Seizing Nigeria’s retail opportunity

Obodo Ejiro

These are exciting times for retail in Nigeria! Product offerings is expanding, investment is pouring in from around the world, sophisticated outlets are springing up, and more funds are available to serious “retail practitioners” to access.

Interestingly, development in the sector is not confined to reports and government statistics. The data available from the National Bureau of Statistics as well as the Central Bank corroborate the facts on ground. More than ever, what we are seeing is evidence that the sector is gathering and sustaining momentum.

Unlike in the wholesale and retail sector, the past two years has seen oil’s growth and contribution to Nigeria’s GDP diminish in the face of vicious attacks from crude oil thieves.

In the first halves of 2011, 2012 and 2013, wholesale and retail contributed 15.58 percent, 17.05 percent and 18.44 percent respectively to Nigeria’s GDP. Also, in terms of growth rate, the sector grew by 19.89 percent, 14.72 percent, and 14.51 percent respectively within the same period.

On the flip side, the oil sector recorded negative growth by half year 2012 and 2013. Indeed, retail outperformed all other sectors, including building and construction which traditionally grows fast in a developing country which is serious about progress.

It’s interesting that the changes taking place in the sector offer a number of outstanding opportunities, not just for the demand side of the sector but also the supply side. To the demand side, opportunities have come in form of availability of a broader consumption spectrum, better environments for shoppers, and competition which has made services from retailers better.

On the supply side, a huge market, moderate returns and the guarantee that once brought in, products will be sold is significant comfort for savvy businessmen. But as the market develops there is more to it than this especially in the area of financing. Indeed, more funds are available at the disposal of those who are worthy and really need it to grow their retail businesses.

One of such is the special Market Modernization Fund (MMfund). The MMfund is a financial instrument introduced and financed by the UK department for Development (DFID) and managed by the GEMS Wholesale and Retail Sector Programme (GEMS4). It is a £3.5 million private sector development matching grant fund aimed at stimulating economic growth, improved performance, employment opportunities, and increased incomes in the wholesale and retail sector in Nigeria, with a focus on the foods and fast moving consumer goods (FMCG) important to Nigeria’s poor and women.

Grant funds are awarded to eligible firms through a two- stage competitive application process. Successful bids can receive up to a maximum of £250,000 depending on the funding window. The competition is open solely to organizations registered and operating in Nigeria for proposals to be implemented in Nigeria.

For a market which has as a major challenge, the availability of funds to SMEs, this fund is a relief for eligible firms who meet the criteria for engagement. Ultimately, the MMfund seeks to encourage private sector participation and investment in the development and adoption of new and inclusive business models by demonstrating innovative and successful ways in which businesses operating within the Wholesale and Retail sector can operate commercially and profitably, and work with and for the poor.

The Fund intends to support businesses engaged in the wholesale and retail sector; and related support service providers (such as distribution, intelligence, merchandising and exchange (trade),financial services, and ICT) to pilot or scale up successful projects that meet the eligibility criteria and contribute to the achievement of the fund’s objectives.

But not all funds are coming from external sources; a number of local banks including Diamond bank, Fidelity bank, First bank among others are in the forefront of promoting the activities of retailers, through a variety of tailoured services, including interest sensitive loans.

And what is more? As an organization committed to the development of retail business in Nigeria, BusinessDay is doing what it can to enrich knowledge on the sector through the release of its 2014-2015 retail report, and its annual conference which comes up next week.

The “Retail Report 2014-2015” which is a product of BusinessDay’s Research and Intelligence Unit is now available for the public. It is a book which offers information about the performance of local retailers, developments in the sector, it examines those companies which are driving development in the sector, who is financing the sector and the financing gap which still exists.

The report also deliberately draws attention to the sections of the country where opportunities exist and the specific models which work in those locations. More importantly, it gives indication as to what Nigerians are even buying in the first place. All of this is done after a thorough background of the Nigerian economy has been examined in light of the future of retail.

On the other hand, the conference which holds next Friday brings together major retail players, it is designed to be a session where strategy and the changing face of wholesale and retail is discussed in Nigeria.

