Nigeria: Conducting Business In A Challenging Climate

The changing dynamics in Nigeria's economic climate

Operating in an environment where the currency is depreciating and interest rates are rising is challenging. The devaluation of the naira in November 2014, coupled with declining global crude oil prices has resulted in declining market growth expectations for 2015. Nigeria's Gross Domestic Product growth rate which averaged 6.14% between 2005 and 2014 is now forecast to decline to 5.5% in 2015.

Unfortunately many businesses are not prepared for these eventualities, and now find themselves struggling to operate profitably. Several are still trying to understand and come to terms with the impact of these conditions on their operations.

What does this mean for your business?

The most obvious impact of currency devaluation is an increase in the cost of importing raw materials and finished goods. This is even more critical as Nigeria is an import dependent country. Many raw materials and consumer goods cannot easily be sourced locally and therefore need to be imported, resulting in higher prices which are passed on to consumers. Customers then seek cheaper alternatives where substitutes are readily available. Overall, the inflationary pressures affect consumer purchasing power; and where wages remain stagnant, spending is reduced, resulting in slower economic growth.

Another effect of the adverse currency movements on Nigerian businesses is that those with foreign denominated debt will have to generate more naira revenue to service these borrowings. Furthermore, local securities pledged to foreign banks as collateral, have to be revalued and often, this means further pledge requirements. Likewise, those who pay a portion of their staff, (e.g. expatriate staff) in foreign currency will have to convert more naira to fulfill the same salary obligations.

Additionally, businesses with naira denominated debt will have to pay higher interest rates following the rate rise. If higher naira earnings are not forthcoming to offset the increased cost of debt, any profits realised are quickly eroded. The risk of a default then looms.

So what can Nigerian businesses do to recover from the turbulence?

All too often, businesses focus on driving top line growth, i.e. sales and revenues. However, in this environment, focusing on cost reduction and the bottom line would be more prudent. You can begin the process of turning around a struggling operation by asking a few pertinent questions.

1. Have you cut all costs to the minimum efficient level? Can you reduce expenses without reducing the quality of your product?

The systems and processes that drive your business operations must be meticulously reviewed to identify and eliminate inefficiencies. Often, it is discovered that costs can be cut from general and administrative functions without compromising the quality of goods and services provided. Any investments in making your business more efficient will make it more competitive and resilient in the short, medium and long term.

2. What are your future working capital needs? Are there reliable sources of cash to pull the company through its recovery?

The critical areas to monitor are account receivables, account payables, inventory and cash management. Perhaps it is time to revisit your debtor management strategy and ensure constant and open communication with both customers and employees. Consider altering credit terms extended, ensure prompt and accurate billing, introduce incentives for early payments, and track customer performance. On the payables front, developing a detailed payment plan, that is updated regularly and which provides visibility on the timing of cash outflows, is essential. Importantly, have candid discussions with your creditors and if possible, renegotiate payment terms in order to avoid default.

Manufacturing and distribution companies need to consider rationalising stock keeping units, identify and eliminate slow moving and low margin items, and sell off obsolete stock.

Once you have got a handle on your working capital, budget and plan better. With thorough budgeting and planning, you can better manage your foreign exchange risks. By setting a budget that details the expected level of trading, the number of foreign exchange payments and likely timings of these transactions, along with realistic assumptions of future rates, you can minimise the impact of any exposure to currency fluctuations. It is important that budgets are carefully thought through, and adherence closely monitored. Historical variances in previous budgets should be analysed to identify potential improvement strategies. Depending on the size of your business, producing rolling daily, weekly and monthly performance reports which provides information on income and expenditure levels, profits and expected cash flows, will be crucial.

A robust budget will enable you to adequately plan and monitor income and expenditure levels.

3. What are your debt levels? Are you able to sustainably service them?

Have you considered refinancing or restructuring your debt? This can be effective in alleviating the cost of repayments. Refinancing allows the borrower to replace an existing loan with a new one, gaining more favourable terms in the process. For example, after an analysis of the impact of currency devaluation and in increase in interest rates, you may arrive at the conclusion that a foreign loan could be refinanced for local funding or vice versa.

Debt restructuring involves modifying the terms of an existing loan and would typically be an effective tool should you already be distressed. In such instances, the lender may be willing to amend terms of the existing credit agreement such as extending the term of the loan, thereby reducing monthly repayments, waiving of fees, or a debt moratorium. After refinancing or restructuring, you should emerge with improved or restored liquidity and can therefore continue operations.

Debt restructuring can be a complex process and if you are considering this, it would be beneficial to seek assistance from financial advisor(s).

Once the process of debt refinancing or restructuring has been completed, it is essential that you stay on top of all liabilities. In an environment where the currency is depreciating and interest rates are rising, it is easy to fall back into debt. You must ensure that there are robust systems and procedures in place to track and evaluate excessive debt, eliminate inefficiencies, and unlock cash. Accurate and timely reporting on debt is a prerequisite for the success of any debt management process. Reporting should be comprehensive enough to assist in drawing up a debt management strategy.

4. Have you communicated with key suppliers, vendors, creditors and debtors to ensure they will support your company in its restructuring efforts?

If a company in your supply chain falls into financial difficulties this could potentially adversely affect your business. It is essential that all businesses within the chain are kept informed of any internal or external changing circumstance. Communication channels must be kept open to encourage candid discussions, as both creditors and debtors could be facing similar financial struggles. The current economic and financial challenges are not likely to abate in the short term and debt can quickly spiral out of control. A good candid relationship will make the process of setting up and implementing any debt management plan more effective.

5. Have you researched local sources of supplies?

Many companies source raw material from foreign suppliers without fully investigating and researching local alternatives.

Opportunities to cut costs and eliminate exchange rate risks could be uncovered if you explore and research these avenues. Carry out some market research focused on local industries. This could be beneficial for your business in the long run.

The questions asked above are by no means exhaustive. There are no doubts many more concerns businesses will have in this climate, and several recovery options that can be explored. We are happy to take this conversation further and answer any questions you may have. Why not send us an email, or visit the PwC Nigeria website.

The smart will survive

Conducting business in Nigeria is tough and very competitive at the best of times. With the economic difficulties that lie ahead, it is unlikely to get any easier. The penalty for acting slowly is unforgiving and hits very quickly as many businesses would have experienced. It is critical that business managers take decisive and proactive steps early to stay ahead of the curve. Adapting some of the measures outlined above, plus the many more we will discuss following your questions, will stand your business in good stead to overcome some of these challenges, and emerge from it stronger and better positioned for the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions