Pest analysis of Nigerian business environment
In the previous post, we discussed about the analysis of Nigerian business environment using the SWOT as an instrument for analyzing it. Here, we shall be putting an Education and Information searchlight to PEST analysis of Nigerian business environment.
First of all, you need to know that the word PEST is an acronym for Political, Economic, Social and Technological factors. The roles of pest analysis in determining whether a business in Nigerian Business environment will succeed or not can never be over emphasized.
Therefore, it is expected that entrepreneurs should endeavor to check his business environment before major investments are made. Major investment may be in form of starting a new business in Nigeria or you want to expand an existing business. Whatever the case may be, this PEST Analysis will give a real picture of how the business environment in Nigeria looks like.
Politically, Nigeria seems to be stable except for the uprising of the terrorists in the Northern part of the country. Also, another faction in the South-South agitating for their rights over the oil revenue may make the business in that area to be volatile. There has been series of oil pipes vandalization across the oil rich cities in Nigeria, including Niger Delta area. This could be considered a factor that can relegate the survival of a business as a result of hike prices of oil in these arrears due to this act.
For more than sixteen years now, Nigeria has been operating under uninterrupted democratic system of governments. Nigeria operates a multi-party system with more than ten political parties. However, there are only two dominant political parties, one playing the role of opposition party. The current ruling party has majority seats in both upper and lower chambers of the legislative arm of government.
Within this period of democratic era, there have been changes in governments. The last change of government that took place last election was equally a change the in ruling political party. The term of government is usually four years. Therefore, by next election, Nigerians will be preparing for another electoral activity. For anybody that wants to do business in Nigeria, I like to quickly point out that elections here are generally characterized by much spending. Therefore, businesses involving media and printing usually record huge turnover during this period.
Nigeria as a country has been a mono-economy with total dependence on oil revenue. Currently, the economic situation in Nigeria is not that buoyant. With the current glut in the oil market, the revenue coming to the country has come down drastically. Because Nigeria operates a federalism system of government with three tiers of government namely; Federal, States and Local Governments, revenue has to be shared across the three tiers of government. With the shrunk revenue, the money coming to the States and Local Governments is not enough to finance their recurrent expenditure let alone capital expenditure. The resultant effect is the lack of disposable income for her citizens. Therefore, this is not the time for the purchase of luxury items. People will like to spend their little available resources on basic needs, especially food items.
Another economic factor one may need to consider is the level of unemployment in Nigeria. Youth unemployment rate is put at 21.5 %. The economic implication of this is that, this can lead to crimes and other social vices. On the other hands, this means that entrepreneurs can have access to cheap labour. It will be cost-effective for any labour intensive business to be located in Nigeria. Alternatively, it will benefit foreign countries to outsource any labour intensive arm of their business to Nigeria.
Cost of borrowing (in form of loan) is quite high in Nigeria. Even though Central Bank of Nigeria tried to peg interest rate at 12%, you still discover that borrowers may pay the minimum of 15% when other costs such as management and procession fees are added to it. If you want to borrow to do business in Nigeria, you need to be sure that the margin will be able to cover the interest. In our country where only few companies comply with credit policies, the interest payment may escalate beyond your cash flow projections by the reason of the delay in payment from your customers.
Social and Cultural Factors
Nigeria as the most populous country in African continent has an estimated current population of about 200million people ranking it No.7 in the whole world. That is why Nigeria is being referred to as the giant of Africa. The market potential here is very huge. In the past years, despite the instability in the country, foreign direct investment has been on the increase. For instance, the investment in the Telecommunication industry has been very huge. As of April 2016, Nigerian Communications Commission reported 147.57 million active numbers. The size of the population is enough to attract investors into the country.
Also Nigeria is a country different ethnicity and religion. Nevertheless, we still celebrate our unity in diversity. Doing business in Nigeria requires that you understand the religion and cultural values of each group or ethnic. Religion is very pronounced in Nigeria and it is a very sensitive issue. The two major religions in Nigeria are Christianity and Islamic. You are not forced to belong to any religion but you need to respect individuals for the religion group they belong to. This on a part could ensure the survival of a business in this great country.
Unlike before, Nigerians are fast becoming computer savvy. A large number of Nigerian youths are computer literate. Although, laptops and personal computers still remain a luxury to some people, the use of Smartphones seems to be bridging this gap. With Smartphones, many people are now active users of internet with social media presence.
Currently, we now have an estimated number of 86.22 million internet users giving a percentage of 46.10% of the population. Therefore, for anyone who intends to do business in Nigeria, an online advertisement is actually becoming the best way of reaching targeted customers.
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