Recently someone called me with excitement about the new value of the Naira. She had been hearing about Nigeria’s economic challenges, but had never really considered what this meant to her, as she was not directly affected by it (her entire immediate family are spread across America and the UK).
It was when she sent some money to her aunt that she realised that $1000 was now almost N500,000. Oooh boi! To say she was excited was an understatement. She started calculating the things she could now afford to do in Nigeria. At the top of the list was buying property and starting a small business.
She called me to discuss some of her ideas; however, when I cautioned that many popular businesses are actually running at a loss she was confused. I had to break it down for her and explain that many business owners simply do not understand the basic principles of accounting and tend to run their limited liability companies as sole traders (I know some people will be reading this and thinking ‘huh!’)
Small and Micro Businesses
Over the years I have seen many people doing business in Nigeria without the proper training or even a basic understanding of the various types of structures available for their business operations.
The obstacles faced by small and micro businesses are universally established; entrepreneurs in this sector inherently face many challenges that limit their long-term survival and the rate of their development.
There are currently many high-profile initiatives and training programs available to empower and support small and micro businesses. Uunfortunately, many entrepreneurs are not aware or do not have the skills or network to take advantage of these developmental aids. As you can imagine, where the promoter of a business is cash rich but knowledge and experience poor, the likelihood of the business succeeding is slim to none.
In this article I will briefly run through the things that one needs to do when thinking about doing business in Nigeria.
For many Nigerians in diaspora, most of which might have spent most of their adult lives abroad, a question which resonates is “Why Nigeria?”
To this my answer is always: –
1. Nigeria has the largest population in Africa, thus a relatively cheap labour force and a large market for initial sales;
2. We have abundant natural resources (not just oil and gas, coal, copper, livestock, poultry etc);
3. We have vast and fertile land for agricultural projects;
4. There are significant government incentives for small and micro businesses, as well as for foreign investors;
5. We have the largest economy in Africa and have been identified by Goldman Sachs as being amongst the “next eleven” economies.
Things to Consider
The following are things to consider when setting up a business in Nigeria
Local incorporation is compulsory in most instances. Investors may consider registration of a business name or forming a private limited company. There are pros and cons to either option. The final choice will be largely dependent on the nature of business you wish to set up. Where you decide to incorporate a private limited company, it would be advisable to outsource the companies secretarial and accounting needs. This tends to be menial, but the correlation to the success of the business unquantifiable.
b. Importation of Capital
This may be done by either importing the raw cash, or done in kind (i.e equipment, plant, machinery). Either way, prior to the importation of the required capital, business promotors should research and obtain a Certificate of Capital Importation (“CCI”). The CCI is required by investors who plan to remit profits for either non-resident shareholders or loan and interest repayments attributable to the investment. It enables the holder, by presenting the CCI, to purchase foreign currency from the official foreign exchange market.
c. Registration with NIPC
Any enterprise in which there is foreign participation (foreign here means a non-Nigerian national) must be registered with the Nigerian Investment Promotion Commission (“NIPC”). NIPC provides services and facilitates the grant of business permits, licenses, authorizations and incentives.
d. Business and immigration permits
These are necessary where there is foreign participation in the undertaking of any business in Nigeria. The relevant companies would also need an expatriate quota for each expatriate it wishes to employ; this could be either a Temporary Work Permit for expatriates engaged in short term assignments or a Combined Expatriates Residents Permit and Aliens Card for expatriates wishing to stay in Nigeria for longer periods of time; and
e. Industry permits and registrations
The type of permits and registrations one would typically apply for is determined by the nature of the proposed business, I would advise that the applicable permits and registrations be thoroughly researched beforehand to avoid unnecessary governmental intervention. Tax registrations are necessary at both federal and state level, and a Tax Clearance Certificate tends to be a prerequisite for most applications for regulatory approvals.
Key Investment Issues
There are some areas where there is a statutory requirement that the business is owned by a certain percentage of Nigerians in order to be eligible for certain government incentives. These include the oil and gas sector, as well as the Nigerian maritime sector. When intending to partner with a foreigner for any project, it is important to research if the proposed venture is caught within these exceptions and discuss ways around it.
Other investment issues which most people do not factor into their business plans, are the mandatory contributions required by eligible organisations.
These are specifically: –
i. Industrial Training Fund – 1% of payroll for organisations with more than 5 employees and an annual turnover in excess of N50,000,000 (fifty million naira);
ii. Pension fund – applicable where the employer has up to three employees in any sector. The employer is to contribute 7.5 – 10%, and the employee is to contribute 7.5 – 8.5% of the employee’s monthly emolument;
iii. Employee Compensation Fund – the minimum monthly contribution of 1% of the total monthly payroll;
iv. National Health Fund – An employer with a minimum of 10 employees is to contribute at a rate of 10% whilst the employee pays 5%, thus representing 15% of the employees’ basic salary; and
v. National Housing Fund – A Nigerian worker earning an income of N3,000 (three thousand naira) and above per annum in both the public and the private sectors of the economy shall contribute 2.5% of his basic monthly salary to the Fund
Lastly, I cannot over stress insurance. Many people don’t believe in insurance in Nigeria, as they don’t think the insurance companies pay out. This is a popular misconception; insurance companies do.
On a funny note, one time I was discussing with a group of friends, some of which were business owners. They mentioned that one of the main reasons businesses fail in Nigeria is because of people owe the business money.
I disagreed with them and said it was due to mismanagement. When I went on to say that, in balancing the books of any business a debt is an asset to the company, the whole room lit up in debate.
Many simply could not fathom this; generally a debt is not a favourable thing nor would the lay man consider it an asset. It took a while for the room to understand that for a company, a debt is an asset and that it is when this debt remains unpaid that it then becomes a bad debt. Only then is it recorded as a loss in the company’s accounts.
(P.S. Abeg if you are working for a small organisation and they are not paying any of the above mentioned mandatory contributions… report them ☺)