Feasibilty Report On A Successful Business Venture Business Essay

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Bluebird Telecommunication is a reputable Telecommunication Company based in the United States. It is a top-notch Telecommunication Company with its headquarters in Dallas, Texas. It is a fortune 500 company and is listed in the New York Stock Exchange (NYSE) with annual revenue of about $ 123 billion. The company's interest to invest in the Nigerian telecommunication industry has been prompted by the growing rate in the use of communication technologies both in public and private sectors. This report seeks to ascertain whether it is a viable venture to invest in the telecommunication industry in Nigeria by putting into consideration such factors as the national business environment and cultural conditions in Nigeria, the pattern and trends of trade between the United States and Nigeria. Furthermore, looking into the level of protection measures against foreign investment in Nigeria; the possible risk factors that may be encountered in Nigeria and the entry mode to be adopted in order to do business in Nigeria.


Nigerian Mobile Telecommunication industry has been referred to as the fastest growing market in Africa (PRLog2009). The industry came into mainstream in 2001 when government decided to deregulate the telecommunications market which allowed the private sector to invest in the sector. The telecommunication system was opened up with the issuance of Global System for mobile communication (GSM) unified license in 2001. The license costs about US$285million in Nigeria. Before 2001, Nigerian Telecommunication (NITEL) was the only operator in the market with about 500,000 subscribers from a population of 140 million.

The deregulation ushered in key telecom players like MTN, Globacom Mobile, Zain formerly Celtel, Etisalat, Visafone, Multilinks, Starcomm and Zoom formerly Reltel. The telecom regulator in Nigeria is Nigerian Telecommunication Commission (NCC).

Figure 1: Nigeria - Mobile Subscribers and Penetration (2002-2011)

Source: Portio Research Ltd

Nigeria currently has Africa's largest telecommunication market with about 65 million active subscribers demoting South Africa to second place with about 45 million subscribers. In 2004, the telecommunication industry grew to over 7 million subscribers and 62.99 million subscribers in December 2008. An addition of 22.59 million subscribers in 2008 alone represented 56% annual growth rate. The country intelligent report on Nigeria by Pyramid research stated that the market grew by 23% with total industry revenue of US$8.42billion naming the telecommunications market the largest in Africa.(PRLog, 2009).


Doing business in Nigeria requires an understanding of the country environment, including factors influencing consumer lifestyle choices (euromonitor.com/Nigeria). The concept of national business system proposed by Whitley (1999) focuses on the belief that firms do not act in a social vacuum rather affected by numerous influences from the environment and as such firms operate in markets, business sectors and must comply with laws and regulations usually outlined by the country where the firm is operating. The legal, political, economic, cultural, educational, technology and infrastructural systems of Nigeria are some of these influences to be considered in determining effective business practice between Nigeria and the United States. These are influences that affect international business practice bearing in mind the difference in national culture and business systems that exist between both countries. Focus therefore, is on the effect of national business system on telecommunications industry but with more emphasis on the examination of its implication for Bluebird investment in the Nigerian Telecommunication market.

The Political System

Nigeria gained independence from Britain on 1 October 1960 and became a republic three years later. The Nigerian political system has 3 arms of governance; the executive arm, the legislative arm and the judiciary. Nigeria practices the federal system of government which has 3 levels of government: the federal government, the state government and the local government. The country is made up of 36 states and a Federal Capital Territory (FCT) in Abuja which are grouped into six geo-political zones. There are at least five states in each of the zones and major government facilities are provided to maintain the balance among the zones.

The country currently practices a democratic system of government. Elections into various offices are held every four years. The states are semi-autonomous and each has an elected Governor with a State Legislature. The President and State Governors are elected for a maximum of two terms. The three major political parties in Nigeria are People's Democratic Party (PDP), Action Congress (AC) and All Nigeria's People's Party (ANPP).

Nigeria's post-independence history had been largely politically unstable caused by several years of military rule characterised by economic mismanagement and human rights violation. This trend led to Nigeria's treatment as a pariah nation by the international community. However, the recent return to democratic rule in 1999 brought about the country's re-admission into the committee of nations and has facilitated rapid economic growth. The political climate in recent times has been relatively calm and stable following the return to civilian rule in 1999.. In 2009, the incumbent president passed on due to a brief illness which brought about the then Vice President Goodluck Jonathan becoming the new Head of State till date.