Forever owó dà

Unauthorised revenue collectors compound the problems of small businesses in Lagos, writes OBODO EJIRO.

When the Peugeot truck carrying Mr Ezenwa Okonta’s consignment stopped in front of his shop, he alighted from the passenger seat and was immediately accosted by two groups of young men, desperate for his attention.

The leader of the first group was interested in being paid to offload the books, which had just arrived from the UK, while the leader of the second group, composed mainly of natives, repeatedly called out in an aggressive baritone, “owò dà, san owò ile!” (Yoruba for “where is money, pay for this ground”).

This is a common sight in Lagos, as groups of unauthorised youths parade themselves as revenue collectors that milk defenceless small businesses. They present themselves in different shades and operate across the state, but have one logic. To them, Lagos is their heritage and to do business here, businessmen must pay different sums of money before being allowed to carry out legitimate activities like the one Ezenwa was about to embark on.

On this hot afternoon, in order to be allowed to offload his books, Ezenwa was glad to part with N15, 000 ($92) instead of N20, 000 ($122), which his colleague paid a few days earlier.

That the activity of the illegal collectors is harming businesses is an understatement. The most visible impact is the higher prices customers have to pay, as businesses push part of the unlawful costs they bear to customers.

Bigger still is the impact on the ease of doing business in the city. The harassment and aggression of the collectors have a negative impact on the ‘animal spirit’ of businessmen.

Also, many businessmen believe that one way or the other, the state government benefits from this activity, but the government directly or indirectly denies this.

When an official at the office of the Special Adviser to the Governor on Taxation and Revenue was asked about what government was doing to stop the collectors, she said “… we must correct the impression; what they (illegal fund collectors) collect is not classified as taxes by the state government. It’s totally illegal.

“It’s sad that before this dispensation, even government contractors were not free from these miscreants. Contractors had to factor in monies given to miscreants when they gave project estimates to government. But the present governor stopped that practice.”

This is not an official statement from the government, since the official claimed she was not authorised to speak to the press. Attempts to reach the governor’s Special Adviser on Taxation and Revenues for an official comment were unsuccessful as he was busy on other assignments.

“The government is aware of this extortion and no one is doing anything to stop it,” says Ezenwa, as he mopped sweat from his obviously sad face. This menace affects even property developers. Builders are forced to pay when laying the foundations of new houses; they also have to pay when they are renovating existing buildings. All of this extortion is done by youths who should either be in school or be gainfully employed in more noble endevours.

While big and highly connected businessmen suffer less, smaller ones face the full brunt of the collectors. But traders are not the only ones who face this problem.

Just in front of Ezenwa’s shop, a group of Toyota Coastal buses are parked, one at a time, they meander through the streets from Ojuelegba to Ijeshatedo with passengers. The operators of these buses also face the fury of unauthorised fund collectors, as young men draped in all manner of uniforms (white, green, yellow, blue and plain clothes) jostle over one another for slices of the small amounts these transporters make.

Though some say they are authorised by local governments, it is a Herculean task to distinguish between those backed by law and those that are not.

On this route, a transporter pays N6, 500 ($40) to different groups in the morning, in the afternoon, he pays N850 ($6), while he pays N2, 300 ($15) in the evening. On Sundays, the amount paid is doubled.

The enormity of what is collected can be better understood if one considers the fact that there are 50 coastal buses on this route, most of which operate daily.

Lamenting the level of extortion, Segun Obey, a bus conductor who has worked on several routes in Lagos, says “we would have been richer if these collectors didn’t exist. If government wants funds from us, why not make the process more formal.”

“What makes it worse is that they beat us up when we don’t have the money to pay,” he says further, as he touches a cluster of scars on his left hand.

For transporters who do not comply with the demands of these collectors, the consequence could be very sever: either the transporter or his conductor is beaten severely or their vehicle is vandalised. It is therefore common to see hoards of fiendish collectors harassing a transporter who has defaulted.

Smaller transporters are not left out of the collection dragnet. “It’s all a bunch of confusion,” says Ayo Olatunde, a young tricycle rider, who conveys passengers from Ijesha to Kpako. “I took up this job because I couldn’t get anything else, however; I’m left with almost nothing after settling different collectors, fuelling the tricycle and giving the agreed sum to the owner of the tricycle.”

In the case of tricycles operating on the route, the police are also involved in the collection process.

Though the police do not collect funds directly, they designate civilian to do the collection while they stand afar off. When asked about measures the force is taking to stop this practice, the Lagos State Police Public Relations Officer, Ngozi Braide, says “we run a very transparent organisation. I do not believe that this is really happening because no one in the area has come to complain to me.”

Just two months ago, two officers, caught on camera extorting motorists were sacked.

Indeed, there is no question as to the illegality of police extortion in Lagos, but what has remained certain is that only those that are caught red-handed are disciplined. “The police also constitute a huge leak to our fund flows,” says Olatunde, “as tricycle riders on this road pay N400 ($3) daily.”

According to the source at the state’s revenue office, “the major fear in permanently stopping the civilian fund collectors is the perceived effect such a policy could have on crime rates. There are fears that if the collectors are stopped, crime rate could escalate.”

Last year, a sweeping state legislation outlawed those that collect levies from transporters, but less than three months after, they reappeared.

What is the origin of the hoard of fund collectors in Lagos? Investigation shows that most of them are either students who dropped out of school or those that missed out on the privilege of being raised in decent homes. They do this “job” just to survive.

Akin, who collects funds at Mobil bus stop, Ikorodu road, says “I was completely jobless when Fashola’s government ordered us off the road last year. I spent most of my time sleeping or watching football matches in the evenings. After sometime, I returned to my spot and started collecting again.”

Asked about who gets the money, he replies in pidgin English, “Oga, I dey work for our big man. I get target, when I don meet that target, the extra is left for me. Whatever happens to what I give to our big man is none of my business.”

It was impossible to get to any of the ‘big men’ for a comment. But it is clear that the collected funds change hands along a chain until everyone involved in the business, directly or indirectly, gets a cut.

But can these collectors be put off the street to be trained and employed in better vocations? Most of the collectors interviewed were hostile and suspicious, but one of the Akin says, “I dropped out of secondary school in JSS3 after my mother died, and have had to struggle on these streets to survival.

“If I am given another opportunity to be trained, I will take it”, the 27-year old said as he displays a pale smile. “I don’t mind becoming a motor mechanic,” he added as his smile broadened.

Seplat sees no oil theft in Nigeria, where Shell lost $1bn

Seplat Petroleum Development Co., the Nigerian oil producer raising $500 million from investors, said it had “absolutely no” theft in Nigeria, where Royal Dutch Shell Plc lost almost $1 billion due to sabotage in 2013, reports Bloomberg.

Seplat in July 2010 bought three licences from Shell onshore Niger Delta, which had been idled for about 18 months, and is bidding for stakes in two more, said A. B. C. Orjiako, Seplat chairman. The company developed the “Seplat model” of engagement with communities by hiring locals to provide services and oilfield security, he said.

“We haven’t employed the thieves and criminals, but we made things difficult for them to operate in the area,” Orjiako said in a phone interview March 11. “Today we are very happy to see that Seplat has absolutely no incidents or disruptions due to community unrest.”

Shell earnings were curbed by almost $1 billion last year in Nigeria because of oil theft and liquefied natural gas export blockade by the government, Simon Henry, chief financial officer, said yesterday. It’s divesting holdings in the country, where it estimates oil valued at about $1 billion is stolen every month.

The thefts by armed gangs operating in the Niger Delta cost the government $7 billion in revenue in 2011, about a quarter of last year’s national budget, according to the Central Bank of Nigeria (CBN).

“Security is a headache on a day-to-day basis,” Henry said. “The theft is very material.”

Seplat, which this week announced plans for an initial public offering in London and Nigeria, pumps about 62,000 barrels a day, almost four times more than when it took over the licences. It relies on Shell infrastructure to export the oil, as do other indigenous companies operating in the country.

As a smaller operation, Lagos-based Seplat has more flexibility to share wealth with local communities, said Orjiako, who started his oil career by trading fuel with Glencore Xstrata plc and Vitol Group about two decades ago.

