NIGERIA A hard school

There are no short cuts to success — investors should expect some stress

As one of the most attractive frontier markets for consumer businesses, Nigeria, with its strong annual growth prospects of 6%-7%, has been touted to topple SA as the continent’s largest economy, despite its notoriously challenging business environment.

It’s Africa’s most populous nation, with more than 168,8m people, most of whom are young. The population is increasingly urbanised and growing at nearly 5m/year. Poverty is gradually receding and the middle class is expanding. However, retailers wanting to prosper will need to look beyond the clamour of this West African powerhouse to determine whether they are a good fit in a market that is highly fragmented, and where shopping behaviour and spending power varies.

By the end of the year, Woolworths will have shut its doors in Nigeria. Woolworths entered Nigeria through franchises in 2002, pulled out in 2004 due to legislative changes that prohibited clothing imports, then reentered in 2011 through a joint venture with 90-year-old Nigerian conglomerate Chellerams.

Woolworths, which has traded in Africa (other than SA) for more than a decade and has successful operations in 11 African countries, says it expected challenges like high rental costs and duties and complex supplychain processes, but some factors deteriorated to an extent that it had not foreseen.

“When an investment no longer generates sustainable returns, difficult decisions have to be made to contain costs,” says Woolworths CE Ian Moir.

Evidenced by its low ranking in the World Bank’s “Ease of Doing Business” report for 2014, where it was 147th out of 189 economies, Nigeria is often described as the toughest place in the world in which to do business.

“The country continues to grapple with issues of corruption and bureaucracy, an erratic power supply, security challenges, poor infrastructure and transport routes, a complex federal system of government, and a host of other bottlenecks which constrain its business environment,” says Ronak Gopaldas, sovereign analyst at RMB.

Despite the score of mall developments under way or in the planning stage, Nigeria, where shopping culture is concentrated in informal markets, has just four malls compared with SA’s 500. According to Resilient CE Des de Beer, there is less than 120 000 m² of formal retail space across the entire Nigeria — that is less retail space than Sandton City offers.

US giant Walmart, which acquired a 51% stake in Massmart to tap into consumers’ rising incomes in Africa, operates two Game stores in Nigeria.

At the World Retail Congress Africa earlier this month, Mass-