Transcript THE REQUISITE BLOCKS FOR BUILDING THE DOING GOOD …

Doing Business in Nigeria
Presentation By
Mr Larry E Ettah
GMD/CEO
UAC of Nigeria PLC
To
Tiger Brands South Africa
Thursday, 4th 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 Africa’s 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
Crude
petroleum
& Natural
Gas-15.7%
Manufacturing-3.93%
Agriculture
-42.32%
Real Estate-1.89%
Wholesale
& Retail
Trade16.19%
Finance &
Insurance4.16%
Telecommunications
& Post-4.79%
Building and
Construction-2.01%
Solid Minerals-0.35%
Hotel & Restaurants0.51%
6
GDP Structure (contd.)
• Three sectors make up 75% of Nigeria’s
domestic production and output:– Crude Petroleum & Gas
– Agriculture
– Wholesale & Retail Trade
TOTAL
-15.70%
-42.32%
-16.19%
- 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 Africa’s 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
Telecommunications &
Post-33.74%
Hotel & Restaurants-12.10%
Building & Construction12%
Solid Minerals-11.85%
Wholesale & Retail Trade11.40%
Business & Other Services10.65%
Real Estate-10.48%
Manufacturing-7.35%
Agriculture-5.84%
Finance & Insurance-4.28%
Crude Petroleum & Natural
Gas-3.96%
9
Nigerian Economic Overview
(contd.)
• Nigerians are entrepreneurial, dynamic and
amenable to global lifestyles and consumptionoriented.
• Per capita GDP has improved from under $700 in
2004 to $1,229 by December 2010 reflecting
economic growth, but wealth distribution is
heavily skewed with 54% of the population
classified as living below the poverty line.
• Telecommunications has experienced a
revolution with tele-density at 64.7%; 103.3million
mobile/GSM; 11.8million mobile/CDMA and
2.16million land lines as at April 2011, from just
400,000 total lines in 2001. One million Nigerians
have Blackberries.
10
Tele-Communications Sector
Indicators
2010
Indicator
GDP (N’ Millions)
29,108,024.45 ($ 194 Bn)
GDP PER CAPITA
184,458.4 ($1,229.72)
April 2011
Operator
Connected
Lines
Active Lines
Installed
Capacity
Mobile (GSM)
Mobile (CDMA)
Fixed
Wired/Wireless
Total
Mobile (GSM)
Mobile (CDMA)
Fixed
Wired/Wireless
Total
Mobile (GSM)
Mobile (CDMA)
Fixed
Wired/Wireless
Total
Teledensity
103,347,158
11,793,523
2,162,479
117,303,160
83,643,903
5,985,163
957,719
90,586,785
134,356,690
17,232,725
9,351,108
160,940,523
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 reinvigorated 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 ¾ 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 (N‘Bn)
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 underinvestment 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 178th 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
world’s 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 Nigeria’s 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
THENIGERIANMARKET&DISTRIBUTION
• 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.
29
29
CONSUMERS’BUYINGPSYCHE
• 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
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
Source: Manufacturers' Association of Nigeria
33
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 reeducate 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
1919 – The Niger Co. Ltd continues
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
• 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
42
GROUP STRUCTURE -today
DIVISIONS
SUBSIDIARIES
(At the Altar!)
• UAC Foods Ltd-51%*
• UPDC Plc -46%
• Grand Cereals Ltd-
ASSOCIATED
COMPANY
64%
•UAC Restaurants
•MDS Logistics
•
•
•
•
GM Nigeria Ltd-60%
WSWN Ltd-75.94%*
CAP Plc-50.18%
Mr. Bigg’s Ghana
Ltd-100%
• UNICO CPFA Ltd86.67%
• UAC Registrars Ltd100%?
• Opticom Leasing
Company Ltd-40%?
Our categories
FOODS
SPRING
WATER
• UAC Foods
Ltd
• Grand
Cereals Ltd
• 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
SWAN is the pioneer bottled water brand in Nigeria
46
leading integrated Supply Chain Solutions provider
in Nigeria over 200 warehouses in 47 cities
The West African technological licensee of
AkzoNobel for the production and
marketing of Dulux – the world’s Number 1
Paint. No.1 in Nigeria by Revenue and
Profit.
9
UAC’s alliance with General Motors of
USA.
51
Foremost real estate company
Victoria Mall Plaza 1
Golden Tulip Festac
52
uac
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
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