting
Regional and ethnic tensions associated with power rotation
Political Corruption
Multiple Taxes, Charges and Levies from Federal, State and
Local Governments and Agencies: A universe of red tape
engulfs the economy leading to rent seeking, State siege, and
policy capture by cronies. Each regulation is an opportunity
for bribes and policy another avenue for corruption.
Nigeria ranks 178
th
out of 183 countries when it comes to
transferring property.
17
Economic
Weak Infrastructure, particularly power and
transportation
Businesses have to provide alternatives to
public services:-
Alternative Power Generation (Nigeria is the
worlds biggest market for private generators).
Security Services
Courier and Postal Deliveries
Water Boreholes
Problems associated with export and import
logistics-ports; customs; inspection services;
etc
18
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 and the Naira is
clearly under pressure.
A gap (of N15-18) has re-emerged between official rates and the parallel
markets where the $ now exchanges for N165-170

High Interest Rates (Prime Lending Rates around 18%)
Unstable and Volatile Inflation oscillating between 10 and 15% (10.2%
as at June 2011)
Strained Financial and Capital Markets

Capital market has not recovered from 2008 collapse
The fate of 8 banks taken over by the CBN remains unresolved
Indicators for private sector credit aggregates remain sub-optimal
19
Doing Business in Nigeria
% of sales, additional costs from :
20
NIGERIAN COMPETITIVENESS
21
NIGERIAN COMPETITIVENESS
(CONTD.)
22
NIGERIAN COMPETITIVENESS (CONTD.)
23
NIGERIAN COMPETITIVENESS
(CONTD.)
24
OPPORTUNITIES
It goes without argument that one major attraction of
Nigeria to investors has been her huge and growing
population which represents a big market for any
manufacturer especially of FMCG products.
It is estimated that Nigerias population is currently in
excess of 160 million and growing at an estimated rate
of about 2% per annum.
With growing urbanization and growing middle class, this
translates to a very big and potential market for
manufacturers and service providers.
The experience of those that entered the market when
the telecoms sector was liberalized about 11 years ago
attests to this fact.
25
OPPORTUNITIES
Other areas currently attracting attention for the
inflow of FDI into Nigeria include the following:
Agriculture: Nigeria has huge arable land unused;
meanwhile food import annually has risen to as high
as N1 trillion. We import mainly grains (maize, rice,
wheat) and processed food items (tomato paste,
cooking oil of all description, chocolate, etc.)
Agro-Allied: These are activities for the processing of
agricultural products into semi- or finished food items.
Power Generation and Distribution: Government is
working out the details for the implementation of the
Power Sector Road Map that will guide investment in
this sector.
26
OPPORTUNITIES
Petroleum and Petrochemicals: There is still a
huge opportunity most especially in the
downstream sub-sector and petrochemicals. It is
expected that the passage of the pending PIB
will further spur activities in the sector.
Mining: The country is endowed with a wide
array of minerals some of which are currently not
being exploited. In some instances, some locals
in areas where these minerals are already known
to exist have been helping themselves to it,
sometimes to the detriment of their health.
Building and Construction: particularly of
affordable housing for the teeming population.

27
OPPORTUNITIES
Manufacturing: Here we are talking of not
only consumer goods, but also of
intermediate and heavy industrial
manufacturing. The iron and steel industry
is largely undeveloped as well as vehicle
manufacturing, boat construction, etc.
FMCG: The FMCG market is big and
expanding and provide unique
opportunity for firms with good quality
products and brands to thrive.
28
Distribution channel is broadly classified into two
BTC Business to Consumer
BTB Business to Business

BTC flow through company nominated Mega/ Key
Distributors to Sub-Distributors/ retailers who
operate mainly in the open market and
neighbourhood shops
BTC constitute 95% of distribution efforts
BTB channel covers institutional customer/ formal
supermarkets. Medium to large Shopping Malls
have evolved slowly over the years.
THE NIGERIAN MARKET & DISTRIBUTION
29
29
There is penchant for imported brands
The premium outlets like shopping mall confer on
shoppers some perception of quality and
convenience though at relatively extra cost
Increasing health consciousness of the consumers
Children take preference in consumer spending
Food is top on family budget allocation while
communication ranks second
CONSUMERS BUYING PSYCHE
30
30
The Art and Science of
Succeeding in Nigeria
Business success in Nigeria requires a level of
resourcefulness that is likely to be in excess of that
required in other markets!!! MTN Experience: equip each
mast with generator, a back up generator, a fuel tank,
guards to protect the fuel and a lorry to deliver.
Operating cost thus 3 times that of South Africa.

