Factors Affecting the Northern Nigerian Business Environment

Nigeria is an indigenous country located in West Africa. It has a population of 211 million people, the most populous in Africa, and covers a span of 923,769 square kilometres. Nigeria is made up of 36 states with its capital located in the Federal Capital Territory, Abuja. Lagos is the largest city in Nigeria and also one of the largest metropolitan areas in the world. The three major ethnic groups in Nigeria are Hausa, Yoruba, and Igbo. Nigeria is divided into six geopolitical zones: North Central, North East, North West, South East, South West, and South-South (Niger Delta region). There are about 400 ethnic groups and 450 different languages, which is why these zones are not just classified by geographical locations, but by similar languages, cultures, and political histories.

For this research, we will focus on the Northern Nigerian business environment. Northern Nigeria is made up of states from the North East, North West, and North Central. Although it is comprised of different tribes and ethnic groups, the universal language is Hausa and the major religion practiced is Islam. It also shares similar cultures and traditions. Kano, Kaduna, and Abuja are the three biggest hotspots for business in the North. Kano is the second-largest city in Nigeria, with a population of over four million, and is a major route for trans-Saharan trade. It has the largest commercial market for entrepreneurs providing all kinds of goods and services. Kaduna is currently the number one spot for investment in Northern Nigeria, offering various growth opportunities. Abuja is the second state in Nigeria with the highest IGR per population in H1 2021.

Northern Nigerian Business Environment

A business environment is a collection of factors, both internal and external, that directly or indirectly affect the workings and growth of an organisation. Before starting a business, a manager needs to analyse the business environment and the factors affecting it, including its strengths and weaknesses, by using market information. This will help avoid making costly mistakes, wasting resources on unnecessary products, and ensuring a business achieves return on investment (ROI) or reaches break-even. One of the tools used to analyse a business environment is the PESTLE Analysis, which encompasses political, economic, sociocultural, technological, legal, and environmental factors. PESTLE analysis, as well as primary and secondary data, will be used to examine the business environment in Nigeria, with a focus on the North.

What are the factors affecting the business environment in Northern Nigeria? To get a good grasp of what business owners in Africa experience from their start-up stage, I used both primary and secondary data, including my survey of several entrepreneurs: Aliyu Bello Aliyu, CEO of MyClinic.ng, a healthcare technology company focused on affordable digital inclusion for African hospitals; Hadiza Abarshi, CEO of a business that provides purely natural fruit juices; and Faridah Kyari, owner of a bakery business and a catering home-based school for young women. In a PESTLE format, these are the factors that affect the business environment:

1. Political Factors: Despite its economic potential, some of Northern Nigeria’s regions face some level of violence. The high tension, civil unrest, and rampant insecurity have made it hard to do business there. Bandits and kidnappers have displaced a lot of residents in those areas, thus affecting businesses. As we all know, lack of security takes away investments from cities. For instance, the production of rice in Zamfara and Kebbi has been severely affected by bandits who hold local farmers to ransom before they can harvest their goods, thus driving up the prices of the food.

Notwithstanding, the security situation has improved in the North-Eastern part of Nigerian and business activities are still booming in many states.

2. Economic Factors: Operating a mono-economy with a heavy reliance on the oil sector, Nigeria’s economic situation has faced its woes following the pandemic situation. The revenue generated is low, and when distributed across the federal, state, and local governments, not much is left to pay salaries. This leaves disposable income very low, making it hard for families to afford their basic needs.

Nigeria has a high rate of unemployment, which provides an opportunity for businesses and foreign organizations to have more access to labour and outsource their labour-intensive units to Nigeria.

3. Sociocultural Factors: The dominant religion in the North is Islam and it affects the business and investment choices people make. For instance, Northerners will not engage in certain profitable businesses like alcoholic beverages, pork meat, or gambling/betting because these are all prohibited in Islam. Kano State has banned the sale of alcoholic beverages. Also, most Northerners refuse to get bank loans for capital funding because of interest (riba) which is strictly prohibited under Islamic laws. It is on this basis that MyClinic.ng started a health insurance scheme with one of the biggest non-interest Islamic financial institutes in Nigeria, Jaiz Bank. Religious and cultural beliefs play a big role in the Northern business environment and affect many business decisions. To invest in a Northern business, non-interest loan options should be provided.

