International Business Environment Analysis: Nigeria

10 Pages   |   2,159 Words
Table of Contents
 
Executive Summary. 3
Introduction. 3
Business Environment 4
Political Environment 4
Legal Environment 5
Cultural Environment 5
Economic Environment 6
Financial Environment 7
Recommendations. 7
References. 9

Executive Summary

Nigeria is a West African nation with the highest population in the continent. They were facing political problems, which did not let the country succeed for many years. They have a democratic regime now which is trying to establish the country as a favorable destination for international investors.
The business environment in any country has a lot of factors. They are political, legal, cultural, economical and financial. The political situation of Nigeria is now stable after years of unrest but is still quite volatile. The legal system of the country is flawed and due to the strict and unnecessary laws Nigeria is one of the worst countries in terms of ease of setting up business. The country has a very distinct cultural identity which does not allow foreigners to settle in to their routine. They are, however, friendly and believe in the long term business relationships. The economic condition of the country is extremely positive, and the country is showing potential to grow in the future. They are opening up to the foreign markets, and the middle class within the country are growing and leading a better life than before. The country has a good financial set up; however, the government is trying to better it by bringing in new regulatory authorities.

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Nigeria is not a very favorable destination for international companies to invest at present because its instability, but they are showing potential for future possible investments that will lead the country to success.

Introduction

Federal Republic of Nigeria is a West African country. It has the highest population in Africa and is the seventh highest in the world. Nigeria had been facing severe political problems in the past, however, in 1960 the unification of southern and northern Nigeria brought about some changes. Democracy was introduced way later in the late 1990’s, and at the present, the political situation of the country is stable. The political stability also brought economic stability to the region. Nigeria has one of the highest economic growth rates in Africa standing at 7.2% in 2011 (CIA, 2012). The economy is highly supported by the petroleum sector which accounts for 40% of the GDP. The oil rich Nigeria has been a popular destination for investors from all over the globe. This paper will analyze the business environment of Nigeria and will lay several key factors that influence the business environment in the country.

Business Environment

Business has to have their own environment where they can flourish and grow. Proper environment lays the foundation stone of success within the business; there is an intricate connection between environment and business. The main reason for this connection and interaction is to generate maximum revenues that are possible (Chidi et al., 2011).
Business environment is influenced by several factors that are cultural, political, legal, economical and financial in nature. These factors when combined form an overall business environment in a region, which every international investor who wants to invest and start their business in the region, should know about.

Political Environment

Political factors are those that estimate the effect that the government policies have on a certain business. These policies can be related to taxes, regulatory, legal laws, workplace requirements and so on. Political factors are the most influential factors in determining the overall business environment of the region because governments have a say in almost everything being done in their jurisdiction (Chidi et al., 2011).
Political stability is almost essential in providing a favorable business environment in which to run a business (Olarewaju & Folarin, 2012). Corruption had been rampant in Nigeria which did not allow the country to benefit from its oil reserves. Also, the political tensions between several groups created massive unrest in the country. The 2003 election were the starting point of a democratic regime which tried to cleanse its economy, and the country is politically stable since the democratic regime took over. Several political reforms were also laid down to facilitate the international businesses to operate in the country.

Legal Environment

The legal environment in Nigeria does not favor the country at all. They have rigid policy and regulations for starting a new business which can be easily passed through if the business is willing to extend some extra cash to the law enforcers. It takes almost 34 days to start a small business and there are a lot of unnecessary laws in place to prevent from easy set up of a business. Nigeria currently ranks 116 out of 183 countries in the ease of starting a business in the World Bank’s Enterprise Survey on Doing Business (The World Bank, 2012).
The law components in a business environment include consumer law, health related law and other factors that can influence the operations of the company and the price that they charge. The government in Nigeria is doing its best to facilitate the international market and ease up on the strict and flawed legal requirements of starting a business.

Cultural Environment

Cultural and social factors are central in determining the business environment in a country. Culture is something that influences the daily life, the way of life and hence, the way of doing business. Nigeria has a very diverse culture, and there are people from all sorts of groups that live together. The cultural significance of Nigeria comes in with the value they have for the community and their families. Religion also plays an integral part in determining the cultural environment of the region (Ogbonna, 2010).
People who come from other countries have a very difficult time in adjusting to the culture of Nigeria. The MNC’s that hire foreign nationals in Nigeria have seen high rate of foreigners returning back to their homeland after their failure to adapt to the culture of the region (Okpara & Kabongo, 2011). In this age when globalization has led to people coming in and out of different cultures, Nigeria is perhaps one of the few places that still has its own cultural identity and the different ethnic groups pride themselves on their culture and make it extremely difficult for people from other background to settle in the basic business environment.
Nigeria’s culture is based on relationships, and this has a saying in the business environment of the region. They strive in the long term relationship and trust. There are a lot of different languages spoken in the region; however, people usually understand when someone is being polite and honest, and that is what matters the most to them (Katz, 2005).
The culture in the business environment in Nigeria is very formal. They are relaxed about time in their endeavors, but they expect to be properly respected and will start a friendly relationship quite easily.
The cultural environment in Nigeria has a mix of both positive and negative aspects of the business environment. Some factors count as a positive considering the culture in other African nations, but Nigeria is not a very comfortable place for foreigners to settle in. International businesses could invest in the country but be prepared to hire everyone locally to get the desired outcome.