Although, this political stability has been challenged by the recent Niger Delta crisis and the politically motivated bombing in Jos but it is expected that the 2011 election which is the third civilian to civilian transmission would further strengthen the gains of democracy and stabilise the political landscape of Nigeria.

The implication of Nigeria's political system to Bluebird's investment in its telecommunication industry is not one to be weary of because the political environment has been relatively stable but a bit of caution should be taken if the business looks towards expansion particularly in areas where there is political tension like in Jos and Niger Delta.

The Economic System

Nigeria has managed to maintain a steady growth despite the recession and banking crises in 2009 with average GDP year-on-year growth rate of about 6.4% over the last five years, the highest in West Africa. The communications sector has recorded the highest growth in GDP contribution in the last five years. Inflation has returned to 11.6% in 2010 the rate in 2008 from the 2009 high of 12.4% and unemployment has remained flat for the past two years at 6.2% (Datamonitor 2010).

According to the Central Bank of Nigeria, Nigeria's GDP is estimated at US$182 billion for 2008, representing a real GDP growth of about 6.4% for the year.

Due to the liberalisation of the Telecommunications sector in 2001 and the resultant increase in investments and phone penetration since then, the Communications sector has recorded the highest growth in GDP contribution in the last five years, from 1.3% in 2004 to 3.0% in 2008, representing a CAGR of 31.6% over the period.

Bluebird should take advantage of increased investment in the economy, following the broad-based structural and macro-economic reforms undertaken by the Federal Government to reverse the past economic decline and encouraging foreign direct investments, providing a platform for sustainable growth and improving the general business climate which creates an enabling economic environment which Bluebird can benefit from.

Sectoral Contribution to GDP (N billion)




























Solid Minerals














Building and Construction







Wholesale and Retail Trade







Finance and Insurance














Hotel and Restaurant














% Contribution to GDP















Source: Central Bank of Nigeria: 2008 Annual Report;*Represents Average

The Legal System

As a result of colonisation, the Nigerian legal system in practice is based on the English common law legal tradition. As pointed out by Obilade, (1979) English law has a tremendous influence on the Nigerian legal system, and "English law forms a substantial part of Nigerian law (in Dina, Akintayo and Ekundayo, 2005). In addition, it is important to mention that the Supreme Court of Nigeria is the apex of the Court System (Babalakin& Co, 2005).

The Nigerian government has renewed its efforts toward development of the Nigerian telecommunications sector in line with international standards (Kingsley Ohiri, 1999). The Nigerian Communications Commission (NCC, 2003) set out to establish a regulatory framework for the Nigerian communications industry that will be effective, impartial and an independent regulatory authority, encourage local and foreign investments in the Nigerian communications industry and protect the rights and interest of service providers and consumers within Nigeria. Since there are laws in place that are impartial and encourage foreign investments in Nigeria, it would appear to be viable and profitable for Bluebird to investing in the telecommunications industry.

Cultural System

Hofstede, (1980) described culture as a "collective programming of the mind, which distinguishes the members of one category of people from another". With reference to Hofstede's culturally-based values system, Nigeria can be said to be a collectivist country where group interest precedes over individual interest (life-in- Africa, 2010). Communication is usually direct with no difficulty passing across real feelings. Therefore, because entrepreneurs mature within a societal context, their attitudes toward co-operation are likely to be influenced by the underlying values of their society (Weaver, 2000).

Nigeria, currently with an estimated population of about 146 million people, is blessed with huge social, cultural and religious diversity which provides for a mix of people and traditions in various parts of the country. It is estimated to have 500 language dialects spoken throughout the country but the official language is English; other major languages, which are the local languages of the major ethnic groups, include Hausa, Yoruba and Ibo. Also, it is estimated to have 250 ethnic groups. The most populous ethnic groups include; Hausa and Fulani 29%, mainly in the north; Yoruba 21%, mainly in the west; Igbo 18%, mainly in the east; Ijaw 10%, Kanuri 4%, Ibibio 3.5% and Tiv 2.5%.

With an average annual population growth rate of about 3.2%, Nigeria has the largest population in Africa. Nigeria will offer Bluebird investors Africa's largest domestic market as well as the additional attraction of a low-cost labour pool. It therefore becomes imperative for Bluebird to be well attuned with the diversity in cultures and lifestyles as it seeks to develop business ties to help strengthen business operations.

Educational System

Nigeria operates the 9-3-4 system of education with a literacy rate of 73%. In the 9-3-4 system the student spends nine years: six in primary school and 3 in junior secondary school to attain the Universal basic Scheme certificate which is the lowest level of education required for employability. The next 3 years is spent in the secondary school. The senior secondary school is certified by senior school certificate examination (SSCE) after which university education begins.. It is estimated that there is one teacher for every 37 students in the country. According to the World Bank, the gross enrollment ratio in primary education stood at 99% and 87% for males and females in 2008 respectively (Datamonitor, 2010).

Technology and Infrastructural System

The pace at which technology has been embraced in Nigeria has been the fastest in the Telecommunications Industry in Africa. The technology in Nigeria has moved from second generation (2G) technology which is the GSM standard to 2.5G and currently to 3G; a third-generation technology that enables internet access, mobile TV, video calls and other forms of content and value-added services (Pyramid, 2010).

Source: Nigerian Communications Commission

NB: Microwave and Fibre-optic Cables are represented in kilometres while BTS is represented in numbers

However Nigeria is plagued by unreliable power supply as most businesses run on self-generated power. Other issues include poor transportation network and challenges around security of life and property. However, there has been intentional government focus on these issues. Government has deregulated the power sector with the hope of increasing power generated. Increased government spending on security and government's partnership with other nations (China) to help develop its transportation network should help increase Bluebird's confidence in the Nigerian sector.

Trade Patterns between the United States and Nigeria

In June 2006, the United States met with Nigeria under the existing Trade and Investment Framework Agreement (TIFA) to work together on investment issues and to develop a strategy for Nigeria to diversify its export base, particularly in manufactured goods. The United States and Nigeria vowed to work together on pertinent issues such as World Trade Organization (WTO) Doha Development, intellectual property rights, and trade capacity building.

The U.S foreign direct investment (FDI) in Nigeria is concentrated largely in the mining and wholesale trade sectors. The stock of U.S. foreign direct investment (FDI) in Nigeria in 2005 was $874 million, down from $2.0 billion in 2004. USA trade deficit with Nigeria was $25.7 billion in 2006, an increase of $3 billion from $22.6 billion in 2005. In the same year, U.S. goods exports to Nigeria were $2.2 billion, up 38% from the previous year and its imports from Nigeria were $27.9 billion, up from 15% from 2005. Nigeria is currently the 50th-largest export market for U.S. goods (U.S. department of state, 2010). However, the slowdown of the global economy and the failing security of the country restricted investment in 2009. Nevertheless, Nigeria maintains advantages like a partially privatized economy, a beneficial taxation system, significant natural resources and low-cost labour but on the other hand, prevalent corruption, political instability, non-transparency and the poor quality of infrastructure hamper FDI (Global trade, 2010).

Nigeria carried on with implementing the Economic Community of West African States (ECOWAS) Common External Tariff. The implementation of non-tariff barriers has been arbitrary and uneven and continues to violate WTO embargo on trade bans. The enforcement of criminal penalties against Intellectual property rights (IPR) violation is weak, but firms that successfully counter IPR piracy do so through civil court cases. The government is trying hard to combat this and has recently created an intellectual property commission (U.S. department of state, 2010).

Although Nigeria must tackle its decaying infrastructure and a poor regulatory environment, it still possesses many positive attributes for carefully targeted investment and will expand as both a regional and international market player. Profitable niche markets outside besides the energy sector, such as specialized telecommunication providers, developed under the government's reform programme. A mounting Nigerian consensus is arising in support of the importance of foreign investment to realising Nigeria's enormous potential (U.S. department of state, 2010)

For a company like Bluebird interested in investing in the telecommunication industry in Nigeria, opportunities around the large national market exist due to its access to available raw materials and cheap labour. However, to forecast a high success rate it is necessary to be highly knowledgeable on business practices and local conditions of the country, and also carefully select business partners and work towards establishing a local presence. The Nigerian government is ardently aware that sustaining democratic principles, enhancing security for life and property, rebuilding and maintaining infrastructure are necessary for the country to attract foreign investment (U.S. department of state, 2010).


