Rising youth unemployment, sluggish gross domestic product (GDP) growth and a shrinking market show that Nigeria’s budding and veteran entrepreneurs have an increasing flock of poor customers.
Only 2 percent of Nigerians own 90 percent of total deposits in Nigerian banks. According to the Nigerian Deposit Insurance Corporation (NDIC), 98 percent of Nigerians have less than N500, 000 ($1,250) in their accounts, and the poorest Nigerians are unbanked. This means anything an entrepreneur innovating and selling to the average Nigerian is competes with food.
On average, nearly 60 percent of a Nigerians income is spent on food. But this average is spread across all segments including the rich. What this implies is that most Nigerians are spending between 80 percent and 90 percent of their income on food. In the Boko Haram insurgency infested North-East of Nigeria, 121 percent of income is spent on food.
A survey by BusinessDay showed that since the 2016 recession, Fast Moving Consumer Goods (FMCG) companies have been rolling out sachet products to enable them to penetrate the larger low-income market which has been hit by the harsh contraction breeze.
Read Also: Nigeria’s new national identity plan to fast-track credit economy goal
“Nestlé introduced single-serve packs as a strategy to ensure that consumers continue to have access to the nutritious food they need even in the current economic reality. This is in line with our purpose to enhance the quality of life and contribute to a healthier future,” Victoria Uwadoka, corporate communications and public affairs manager at Nestlé told BusinessDay.
Similarly, a Harvard Business Review (HBR) identified that the first element when innovating for scale is a robust strategy. A body of literature on the matter shows that companies that innovate at scale have a deep understanding of their assets, capabilities and what makes them successful. They understand at a granular level where growth came from in the past and where it is likely to come from in future. Aspiring to double revenues by 2020 may be a terrific stretch goal, but it is not a strategy.
“I have taken time to understand Nigeria’s entrepreneurship ecosystem and market. My advice to every budding entrepreneur is that they should not have their friends in mind when they innovate. The need to model their gateman’s income said Ola Orekunrin, founder of Flying Doctors Nigeria, West Africa’s first Air Ambulance Service. “It is not accidental that Dangote’s conglomerate which essentially tackles the basic needs of life such as food and shelter is one of the biggest indigenous listed companies. This is different from America where the biggest companies are technology companies such as Google, Apple and Facebook.”
Nigeria’s economy has not been doing well either. According to the National Bureau of Statistics (NBS), the 2.10 percent (revised from 2.01 percent due to oil output revisions) reported for the first three months of 2019 declined to 1.94 in the three months ending in June of 2019, a decline of -0.16 percentage points. The Q1 figure had represented a -0.38 percent decline when compared to the three months ending in December 2018.
Despite the quarter-on-quarter decline, the NBS said the GDP grew year-on-year, in real terms, when compared to Q2 2018 which recorded a growth of 1.50 percent, an increase of 0.44 percentage points.
“Entrepreneurs really need to understand the various market segments in Nigeria. The high-end market wants luxury but the middle and low-income market is highly price-sensitive and cares little about brand loyalty,” Gbolahan Ologunro, research analyst at Lagos-based CSL Stockbrokers said. “A consumer can choose one brand over another for as little as a N20 difference in price.”
The biggest company on the Nigerian Stock Exchange sells salt, sugar, pasta and cement. Next year, Aliko Dangote, the owner of this conglomerate will be launching a petroleum refinery. Not artificially intelligent petrol, not 3D printed petrol. This is the ordinary type that J.D. Rockefeller was selling 100 years ago in the United States of America. There seems to be a marked difference in terms of market needs and what people will pay for. Dangote understands the market and therefore continues to win.
Tech companies that have scaled successfully in Nigeria to $1b include MTN (a cell phone company) and Interswitch (a payments provider).
Notable non-tech companies that have achieved this scale include companies like Dufil foods (instant noodles) and Chivita, a cheap juice drink aimed at poorer Nigerians. To scale in Nigeria products need to be affordable, accessible and acceptable.