“Shell is a different kind of animal” and “their footprint is too large in Nigeria,” the Seplat chairman said. “It’s not as easy for them to manage in a nimble way that a company like Seplat would do.”

Shell contributed more than $100 million in community projects, such as agriculture and health care, in the Niger Delta last year, The Hague-based company said. Shell-led ventures contributed more than $700 million to a government educational fund in the five years to 2014.

The Anglo-Dutch company has been operating in Nigeria since 1937, spreading its operations over 20,000 square kilometres with 6,000 kilometres (3,729 miles) of pipelines, according to its website. Its “companies in Nigeria support and finance programmes that address social and economic challenges,” Mutiu Sunmonu, managing director, Shell Nigeria, said February 26.

The oil theft and security issues vary through different areas in the Niger Delta, which is the size of Scotland, Olalekan Akinyanmi, chief executive officer at Lekoil Ltd., said in phone interview. His company so far has only offshore oil fields, where security issues are of less concern, and has been examining plans to bid for licences onshore, he said.

“We know the hot spots” and won’t move into these areas, he said. “You need to add value” to local communities to reduce risk of incidents and “there is no special formula” for doing this.

Culled from Businessday

Africa’s Middle Class Spearheads Economic Growth

An IMF Survey released, December 26, 2013

• Economic growth in Africa should be more inclusive
• Continent’s fast-growing middle class can bolster growth
• Job creation for job-ready population is key to reducing poverty

Africa’s economic growth should be more inclusive, and the middle class has a strong role to play in strengthening this growth, says economist Mthuli Ncube.

In an interview with IMF Survey, the Chief Economist and Vice-President of the African Development Bank gave his thoughts on the African middle class, the state of data in Africa and the continent’s stellar economic performance.

IMF Survey: Can you tell us more about Africa’s growth over recent years?

Ncube: Africa is rising. The continent is still showing that robust growth, which we expect to hover around 5 percent and higher for some countries. But this growth needs to be more inclusive. I think that is the message that we should take away.

IMF Survey: Many commentators have argued that Africa is rising because it is led by a growing pool of middle class consumers. But other critics argue that the traditional concept of middle class does not exist in Africa. What do you respond to that?

Ncube: There is a middle class in Africa, and it has been growing at a rate of 3.2 percent per annum since 1983. You have over 300 million people who are sitting in the middle of the pyramid as I like to call it. But there is a distinction. Out of those 300 million people in Africa, half are what you call the floating middle class. They could revert into poverty very easily because of a death in the family, or some other shock. At any given time, there is always a floating middle class. Then there is the more stable part of the middle class—about 150 million people, and they are ones who provide robust growth.

I think one element that is stimulating consumption from this middle class is the African diaspora. The diaspora now transmits more money into Africa than foreign direct investment, aid to Africa, and portfolio investment in stock market and bond markets. That supplemental income from the diaspora is enabling that floating middle class to consume more.

IMF Survey: What reforms should be implemented to ease the poorer population’s access to this growing prosperity?
Ncube: The best way to reduce poverty is to create jobs. However, for people to be job ready, they must have the right skills. You have to invest in the right type of education which gives you job readiness. 

Young Africans should be given the option to go full academia, but also have the option at the right level of high school to switch to a vocational education. I think a concerted effort in this area is required for this to happen. Job creation is really the key to reducing poverty.
In the interim, social safety nets, aid flows, and assistance are critical for dealing with poverty in the short term, but long term it’s about jobs.

IMF Survey: You were in Washington to attend a seminar on the state of data in Africa. How is the quality of data in Africa?
Ncube: Because of the large informal sector in Africa—approximately 25 percent in most countries of sub-Saharan Africa—much of the economic activity goes unmeasured, and the data is deemed unreliable.

African countries—on their own and in collaboration with the African Development Bank—have done a lot to improve the quality of statistics in the last 10 years. We have invested $100 million in the last 10 years on African statistics. But to improve the quality of statistics to the level of Asia or other regions, we will need approximately $70 million a year invested in Africa.

