Rebased GDP figures, when they are released, are likely to make Nigeria the largest economy in sub-Saharan Africa, surpassing South Africa. While the increased size of the economy makes the country more attractive on paper, performance targets for companies may become harder to reach as growth rates slow because the economy is expanding from a larger base.
E-commerce is booming on the back of Nigeria’s large consumer base increasingly shopping online. Multinational companies should tap into this fast growing channel to reach consumers.
A new militant Islamist group emerged in the north of Nigeria, changing the security situation for multinationals, as foreigners are now being targeted. Companies operating in the north have to implement strategies to mitigate risks. Companies operating in Lagos and the south are not in danger from this group.
Trend #1: GDP rebase to impact performance targets
Nigeria will surpass South Africa as the continent’s largest economy when GDP is revised upwards between 40-60%. It is unclear however, when the new figures will be released. But if GDP increases by 40%, Nigeria’s economy would swell from US$275 billion to $385 billion. South Africa’s economic output is $378.9 billion. New GDP figures will be calculated by using prices of goods and services from a 2008 base year. Currently, Nigeria’s GDP is calculated by using 1990 figures, which do not account for the rapid development of the services, telecoms, and entertainment industries.
While the increased size of the economy makes the country more attractive on paper, performance targets may become harder to reach if they are calculated on a GDP multiplier basis. Executives must communicate changes in GDP forecasts to corporate to set expectations about performance in the Nigerian market. Companies should consider revising growth targets down to reflect revised GDP growth.
Trend #2: E-commerce is growing – get ahead of the curve
Nigeria’s e-commerce market is expanding rapidly. Online sales grew 25% in 2011 to N62.4 billion, up an additional N12.5 billion from N49.9 billion in 2010. Total investment in the sector is estimated at N2.4 billion, but this figure is expected to double by 2014 as Nigerian consumers shop more online. The trend is fueled by deepening internet penetration and an uptick in purchases made with mobile phones. In Mastercard’s 2012 online shopping behaviour survey, the share of purchases made with mobile phones increased to 30.3% up from 8.0% in 2011.
E-commerce allows companies to reach a wide consumer base, even without having a local presence in the market. Multinationals can capitalise on growing online sales by partnering with local e-commerce providers and by offering internet shoppers exclusive deals and differentiated products.
What you need to know when building an e-commerce platform for Nigeria:
- Payment methods and cash-on-delivery: Despite attempts to reduce Nigeria’s reliance on cash, the economy is still very much cash-based as credit card penetration remains limited. Allow customers to pay cash on delivery alongside other payment methods.
- Human contact: Nigerians value human interaction when shopping. They like to touch, feel, and speak about the product. Have customer relations managers call customers after the item has been reserved online to make sure the customer really wants the product. Allow customers to touch and see the product on delivery.
- Online deals: Offer good online deals to highlight the appeal of online shopping and build recurring customers as Nigerians are very price sensitive and will compare prices.
- Trust: Nigerians are very suspicious of buying online considering high levels of cybercrime. Once trust is established through the steps outlined above, customers will shop online for your products with fewer reservations.
- Challenges: Nigeria’s e-commerce industry faces various challenges including poor infrastructure, road congestions, power blackouts, the high cost of internet, and cybercrime.
A new militant Islamist group called Ansaru emerged in the north of Nigeria, changing the security situation for multinationals in the region for the worse. Companies operating in Nigeria’s commercial centres including Lagos and the south are not in danger from this group.
Ansaru, a more radical breakaway group of Boko Haram, came to the forefront in 2012. The movement is heavily influenced by Al-Qaeda in the Islamic Maghreb (AQIM) and motivated to fight French and Nigerian military intervention in Mali. Ansaru’s agenda is far more international than Boko Haram’s. It is being manifested for the first time with the systematic kidnapping of foreigners. Boko Haram’s grievances are primarily local and come down to skyrocketing unemployment and poverty in the north of the country (60-70+%). It primarily aims to weaken the government, which it blames for the precarious economic situation. But as security forces vehemently cracked down on Boko Haram militants, weakening its leadership, the movement fractionalised, creating a more radical offshoot. Companies should monitor closely whether attacks against foreigners are increasing and prepare for insecurity in hot spot regions.