4. Technological Factors: Northern Nigeria is a region of agriculture. But most rural parts are disconnected, with no railway tracks to transport goods across state lines or into the cities. However, there is some good news for entrepreneurs and potential investors on that front as railways and trains are being commissioned that will create major trade routes linking the North and South and its ports for export trades.

Another challenge is the lack of proper education on how to integrate modern tools with technology and resources into businesses to drive up productivity and maximize profit. With the world transitioning into a digital age where everything is now online, Nigeria is not left behind as there are several successful tech start-ups, and tech schools with both in-person and online learning options. There is increased use of online facilities by businesses as staff work remotely post-COVID. It is imperative that any entrepreneur has basic tech skills or has a co-founder who is tech-savvy to lower the cost of operation. Most Northern business start-ups spend a lot of money on getting software developers, product managers, data scientists, and so on. A huge sum of their capital is spent on outsourcing the work, which pushes achieving ROI back a year.

5. Legal Factors: Through NIRSAL MicroFinance Bank, a sum of N50 Billion credit facility has been created to assist households and MSMEs (micro, small and medium-sized enterprises) that were hit by the COVID-19 pandemic. Interest rates have also been reduced from 9 percent to 5 percent, which goes a long way in ensuring businesses have enough starting capital and achieve faster break-even without the threat of heavy interest reimbursement. The Central Bank of Nigeria loan ratio has also been increased to make sure Deposit Money Banks (DMBs) can continue to give out lower interest and longer-term credit to businesses.

Another factor that affects the business market in Nigeria as a whole is the lack of mentorship. As start-up founders with no experience, entrepreneurs are bound to make avoidable mistakes. This is due to the general lack of experience in navigating the business environment. Mentorship creates value for the involved parties. With the right mentorship, a business can grow at an accelerated rate, saving time and cost, and soon reaches break-even. This is because mentors who have more experience, have navigated the waters, and are more knowledgeable on efficient approaches to intrinsic and extrinsic environmental factors can provide the necessary insights. They could also provide an entry into the market, as existing parties.

Recommendations

Conflict and violence have collectively affected the business environment and further depressed the economy of the region. While the business environment is improving and blooming, there is need for concerted effort from both government and international bodies to invest in this region.

Active mentorship programs should be implemented for upcoming entrepreneurs to access necessary guidance, knowledge, and insights. Mentorship brings together a community of similar-minded individuals with common goals and interests, and this will have long-term benefits going forward.

Bibliography

Articles
“Business environment.” Toppr, https://www.toppr.com/guides/business-environment/.
“The enterprise and Nigerian business environment.” BarterNG, 26 February 2022, https://barterng.com/entrepreneurship/nigerian-business-environment/.
“Geopolitical zones of Nigeria.” Wikipedia, Wikimedia Foundation, 27 February 2022, https://en.m.wikipedia.org/wiki/Geopolitical_zones_of_Nigeria.

Interviews
Abarshi, Hadiza. Interview. By Aisha Ahmad. 3 March 2022.
Aliyu, Aliyu Bello. Interview. By Aisha Ahmad. 28 February 2022.
Kyari, Faridah. Interview. By Aisha Ahmad. 4 March 2022.

aisha.ahmad

Aisha Ahmad is a graduate of Economics with a Master’s Degree in Health Economics. She is a contractual writer from Kaduna, Nigeria. She currently chairs the Funding Committee at Carifika, an NGO based in Canada. She is an avid reader and curious by nature and has certifications in Product Management, International Trade, Business Branding and Marketing, and Public Sector Service, to mention a few. She is passionate about sustainable development, health, and humanitarian causes.

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