Our main challenge at the moment is to harmonize the data, so that it is comparable across countries. To this end, we have set up a program across sub-Saharan Africa. We are connecting each African country to a hub—a portal in the, so they can enter their data live. This exercise is happening much better and faster than we anticipated, but much more remains to be done.

Recent setbacks will not undo Nigeria’s progress

Okonjo-Iweala, Nigeria’s minister of finance wrote this for the FT

Allegations of unremitted oil revenues, and leadership changes at the central bank, have attracted a great deal of the wrong kind of attention to Nigeria. 

Though there was consternation in the markets following the suspension of Lamido Sanusi, governor of the country’s central bank, a sense of normality is gradually returning. At the Nigerian Stock Exchange, the All Share Index dropped by about 3 per cent in the days following Mr Sanusi’s suspension but has since recovered.

The exchange rate is stabilising. Although foreign exchange reserves have dropped slightly to $39bn, this still provides a healthy level of import cover by International Monetary Fund measures.

The fundamentals remain strong. Inflation is at 8 per cent, down from 12 per cent at the start of 2012. The fiscal deficit is 1.9 per cent of gross domestic product and government debt is under control at 21 per cent of GDP. The IMF expects the economy to grow by 7.3 per cent in 2014, up from 6.2 per cent a year earlier.
The government has pledged to put aside a portion of oil revenues to help insulate the economy from external shocks. 

We will be vigilant against the risk of the economy overheating. I will ensure that fiscal policy remains tight, and that the acting central bank governor is committed to tight monetary policies.

Maintaining economic stability is the government’s most important aim. This will not be easy in an election year. We are, however, determined to keep the economy on the right path.

But the allegations concerning unaccounted for oil revenues remain. Initially Mr Sanusi put the figure at $49.8bn. At a later point, he accepted instead the assessment of the finance ministry and other agencies, who estimated that $10.8bn was not yet accounted for. Later, he alleged a new figure of $20bn.

Whatever the amount, Nigeria with its millions of poor people can ill-afford the loss of even $1. All funds that belong to the Treasury must be remitted to the Treasury.

That is why, given Nigerians’ decades-long mistrust of government-owned oil agencies, it is imperative that the allegations are examined by an independent committee. President Goodluck Jonathan has already announced that there will be such an inquiry. It must cut through the confusion and determine once and for all how much money is unaccounted for.

It is therefore essential that the inquiry should take a forensic approach, critically examining the accounts of the Nigerian National Petroleum Corporation and its subsidiaries. This work must be conducted urgently, and it must be followed by systemic reform of the oil sector to make it more transparent and accountable to the Nigerian people.

That is the aim of the Petroleum Industry Bill, which has been with parliament for several months. This draft law contains provisions to transform the oil and gas sector, including turning the NNPC into a commercial enterprise. This would open up the corporation and the oil industry, making them more transparent and accountable to Nigerians.

Yet passage of the bill has been delayed in the National Assembly as a result of intensive lobbying by interest groups – some Nigerian, some foreign – who benefit from the status quo either through favourable oil deals or favourable treatment by the Nigerian tax system.

We call on these groups to allow the bill’s passage. And we urge our National Assembly to have the courage to pass this long overdue bill now.

In the meantime, we must not forget how far we have come in Nigeria. The economic reforms we fought hard to achieve are having positive effects. I have argued previously that, while we must pursue and punish those engaged in corrupt acts, building strong institutions is the most enduring way to tackle corruption in a systemic way.

This is unglamorous work requiring patient effort over many years. Yet this is precisely what is needed to move development forward.
In Nigeria, we are pursuing such reforms. The transformation of our power sector is based on this premise. 

We privatised our power generation and distribution assets, and liberalised the sector to allow private investors to play a role in building new infrastructure. We are also creating a strong electricity regulatory authority. This is one of the world’s most comprehensive and transparent privatisation exercises, and has attracted international investors such as General Electric, Siemens and AES.

Nigeria’s future lies not in oil and gas but in non-oil sectors such as agriculture, housing, creative arts and services, which account for more than 80 per cent of GDP. For sustainable growth and development, we must build enduring institutions in these sectors.
We must fight corruption: and we must ensure that as our country develops, it also becomes more transparent.