Ivie Omoregie: Here Are Vital Things to Consider If You’re Thinking of Coming Into Nigeria to Set Up a Business

Recently someone called me with excitement
about the new value of the Naira. She had been hearing about Nigeria’s economic
challenges, but had never really considered what this meant to her, as she was
not directly affected by it (her entire immediate family are spread across
America and the UK).

It was when she sent some money to her aunt
that she realised that $1000 was now almost N500,000. Oooh boi! To say she was
excited was an understatement. She started calculating the things she could now
afford to do in Nigeria. At the top of the list was buying property and
starting a small business.

She called me to discuss some of her ideas;
however, when I cautioned that many popular businesses are actually running at
a loss she was confused. I had to break it down for her and explain that many
business owners simply do not understand the basic principles of accounting and
tend to run their limited liability companies as sole traders (I know some
people will be reading this and thinking ‘huh!’)

Small and Micro Businesses

Over the years I have seen many people
doing business in Nigeria without the proper training or even a basic
understanding of the various types of structures available for their business
operations.

The obstacles faced by small and micro
businesses are universally established; entrepreneurs in this sector inherently
face many challenges that limit their long-term survival and the rate of their
development.

There are currently many high-profile
initiatives and training programs available to empower and support small and
micro businesses. Uunfortunately, many entrepreneurs are not aware or do not
have the skills or network to take advantage of these developmental aids. As
you can imagine, where the promoter of a business is cash rich but knowledge
and experience poor, the likelihood of the business succeeding is slim to none.

In this article I will briefly run through
the things that one needs to do when thinking about doing business in Nigeria.

Why Nigeria?

For many Nigerians in diaspora, most of
which might have spent most of their adult lives abroad, a question which
resonates is “Why Nigeria?”

To this my answer is always: –

1. Nigeria has the largest population in
Africa, thus a relatively cheap labour force and a large market for initial
sales;

2. We have abundant natural resources (not
just oil and gas, coal, copper, livestock, poultry etc);

3. We have vast and fertile land for
agricultural projects;

4. There are significant government
incentives for small and micro businesses, as well as for foreign investors;

5. We have the largest economy in Africa
and have been identified by Goldman Sachs as being amongst the “next eleven”
economies.

Things to Consider

The following are things to consider when
setting up a business in Nigeria

a.
Incorporation

Local
incorporation is compulsory in most instances. Investors may consider
registration of a business name or forming a private limited company. There are
pros and cons to either option. The final choice will be largely dependent on
the nature of business you wish to set up. Where you decide to incorporate a
private limited company, it would be advisable to outsource the companies
secretarial and accounting needs. This tends to be menial, but the correlation to
the success of the business unquantifiable.

b.
Importation of Capital

This
may be done by either importing the raw cash, or done in kind (i.e equipment,
plant, machinery). Either way, prior to the importation of the required
capital, business promotors should research and obtain a Certificate of Capital
Importation (“CCI”). The CCI is required by investors who plan to remit profits
for either non-resident shareholders or loan and interest repayments
attributable to the investment. It enables the holder, by presenting the CCI,
to purchase foreign currency from the official foreign exchange market.

c.
Registration with NIPC

Any enterprise in
which there is foreign participation (foreign here means a non-Nigerian
national) must be registered with the Nigerian Investment Promotion Commission
(“NIPC”). NIPC provides services and facilitates the grant of business permits,
licenses, authorizations and incentives.

d.
Business and immigration permits

These are necessary
where there is foreign participation in the undertaking of any business in
Nigeria. The relevant companies would also need an expatriate quota for each
expatriate it wishes to employ; this could be either a Temporary Work Permit
for expatriates engaged in short term assignments or a Combined Expatriates
Residents Permit and Aliens Card for expatriates wishing to stay in Nigeria for
longer periods of time; and

e.
Industry permits and registrations

The type of permits
and registrations one would typically apply for is determined by the nature of
the proposed business, I would advise that the applicable permits and
registrations be thoroughly researched beforehand to avoid unnecessary
governmental intervention. Tax registrations are necessary at both federal and
state level, and a Tax Clearance Certificate tends to be a prerequisite for
most applications for regulatory approvals.

Key
Investment Issues

There are some
areas where there is a statutory requirement that the business is owned by a
certain percentage of Nigerians in order to be eligible for certain government
incentives. These include the oil and gas sector, as well as the Nigerian
maritime sector. When intending to partner with a foreigner for any project, it
is important to research if the proposed venture is caught within these
exceptions and discuss ways around it.

Other investment
issues which most people do not factor into their business plans, are the
mandatory contributions required by eligible organisations.

These
are specifically: –

i. Industrial
Training Fund – 1% of payroll for organisations with more than 5 employees
and an annual turnover in excess of N50,000,000 (fifty million naira);

ii. Pension
fund – applicable where the employer has up to three employees in any
sector. The employer is to contribute 7.5 – 10%, and the employee is to
contribute 7.5 – 8.5% of the employee’s monthly emolument;

iii. Employee
Compensation Fund – the minimum monthly contribution of 1% of the total
monthly payroll;

iv. National
Health Fund – An employer with a minimum of 10 employees is to contribute
at a rate of 10% whilst the employee pays 5%, thus representing 15% of the
employees’ basic salary; and

v. National
Housing Fund – A Nigerian worker earning an income of N3,000 (three
thousand naira) and above per annum in both the public and the private sectors
of the economy shall contribute 2.5% of his basic monthly salary to the Fund

Lastly, I cannot over stress insurance.
Many people don’t believe in insurance in Nigeria, as they don’t think the
insurance companies pay out. This is a popular misconception; insurance
companies do.

Conclusion

On a funny note, one time I was discussing
with a group of friends, some of which were business owners. They mentioned
that one of the main reasons businesses fail in Nigeria is because of people
owe the business money.

I disagreed with them and said it was due
to mismanagement. When I went on to say that, in balancing the books of any
business a debt is an asset to the company, the whole room lit up in debate.

Many simply could not fathom this;
generally a debt is not a favourable thing nor would the lay man consider it an
asset. It took a while for the room to understand that for a company, a debt is
an asset and that it is when this debt remains unpaid that it then becomes a
bad debt. Only then is it recorded as a loss in the company’s accounts.

(P.S. Abeg if you are working for a small
organisation and they are not paying any of the above mentioned mandatory
contributions… report them )