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Cross the Rubicon

Helping Your Company Sell Into, Raise Capital From, and Find Partners in Emerging Economies

Cross the Rubicon - Helping Your Company Sell Into, Raise Capital From, and Find Partners in Emerging Economies

More Bad News for Nigeria

Last Sunday’s terrorist attacks in Kano, Nigeria underscored the delicate condition of Africa’s most important emerging economy.  President Goodluck Jonathan needs to show his own people and the international community that his government can respond to these terrorist attacks in a way that does not spread the violence, but instead contains it, thereby allowing Nigeria to continue to develop economically. As the largest market in Africa, Nigeria has much to lose if the violence spreads, or even should sporadic but effective violence continue, the latter illustrating Jonathan’s inability to provide a safe and secure environment for multinationals within which they can operate.

The Africa Report writes today, “It is too early to write off the Jonathan government, but it is struggling with political baggage that is holding up progress on energy policy and may completely derail it. The bold predictions last year of a period of high growth, economic reform and rising incomes sustained by strong demand for Nigeria’s oil and gas are now being rewritten, even by some of the more bullish banks and analysts. Renaissance Capital has cut its forecast for 2012 growth to 6.8 percent, its lowest level for three years. It predicts inflation could rise by as much as 3 percent due to the partial ending of the fuel subsidy.”

What is this fuel subsidy and why is it so integral to Nigeria’s development as an emerging economy?  Originally designed as a means of signaling to outside investors that Nigeria was ready for FDI into its energy sector, the fuel subsidy will hit the average Nigerian consumer – already struggling to find work and deal with inflation – and reduce their discretionary income significantly.  Nigeria’s fuel subsidy accounts for almost 1/3 of the country’s entire budget; only by opening to FDI will its energy costs go down and the country be able to redirect investment away from fuel into much needed public infrastructure. But entrenched interests are not eager to see the fuel subsidy go away.

At its core, the fuel subsidy is about corruption.  Consequently, Nigeria’s ability to push the fuel subsidy through will require political will that has been found lacking during most of the country’s recent history.  Perversely, the violence in northern Nigeria feeds into the desire of corrupt politicians to maintain the status quo by making it more difficult for the Jonathan administration to marshal its resources around an effective anti-corruption political strategy.

Nigeria is already home to many American and European multinationals who need access to the country’s various natural resources; however, the more exciting potential is the one companies like YUM! Brands are chasing in their early efforts to expand into Nigeria.  If Nigeria is to develop, it will need to create a stable and safe environment where FMCG and industrial companies can securely deploy staff and expend business development resources.  Should Nigeria be unable to do this, the country may well ride out the current boom in commodities to find that it never realized its long term potential of developing the first vibrant middle class in Africa.  What a shame that would be.

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Interesting news and tidbits from around the world related to strategy evolution by companies leading the way in emerging economies:

WalMart announces it is increasing its stake in Yihaodian, positioning the American retailer to take advantage of China’s growing e-commerce market.

India revised its last quarter’s GDP growth upwards, but economists in the know point out the country is significantly under-investing in its infrastructure, something that could threaten the country’s future growth.

Things in Vietnam look a little, well, “icky” if Ho Chi Minh City’s property market is any indication.

High-end auction house Sotheby’s follows other luxury goods companies and moves in-land within China, announcing a stop in Chengdu for 2011.

The WSJ’s coverage of why wealthy Chinese want to leave China makes for great reading and should cast some light on questions about the inevitability of China’s rise.

Trying to parallel the success of luxury goods’ companies who are successful in China, Adidas announced its plans to develop more “fashion forward” designs for the domestic Chinese market.

Ongoing violence in Kano, Nigeria casts suspicions about whether the government can provide enough security and stability to ensure the country’s promised middle class continues to develop.

 

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For our readers’ pleasure, some relevant reading and video on the topic of what is happening in emerging economies in early 2012 follows:

From The China Observer, How Diageo is differentiating its brand of whiskey in China.

Over at the Financial Times’ superb Beyond BRICs Blog, a review of Unilever’s results from Brazil and Russia, with a note of caution from the company about what they see as headwinds in emerging economies in general.

From the same FT blog, what the British firm Burton’s Foods needs to do in order to successful launch its Wagon Wheel food line in Russia.  Hint:  localization will always matter, finding the right partners even more.

US e-Tailer Amazon.Com announces its plans for entering India via Junglee.com, suggesting on-line retailers might have another advantage over brick and mortar companies in India.  Does this mean a multi-brand e-Tailer can be 100% foreign owned in India, but a multi-brand traditional retailer cannot?

Pepsi’s earnings make note of double-digit growth in a variety of emerging economies, while today the company announces job cuts in what the CEO calls a “transition year” for the company.

Everyone gulps over China’s most recent rate of inflation, hoping this is explainable by the CNY celebrations.

Pay attention to Nigeria as one of the pivotal African states where multinationals are eager to see the country further stabilize, successfully deal with Islamist terrorism in Ibadan and Kano.  Watch as YUM! Brands further expands into the country.

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