As pointed out earlier, entrepreneurs and managers in
Nigeria must acquire some municipal competences:-

Alternative power generation
Postal and courier deliveries
Security
Water and boreholes

31
The Art and Science (contd.)
Businesses must also develop unique skills at managing the
three different levels of governments:-

Local governments demanding radio, television and computer licenses;
tenement rates; and other multiple charges

State governments imposing employee taxes; levies on mobile
advertisements, bill boards, corporate signages; authorising building
constructions; regulating environmental and other standards etc.

And federal ministries and agencies imposing multiple taxes-corporate,
education, etc; granting expatriate quotas and resident permits;
operating ports and customs services; approving technical partnerships
and technology transfers; approving trademarks, patents, company
incorporations; and doing many of the same things replicated at the state
levels-e.g. food and drug advertisement; environmental issues.

Corruption, capriciousness and an overlap of regulatory coverage
makes this particular issue a matter requiring dexterity, diplomacy
and in some cases willingness to resort to playing hardball!
32
Comparison *costs incl average demurrage/storage/documentary
demurrage documentary charges etc.
Indices Singapore Mauritius Apapa Cotonou
world
ranking
1st
1st
in Africa
Clearing
Leadtime
4 days 13 days 29 days 4 days
Import
Doc Reqd
6 5 9 6
Cost per
container*
$445 $670 $2,678 $1,106
33
Source: Manufacturers' Association of Nigeria
The Art and Science (contd.)
Poor infrastructure, weak public service delivery
and disregard for customer service, corruption
and eroding societal value systems introduces a
scientific principle-things will not proceed the
way you want, except you constantly monitor the
process!
Unfortunately this does not apply ONLY to the
public services! The decline in quality of human
capital produced through our public education
system means firms must almost totally re-
educate fresh hires through expensive
management trainee programmes in some cases
including basic mathematics and education!
34
The Art and Science (contd.)
Fortunately for those willing and able to
overcome these slight obstacles, the rewards
can be substantial!
There are many successful foreign firms who have
mastered the Nigerian environment, usually in
concert with local investors who know the terrain
and are accustomed to the peculiar demands of
the Nigerian market.
The combination of a large and youthful
population; a consumerist orientation and global
lifestyle; and developing markets means
opportunities are vast and potential is huge.

35
The Big Picture for FMCG
Positive outlook over the medium to long term. Growth
may be moderate though in short term resulting from
infrastructure induced inefficiencies. A robust medium to
long term growth is most likely outcome due to:-

(a) increase in consumption of food and consumer
products as disposable income rises in tandem with
GDP growth.
(b) increasing supportive business environment/climate
from reforms and new government policies.
(c) Demography dividend a population of 158 million
with an average age of 18 years.
(d) improvement in manufacturing and distribution as
infrastructure deficit reduces.
37
38
uac - a history of mergers, acquisitions and
restructuring
1672 Royal Niger Company obtained a charter to administer a
territory later known as Nigeria
1879 United Africa Company formed from merger of Alexander
Miller Bros & Co, Central African Trading Co. Ltd, West African
Trading Co. Ltd and James Pinnock
1880 National African Co. Ltd floated to take over assets of UAC
1886 Name change to Royal Niger Co. Chartered and Limited
1892 Royal Niger Company recruited Captain Lugard to protect
her interests in the territory; he later became Lord Lugard,
Governor General of Nigeria
1900 Name change to The Niger Co. Ltd following revocation of
charter
39

