How entry barriers into Nigerian market threaten retail sector growth

Of all the segments of real estate, growth has been most visible and activities most upbeat in the retail sector across major city centres of Nigeria. Analysts estimate that the sector, in the past 12-24 months, has seen about 30 percent rise in international interest.

Nigeria being a trading economy, demographics, strong spending power, growing sophistication and changing shopping culture among the growing middle class are frequently cited as drivers of this growth which, unfortunately, is being threatened by entry barriers into this market.

Close watchers of this sector say that Nigeria has a thriving market, offering opportunities that are not seen anywhere else in sub-Saharan Africa, making it attractive to international retailers.

“Some of these international retailers, mostly South Africans, are here, but a lot more are not yet here because of lack of appetite to work in Nigeria’s operating environment which is not enabling,” a real estate expert with an institutional investment firm told BusinessDay on condition of anonymity.

According to the expert, South African retailers are here because they are close enough to understand the opportunities here and again, they are more venturesome unlike their counterparts from London or America.

The expert agrees with Chudi Ejekam, director, real estate at Actis, who says land is a major obstacle to the growth of this sector. Ejekam had told BusinessDay that getting land at the right size and price was a major issue, adding that even where available, documentation and charges made projects unworkable.

“Experience at the port is enough barrier to kill a business. You need to see how ports work elsewhere. What we have here are not ports. Ports are where you get out your goods within 24-48 hours; people have paid millions of dollars for their goods and they need them to trade,” the expert noted.

He argued that if you do business in an environment where you spend 3-4 months to get your goods out of the port, you would go bankrupt, adding: “These investors come here, walk around, go to the ports and see that they can’t cope and so they go back.”

Erejuwa Gbadebo, a real estate consultant, agrees, pointing out that these foreign retailers are used to working in environments where the infrastructure is working such that you just read your meter every month and pay your bill, not needing to pay for diesel, water treatment and other extra costs that make their business model unsustainable.

Gbadebo, former CEO of Broll Property Services Nigeria, advised that those of them like South Africans who have the courage to come by themselves should be commended and the operating environment made enabling for them.

Recently, the growth of this sector suffered a major setback with the exit of Woolworths, a South African retailer with three outlets, including one in Ikeja City Mall. The retailer left Nigeria for its over 59 outlets in other African countries where it is relatively successful.