Nigeria no land of plenty for SA firms
A huge market seems beset by snags for investors
NIGERIA is becoming something of a poisoned chalice for South African executives who want to expand their companies’ footprint.
Wooed by the potential growth of the continent’s biggest economy and most populous country, most South African executives say a company with an Africa growth strategy is not complete if Nigeria is not included in its plans. However, for some companies Nigeria has inflicted pain rather than inflating profits — or worse, has cost some executives their jobs.
Kalu Ojah, a professor of finance at Wits Business School, said South African corporations heading to Nigeria should team up with local partners that understand the region well. “Such a partner would be able to tell you when a handshake is no longer a handshake . . . [instead] it’s moved from the palm to the elbow,” Ojah said.
Sifiso Dabengwa, MTN’s former boss, is the most recent victim. He left the group with immediate effect on Monday, handing over the reins to Phuthuattempt
A lot of dysfunction . . . overzealous bureaucracy at ports and poor road infrastructure
ma Nhleko, the company’s former CEO. Dabengwa blamed his sudden departure on “the most unfortunate prevailing circumstances” occurring at MTN Nigeria.
Now it is up to Nhleko to convince Nigerian regulators to either scrap or reduce the $5.2-billion (about R72-billion) fine imposed on the mobile operator for its failure to suspend more than a million unregistered sim cards.
Irate shareholders such as the Public Investment Corporation want more heads to roll at MTN, it was recently reported.
Dabengwa’s sudden exit comes hot on the heels of Tiger Brands CEO Peter Matlare’s plans to leave the rice, pasta, and cereal manufacturer by the end of this year.
Matlare wrote off almost R1-billion in Nigeria within two years of splurging R1.6-billion on the 63% acquisition of Dangote Flour Mills in 2012. This led to commentators raising eyebrows over Tiger Brands’ due diligence process on the deal, with some reports suggesting the process was rushed.
Telkom’s executives also suffered a significant loss in Nigeria and in 2010 rushed back to South Africa with their tails between their legs after a feeble DEEP WATER: Traffic fights its way across a bridge towards the mainland in Lagos, the west African nation’s biggest city. South African retailers in Nigeria are finding it tough to survive in the market to expand through Nigeria’s telecommunications agency, MultiLinks. Telkom suffered almost R10-billion in impaired losses after investing R2.8-billion at the time — and again “poor due diligence” was pointed to as the root cause.
In 2004, Vodacom pulled out of Nigeria soon after signing a five-year contract to manage Econet Wireless Nigeria. It cited concerns over corporate governance when it discovered that the Econet board had approved a brokerage fee to some Nigerian companies that had solicited government investment.
Vodacom has since returned to Nigeria, but is operating on a small scale, offering data and broadband communications to the financial, retail and education sectors.
Altech West Africa set up a greenfields business in Nigeria in 2005 that grew into the largest recharged card manufacturing company in West Africa and had a 70% market share in recharged cards in Nigeria.
For the first five years it performed well, delivering R50-million profit before tax annually, but in the last 18 months it was operating in Nigeria there was pressure on the bottom line. Demand for paper-based vouchers for cellular operators had declined. There was a delay in the roll-out of two to three million chip cards in Nigeria due to the inefficiency of the centralised service provider that was appointed. Changes in import protection and special tax rates added to the woes.
When Altech pulled out in 2012, thenCEO Craig Venter said: “The last 18 months have been incredibly tough for my team and me. It’s better to take the blow on the chin, clean the slate and move on.”
But another problem that could floor South African companies in Nigeria is a very different way of doing business.
Ojah said that what might be considered bribery or greasing of the palm, according to Western standards, might not be viewed as such in some countries, such as Nigeria.
South African executives needed to stop looking down on their North African counterparts, he said.
An example of this was when Public Investment Corporation CEO Daniel Matjila last year publicly ripped into Ecobank’s former CEO, Thierry Tanoh, and pushed for his dismissal. Matjila said Tanoh had failed to raise any capital, or bring stability and efficiency to the group — in which the PIC and Nedbank have significant stakes.
Tanoh denied any wrongdoing and successfully sued Ecobank and Matjila for defamation in the Abidjan Commercial Court. Togo’s labour court ordered the bank to pay Tanoh $9.9million for unfair breach of contract.
Some South African businesses such as Stanlib Africa opt to set up operations in Nigeria’s neighbour, Ghana, before entering Nigeria.
Ben Kodisang, MD of Stanlib Africa, previously told Business Times that Ghana was effectively Stanlib’s West African hub. Ghana was similar to South Africa from a regulatory and cultural point of view, he said, whereas South Africa and Nigeria tended to bump heads.
His argument is supported by FirstRand and Nigeria’s Sterling Bank abruptly ending acquisition talks in 2011 at the eleventh hour after failing to agree on a price for a controlling stake in the Nigerian bank.
Dallas Langman, head of group enterprise at Pick n Pay, said the group had been investigating Nigeria as much as it had been investigating Ghana, but “it just so happens that we managed to get it off the ground a lot quicker in Ghana than what we have managed at this point in time with regards to Nigeria”.
Langman said one of the major challenges on setting up businesses in new markets was the lack of access to information.
Dianna Games, CEO of the South Africa-Nigeria Chamber of Commerce, reflecting on Woolworths’ failure in Nigeria, said the company, despite faring well in the South African market, had fallen short in Nigeria. “Woolworths really didn’t take into account a lot of market positioning — it didn’t build in the very obvious supply challenges and the costs that it then incurred,” she said.
Woolworths pulled out of Nigeria in 2013, closing two stores in Lagos and one in Enugu.
At the time of the exit, group CEO Ian Moir reportedly said: “We were never going to make money in the next five to 10 years in Nigeria.”
Games said that despite enormous opportunities available in Nigeria for South African retailers, “there’s a lot of dysfunction in the market — there’s overzealous bureaucracy at the ports and poor road infrastructure to move things around”.
But some South African businesses are getting it right.
Games said Shoprite Holdings had been a market leader in formalising the Nigerian food retail sector, which had helped “set the benchmark that others are now following”.
“All our retailers are in a difficult place in that market because they are middle of the market — they are not cheap. So they are not at the bottom or the top end of the market, and that middle part of the market is very difficult, because there is competition from informal markets and traders in that middle belt, particularly on price.”
Such a [Nigerian] partner would be able to tell you when a handshake is no longer a handshake