Economic Environment

The economic environment constitutes of the economic situation of the region. The growth rate, the income distribution, exchange rates and so on. An international business has to monitor the demand of its goods in the foreign market as well as the exchange rate which will lead to fluctuations in the price of goods that are imported (Chidi et al., 2011).
Nigeria has one of the highest GDP growth rates in Africa which translates to future economic growth and potential for growth. It is suggested that African countries have higher relative prices and lower quality for components that cannot be substituted; however, for production components that are easily substitutable are prices relatively lower (Eifert et al., 2008).
Nigeria has been trying extremely hard to get into the global market. In fact, they are one of the founding members of the World Trade Organization which is striving to remove the barriers to trade between countries (Okoh, 2004). The recent democratic government has taken a lot of steps compete internationally and let the foreign companies set up in Nigeria. They set up deals with several countries to boost their international market which is growing exceptionally over the past few years. The international players in Nigeria have grown significantly; however, most of the foreign players are only interested in the petroleum sector because of the possibility of low cost in extraction of crude oil from oil rich Nigeria.
The growing economy coupled with a rise in GDP per capita has led to a rise in consumer’s buying power. The main factors for the growth of consumer spending are higher income levels, high rate of urbanization which is currently more than 50% and westernization. Foreign presence has led to people buying more than what they can afford in the past years. Innovation from producers has also led to this growth rate. For example, small sized and low priced packets were introduced for people who cannot afford a default good. This led to a rise in demand for products (BGL Research and Intelligence, n.d.).
Nigeria’s population is predominantly poor with more than 70% living below the poverty line. This has changed in recent years where the middle has grown exceptionally. The middle class now accounts for around 23% of the total population and is growing day by day. This rise in middle class and better living conditions will provide a pre cursor to international firms trying to tap into the Nigerian market and provide competition to local producers.
With globalization and foreign companies entering Nigeria, people have become more receptive to imported goods (Edigin, 2010). They buy branded clothes and better quality foreign products. The rise in GDP per capita is attributed for this change. They want to lead a better life, and the local products do not provide the quality and satisfaction that imported goods do.

Financial Environment

The financial environment in Nigeria has also improved considerably over the years. They have a very strong banking network and other financial institutions. International Financial Institutes have also set up shop here such as Price Water Cooper. There is a talk of a new and improved regulatory authority to be placed along with the Nigerian government also adopting the international accounting standards for reporting. The capital market in Nigeria is; however, not developed and is open to manipulation.

Recommendations

Nigeria is a growing economy with huge future potential. International companies are stepping into the country, and the government is supporting them and taking necessary action to comfort them in any way possible.
It is not easy to set up business in Nigeria. They are still politically fragile, and their legal system is a joke. The government is still dealing with high corruption. The culture of the country does not allow foreign citizens to settle in and call this place their home.
The only positive aspect of this country’s business environment is its economic situation, which looks very promising. I would not suggest Nigeria as an immediate destination to diversify. Maybe, wait a few years until the road is safe and clear.

References 

BGL Research and Intelligence, n.d. The Nigerian consumer space: How large is the market?.
Chidi, O.T., Babatunde, O.O. & Titus, O.A., 2011. External and internal environments of businesses in Nigeria: An appraisal. International Bulletin of Business Administration, (no. 12), pp.pp. 15-23.
CIA, 2012. CIA- World Factbook. [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html [Accessed 12 October 2012].
Edigin, L.Y., 2010. Nigeria in the context of the global economy. European Journal of Social Sciences, vol. 16(no.1), pp.pp. 21-27.
Eifert, B., Gelb, A. & Ramachandran, V., 2008. The cost of doing business in Africa: Evidence from enterprise survey data. World Development, vol. 36(no. 9), pp.pp. 1531-1546.
Katz, L., 2005. Negotiating International Business- Nigeria. In Negotiating International Business- The negotiator's reference guide to 50 countries around the world. illustrated ed. California: Booksurge.
Ogbonna, C., 2010. Cultural issues about doing business in Nigeria: Case study for the Thurmo Oy. Research Thesis. Central OstroBothnia University of Applied Sciences.
Okoh, R.N., 2004. The global marketplace: How far can Nigeria go with the present non-oil product mix? Forum Paper. South Africa: African Development and Poverty Reduction.
Okpara, J.O. & Kabongo, J.D., 2011. Cross-cultural training and expatriate adjustment: A study of western expatriates in Nigeria. Journal of World Business , (no. 46), pp.pp. 22-30.
Olarewaju, A.A. & Folarin, E.A., 2012. Impacts of external business environment on organizational performance in the food and beverage industry in Nigeria. British Journal of Arts and Social Sciences, vol. 6(no. 2), pp.pp. 194-201.
The World Bank, 2012. Doing Business. Economy Profile: Nigeria. United States: The International Bank for Reconstruction and Development.

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