Tuesday, March 27, 2012

Nigeria ongoing

... and part 3. A fairly short answer this time since I was exceeding my word count already!
What is currently the ideal corporate structure and industry in order to make the most of business with and in Nigeria?
The following table gives an overview of the recent growth rates of the different industry sectors in Nigeria:
 

Sector

Average annual Growth Rate (%)

Share of GDP

in 2004(%)

2001
2002
2003
2004

Agriculture
4.0
5.0
5.0
6.0
51.5
Industry
2.0
1.0
1.0
3.0
20.7
Manufacturing
0.0
-4.0
4.0
4.0
-
Building and Construction
6.0
6.0
4.0
4.0
2.1
Wholesale trade
1.0
3.0
2.0
2.0
11.0
Retail trade
4.0
4.0
4.0
4.0
28.1






Surprisingly, the hydrocarbon industry, the by far largest sector in Nigeria accounting for 80% of the nation’s GDP is not listed, reducing the credibility of the above source. At best the table presented can be used as a general overview of Nigeria’s industry sectors and their general trends since, as Budina et al. state, oil exports account for a historically fairly stable 90% of Nigeria’s total exports. This together with a Bonny Light market contract price of around US Dollar 120 per barrel, compared to around US Dollar 20 per barrel ten years ago, Nigerian total exports are expected to have increased fivefold over a time span of merely ten years.




From a pure money flow point-of-view, the Nigerian oil and gas sector would therefore seem to be the industry to participate in since it also receives by far the majority of FDI. Though the Nigerian law states that precisely this sector does not allow 100% foreign ownership, partnership with a local entity would generate additional incentives and thus possibly offset any potential direct financial drawbacks by partnering with a local business. However, the Nigerian hydrocarbon industry is plagued with unrest and disputes requiring in-depth expertise of the local and regional socio-economical factors to operate successfully operate within Nigeria.




As an example of the upstream oil and gas trade, a SWOT analysis of Shell Nigeria would look like the following:

Strengths:
  • Large investment capacity
  • Diversification from traditional hydrocarbon portfolio with renewable energies research
  • Improved customer perception

Weaknesses:
  • Environment unfriendly technology with regards to elimination of hydrocarbon byproducts
  • Nigerian political situation could deteriorate, forcing Shell to leave the country

Opportunities:
  • New oil- and gas fields still being found
  • Increasing fossil fuels demand worldwide

Threats:
  • Volatile oil market prices
  • Ownership issues of local drilling sites
  • Potential strikes by suppliers
  • Weather phenomena may influence production




Most issues under weaknesses and threats are being faced on a daily basis by hydrocarbon industry corporations all over the world. These issues are not Nigeria specific and thus are part of the common operations of any oil- and gas company, leaving the aspects under strengths and weaknesses to be the deciding factors. Especially the estimated unproven oil and gas resources of the country could swing the economic pendulum into further positive territory, once the framework has been established and will be sustainable.




Many indigenous industries qualify for ‘pioneer status’, a special designation allowing them to take advantage of a tax holiday of up to seven years. Within the hydrocarbon industry sector, the manufacturing of oil well drilling materials, the manufacturing of fertilizers Ammonia and Urea, the re-refining or re-cycling of waste oil, the manufacturing of gas and the distribution thereof, and the mineral oil prospecting and production qualify for the incentive scheme.




In conclusion, I would argue that the hydrocarbon industry is the place to be in Nigeria. With the trade being diversified from large, capital intensive projects, such as oil exploration, to small, specialized operations, such as gasket manufacturing, any corporation should be able to find its prospective niche. Since the oil- and gas trade is prohibited from 1005 foreign ownership, the structure of the company is limited to a joint venture ship of some sort with a local partner.

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