For over 30 years, the United States has operated under two different exchange rate regimes. The first was the Bretton Woods system of fixed exchange rates and it lasted from December 1958 to March 1973, the second one started in March 1973 and has been sustained till date but the exchange rates have been subject to managed floating.

For Nigeria, the

exchange rate regimes have undergone remarkable changes over the past four decades. It first moved from a fixed regime in the 1960s then moved to a pegged arrangement between the 1970s and mid 1980s and then to the various types of floating regime since 1986, subsequent to the adoption of the structural adoption programme (SAP). A regime of managed float with no strong commitment to defending any particular parity has been the principal characteristic of the floating regime in Nigeria since 1986. These changes are not just atypical to Nigeria as the US dollar was also fixed in gold terms until 1971 when it was de-linked and since then been floated (Sanusi, 2004).

The implication of Nigeria's exchange rate for Bluebird is that the company has to use hedging and speculation to sure-up their position against fluctuations in the exchange rate. it would be important for Nigeria to attain a realistic exchange rate which would result in simultaneous achievement of internal and external balances and facilitate the achievement of sustainable economic growth and development but most importantly would be the issue of increasing the productivity of the home economy as this would help in the reduction of naira exchange as well as its volatility (Sanusi, 2004).


According to OECD (2001), foreign direct investment is a class of international investment that reveals the objective of establishing a long-term relationship of a resident entity in one economy to an enterprise resident in another economy. The preferable mode of entry for Bluebird to do effective business in Nigeria would be through foreign direct investment as Governments in Nigeria have taken steps to create an environment that fosters FDI. Just as the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1955 allows unconstrained repatriation of foreign currency, the Nigerian Investment Promotion Commission (NIPC) Act of 1955 to a large extent eliminates discrimination against foreign investors.This provision allows 100% foreign ownership in Nigerian entities and lets existing investors build up controlling stakes (Country commerce, 2006).

The relevant legislations protect foreign investors against expropriation and forceful takeover by government. Therefore, there is no risk to the proposed mode of investment.


Political risk can be said to be the risk of losing money brought about by changes in a country's government or regulatory environment

The restoration of peace to the turbulent Niger-Delta region appears to be a major political plan of the current administration, as this is critical to ensuring a lasting solution to the ongoing energy crisis in the country.

Corruption still remains a key issue within Nigeria's political system. The successful prosecution of high profile cases, including the ongoing cases against the management of the five major banks arrested on charges of corruption will facilitate the Government's anti-corruption war.

One way of

Mitigating political risk is diversification; bluebird needs to spread their international investments around in a variety of countries and regions so that they don't get hurt too badly even if political risk calculations turn out to be off the mark.

The future outlook on Nigeria's economy remains strong in view of the huge potentials of the country and the African continent.

Present social, political, legal, infrastructure and economic reforms in Africa, especially Nigeria will continue to lead to changing investors attitudes about uncertainty and risk.

The Nigerian government plans to continue to liberalise the investment climate by eliminating various bottle necks to the free flow of FDI. Some of these plans include repealing restrictive laws, improving security, signing investment-protection treaties and many others. Nevertheless, poor infrastructure, political violence and communal and religious disturbances in different parts of the country continue to discourage foreign investment.


In time past, the array of macroeconomic issues linked with Nigeria such as the country's political instability, corruption, poor infrastructure, social crisis made many investors skeptical about doing business in Nigeria. However, this may not be the case as many researches have shown in recent times the extent to which foreign investors are beginning to invest heavily in Africa; particularly Nigeria. The deregulation of the telecommunication industry in Nigeria has increased foreign direct investment and made investors more active especially in the telecommunication market and this has added to the country's (Nigeria) GDP. Nigeria appears to be a viable country to do business in owing to the country's rich human and natural resources such as its large population and market size. For Bluebird, it would be appropriate to diversify its business investments in different locations or countries so that if the business in Nigeria fails, it would not lose all investments.