Business Environment and Challenges in Nigeria

1. Business Environment and Challenges in Nigeria Presentation By Mr Larry E Ettah GMD/CEO UAC of Nigeria Plc and Chairman CAP Plc at the Akzo Nobel Conference

2. Presentation Outline • Introduction • Nigerian Economic Overview • Business Environment Challenges • Expectations of Akzo Nobel as Business Partner • Conclusions

3. Introduction

4. Nigerian Economic Overview • Nigeria is Africa’s second largest economy in terms of GDP ($175Bn as at 2008) second only to South Africa. • GDP growth has averaged 6-7% since 2003. • The country is the largest in terms of population in Africa, with population estimates now approaching 150 million people! • The population distribution is weighted in favour of younger citizens with 52% nineteen years and below; and over 80% below 40 years of age.

5. Nigerian Economic Overview (contd.) • Nigerians are entrepreneurial, dynamic and amenable to global lifestyles and consumption-oriented. • Per capita GDP has improved from under $700 in 2004 to $1,418 by December 2009 reflecting economic growth, but wealth distribution is heavily skewed with 54% of the population classified as living below the poverty line. • Telecommunications has experienced a revolution with tele-density at 58%; 95.7million mobile/GSM; 11.7million mobile/CDMA and 2.7million land lines as at August 2010, from just 400,000 total lines in 2001.

6. Nigerian Economic Overview (contd.) • Nigerian has experienced its longest period of uninterrupted civilian rule after independence in 1960 since 1999 even though there are questions about the quality of the electoral process. • There has also been various economic reforms since 1999, particularly between 2003 and 2007 in telecommunications, banking, pensions, insurance, downstream petroleum, mines and minerals etc. • The current president appears to be resuming reforms suspended by his late predecessor, particularly in the power sector and privatisation.

7. Nigerian Economic Overview (contd.) • But the macroeconomic picture is weakened by a dependency on oil which provides over 75% of the national budget and over 90% of export earnings. • In addition GDP growth is disproportionately based on oil export; un-modernised agriculture and trading; with manufacturing now contributing less than 4% of national output. • The major constraint to manufacturing is power-national power generation is around 3,700 MW versus possible demand in excess of 20,000 MW (including suppressed demand)

8. Business Environment Challenges:Social • Rising Crime and Insecurity • Armed Robbery and Kidnapping in Eastern Nigeria • Militancy in the Niger-Delta • Recurrent religious and sectarian crisis in parts of Northern Nigeria • Education and Health Services have suffered from under-investment during military rule • Absence of social protections

9. Political • Elevated political risk as 2011 elections approach • Regional and ethnic tensions associated with power rotation • Political Corruption • Multiples Taxes, Charges and Levies from Federal, State and Local Governments and Agencies

10. Economic • Weak Infrastructure, particularly power and transportation • Businesses have to provide alternatives to public services:- • Alternative Power Generation • Security Services • Courier and Postal Deliveries • Water Boreholes • Problems associated with export and import logistics-ports; customs; inspection services; etc

11. Economic (contd.) • Mostly Imported Inputs • Exchange Rate Risk • In December 2008, the Naira was devalued from N117/$ to N150/$ • With Falling External Reserves, further devaluation is a possibility • High Interest Rates (Prime Lending Rates around 18%) • High Inflation (13.7% as at August 2010) • Strained Financial and Capital Markets • New law on local content (Game changes)

12. Expectations of Akzo Nobel as Business Partner

13. Conclusions • Nigeria is a huge potential market which continues to experience GDP growth averaging 6-7% through the global recession. • In spite of its environmental and infrastructural constraints and challenges, Nigeria remains a high return business environment, and one which stands poised to experience economic and social transformation. “Challenges exist, we don’t mourn them, we don’t complain about them , we take those into account as reality as we design our business models”. • Akzo Nobel can work with UACN/CAP Plc to mitigate some of the challenges assured that the medium to long term prospects for our market is very positive.

14. Thank you for listening!