The six-storey 20 000-square square metre Ceddi Plaza in Abuja was built at a cost of $20m.
The Nigerian fast moving consumer goods market is mainly geared towards supplying the informal sector, with very little formal retail sector involvement.

The formal retail sector of the Nigerian economy is small and under-developed but growing fast.

Between 2001 and 2004 the retail sector of the Nigerian economy grew by 10% per annum. By 2006 the combined contribution to gross domestic product of the retail, wholesale and hospitality industries was 15%.

The average Nigerian spends 85% of his or her earnings on food, transport, shelter and energy so there is little left over for discretionary spending. Several positive factors are working in favour of an expansion in formal retail trade, despite the low incomes of most Nigerians: high oil prices, relative political stability, population growth and the expansion and general upward trend of all the non-oil sectors of the Nigerian economy.

The liberalisation of the economy, including privatisation of state entities, has been another factor in the steady rise in the number of people who can be classified as middle-class. With a population approaching 140 million, the percentage of people defined as middle class can be quite small but still represent a very large number of potential consumers.

This group tends to be better educated and ambitious. With Nigeria now attracting many foreign companies and multinationals, consumers are exposed to a wider range of products. These include the private (no-name brand) labels of some of the bigger companies. Advertising is geared to the increasingly sophisticated tastes of the upper end of the market, although retailers are still finding that ‘must-haves’ are in far greater demand than items perceived to be luxury goods. In the cosmetics and toiletries sector, for example, skin- and hair-care lines far outsell deodorants.

The mall revolution

Most Nigerians shop at markets or purchase their goods from traders and street vendors but city and state governments are seeing the tax benefits of more formalised trading. This, added to the rising expectations of consumers, has led to a modest boom in the development of shopping malls. This is expected to accelerate considerably in the near future.

As one would expect of the nation’s foremost commercial centre, Lagos is at the forefront in building shopping malls. The Lagos City Mall is a well-established complex while the Silverbird Galleria, completed in 2004, offers the city’s only multi-cinema complex. It was the building of The Palms in late 2005 however, which set a new bar by providing a wide choice of shopping experiences in a modern, customer-oriented, building.

As the Nigerian developer who initiated the project, Tayo Amusan of Persianas Properties, told fDi magazine, ‘this development and retail environment is unprecedented in Nigeria’. Situated on the Lekki Peninsula, the $40-million The Palms was a truly international effort: capital from UK-based equity company Actis, electrical contracting by Israeli, Nigerian and South African companies, main contracting by a Nigerian firm run by Italians and architecture by Bentel of Johannesburg. The centre is now administered by Broll Nigeria, a subsidiary of another South African concern.

Very high standards were set for the building of this 23 600-square-metre centre, which has its own generator, water purifier and sewage treatment plant. Some of the problems encountered in the building of the shopping mall illustrate the challenges facing foreign retailers in Nigeria. Getting building materials through the ports was difficult, and many of the items needed for fitting out the store were on the federal import banned list. The import ban exists to protect local manufacturing but it was impossible to find locals who could produce some of the items needed.

Since the building of The Palms, the number of items on the banned list has been cut and the import tariff reduced from 29% to 12%. Despite the very considerable difficulties in building the centre, delaying the opening by more than a year, it has been so well received by the shoppers of greater Lagos that plans are under way to double the size of the centre, with anchor tenant Shoprite alone adding 2 000 square metres to its floor space.

Pioneer tenants

When Tayo Amusan went looking for tenants he first approached British firms which enjoy high brand recognition among Nigerians. Amusan told fDi magazine that the British ‘shredded the proposal’ so he turned to South Africa. He persuaded food retailer Shoprite, electronics and appliances store Game, and cinema company Nu Metro to sign on as anchor tenants.

Nu Metro had already tasted success in Lagos with outstanding returns from its Media Store, proving, as fDi puts it, ‘the massive pent up demand for world-class retail that exists in Nigeria’. Shoprite is Africa’s biggest food retailer with 969 outlets in 17 countries and this experience has given it the resilience to overcome the difficulties of setting up a retail business in Nigeria. Nu Metro has since sold its holdings to Nigerians.

Doing business in Nigeria is easier today. The existence of a computerised registry and new regional offices of the Corporate Affairs Commission (responsible for registering new businesses) are key factors in this improvement.

Game is similarly experienced in Africa (10 countries) and is sourcing about 35% of its product range within Nigeria. Furniture, plastics and textiles remain on the banned list but the company reports that this has not affected sales at all. Game’s Director for Africa, Richard Fuller says, ‘We believe in supporting local business products wherever we can, as long as the customer benefits and the prices are in line. Our number of local suppliers is growing at a rapid rate.’

Plans

Several high-end shopping complexes linked to hotel developments are in the pipeline in Lagos and Abuja has the six-storey, 20 000-square square metre Ceddi Plaza which was built at a cost of $20-million. The Federal Airports Authority of Nigeria has called for investors to install and run shopping malls at various airports around the country. 

The most ambitious retail project is at Tinapa in Calabar, Cross River State. Tens of thousands of square metres have been set aside for retail ‘emporiums’ in what is hoped will become West Africa’s answer to Dubai. As evidence that Nigeria’s middle class really is a powerful entity, ThisDay newspaper claims that 500 Nigerians shop in Dubai daily. The newspaper estimates the annual loss to Nigeria at $1.8-billion and puts the blame for this squarely on the fact that it has taken too long to make Tinapa Business and Leisure Resort operational.

Built at a cost of $450-million, Tinapa obviously has tremendous potential as a retail and leisure destination, but there are many issues that need to be resolved before it can live up to expectations.

Ultimately, it is the size of the market that makes retail in Nigeria an area of exciting possibility.