uac contd. history ..the story
continues
1919 The Niger Co. Ltd was bought by Lever Brothers Ltd
1931 Company incorporated in Nigeria as Nigerian Motors
Limited, a subsidiary of Lever Brothers
1943 Name change to United Africa Company Nigeria Ltd
1973 Name change to UAC of Nigeria Ltd
1974 Unilever sold 40% equity to Nigerians pursuant to a decree
1977 Unilever sold a further 20% equity to Nigerians
1993 Chief Ernest Shonekan, UAC Group MD appointed Interim
President of Nigeria
1994 Unilever sold its remaining equity holding to the public
2004 Actis, a private equity firm acquired 20% stake in UAC
2009 Actis completed its divestment from UAC in line with plan
2011 Tiger Brands comes into partnership with UAC in respect of
3 business units

40
To be Number One in our
Chosen markets, providing
exceptional value to our
customers
Our Values

42
Our Customers are our focus
We act with respect for the individual
We act with integrity in everything we do
Team spirit will give us good success
Innovation for business sustenance and value
creation
We are open and communicate with our
people


DESIRED OUTCOME
Adding value to lives of our stakeholders

DIVISIONS
(At the Altar!)



UAC Restaurants


MDS Logistics

SUBSIDIARIES
UAC Foods Ltd-51%*
UPDC Plc -46%
Grand Cereals Ltd-
64%
GM Nigeria Ltd-60%
WSWN Ltd-75.94%*
CAP Plc-50.18%
Mr. Biggs Ghana
Ltd-100%
UNICO CPFA Ltd-
86.67%
UAC Registrars Ltd-
100%?

ASSOCIATED
COMPANY



Opticom Leasing
Company Ltd-40%?

GROUP STRUCTURE -today
Our categories
FOODS
UAC Foods
Ltd


Grand
Cereals Ltd
SPRING
WATER

Warm
Spring
Waters Ltd
(Candidate
for Merger
with UAC
Foods Ltd.)
REAL ESTATE &
PAINTS
UACN Property
Dev. Co. Plc

CAP Plc
LOGISTICS
MDS
Logistics
OTHERS
GM Nigeria
Ltd

Unico CPFA
Ltd

UAC
Registrars
Ltd (Divest)

Opticom
Leasing Ltd
(Divest)
45
SWAN AND WSWNL
46
SWAN is the pioneer bottled water brand in Nigeria




leading integrated Supply Chain Solutions provider
in Nigeria over 200 warehouses in 47 cities
9
The West African technological licensee of
AkzoNobel for the production and
marketing of Dulux the worlds Number 1
Paint. No.1 in Nigeria by Revenue and
Profit.



UACs alliance with General Motors of
USA.

51
52
Victoria Mall Plaza 1
Golden Tulip Festac
Foremost real estate company
The company started as a buyer/exporter
of produce cocoa, groundnuts, palm
kernels, etc and importer of virtually all
items which in the opinion of the company,
the natives needed.

Through a process of divestments,
acquisitions, restructuring and business
refocusing, uac has for over a century
remained a foremost private enterprise
and leader in the economic advancement
of Nigeria.

It now operates as a food-focused
conglomerate with investments in logistics,
automobile, real estate and paints sectors
with a diversified revenue profile.

53
uac


As an EM player, we seek alliances to strengthen our market
position through exploring new capital corridors (finance,
managerial and technological) with partners that share
sense of potential in our markets. As a conglomerate, we
believe the model of business is not as important as the
management, so best to seek relevant strategic partnership
for each business so that we can succeed.

We believe values are critical to success and trust is
important for relationship. A relationship built on trust
sometimes earns the minority partner influence beyond what
is contractually specified and minority interest can be seen
as part of a multistep approach to eventual control.

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.

Tiger Brands has chosen a wise market entry strategy-through a joint
venture with a local player with over a century of local knowledge
and experience-a strategy that ensures you mitigate the challenges
of operating in a peculiar but attractive market; while leveraging
your technology and operating efficiencies, products and brands,
and go-to-market strategies in the challenging yet exciting Nigerian
market space
55
Thank you for listening!
56