Introduction
As you commence your entrepreneurship journey into the year 2023, we thought it would be helpful to highlight some of the small and medium businesses in Nigeria which, in our view, have topmost potentials. We have compiled the list based on the frequency of requests and activities (of clients and prospects) around these selected sectors in the previous year as well as the potentially huge demand for their goods and services by the Nigerian population, the simplicity of the market entry requirements and licensing procedures, low costs of set up and reporting obligations, and several other relevant considerations in incorporation and licensing of the businesses.
Also, we must note that the selected businesses allow foreign participation or full ownership by foreigners. The businesses can also be fully set up and the company’s bank account can be opened and remotely operated or controlled by the foreign owners of the business without the necessity of the foreign shareholder/owner to travel to Nigeria.
In 2023, if you are a serial entrepreneur or have extra cash to set up a new business, the following businesses are worth considering:
1. COURIER & LOGISTICS COMPANY
With the growth of e-commerce business comes the use of courier and logistics companies which facilitate the delivery of goods between sellers and buyers. A courier and logistics company offers delivery services to the public members and the categories of goods and population served by this middleman business is very huge globally.
In Nigeria, a courier and logistics business is regulated by law which prescribes licensing requirements for entrepreneurs seeking to venture into delivery services. The first step in setting up a logistics business is to register the business with the Corporate Affairs Commission (CAC) as a limited liability company. The minimum share capital for private limited liability companies in Nigeria is N100,000 and N2,000,000 for public companies. So, a courier and logistics company can be registered with as low as N100,000 share capital.
However, where a foreigner is involved in the company (as as shareholder or director), then the company must be incorporated with a minimum share capital of N10,000,000 (Ten Million Naira). Meanwhile, logistic companies that seek to engage in freight forwarding require a minimum issued share capital of N5,000,000 (Five Million Naira) while companies that carry on shipping activities as part of their businesses must have a minimum issued share capital of N25,000,000 (Twenty-Five Million Naira).
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2. DIGITAL MONEY LENDING COMPANY
Nigeria has about 220 Million population with about 210 Million active mobile phone users, according to the Nigerian Communications Commission, and by 2050, the nation’s population is estimated to rise to 400 Million. As of June 2022, Nigeria hit 44.30% of broadband penetration with over 84 Million Internet Users which is projected to experience 60% growth by 2027. According to Mastercard, 91% of Nigerians use digital channels for financial transactions including lending, payment, investment and related services.
The above, when juxtaposed with the recent Google’s investment in subsea cables in Nigeria, is a boost for building a digital lending business and any other product or service in the Nigerian digital economy. Of course, Lagos, as the commercial centre and most populated city in Africa, is naturally the most attractive destination for setting up a fintech company.
Doing business in Lagos is easy for both locals and foreigners –and the most interesting part is that a foreigner can solely own a business without having to come over to Nigeria! Even the process of opening a bank account for a Nigeria business owned by a foreigner can be completed by the owner living overseas.
In a previously published article below, we have, in a question and answer format, highlighted the requirements and procedure for registration of a money lender company at the Corporate Affairs Commission (“CAC”) and obtaining the operational certificate and license in Lagos State as well as the costs and timeline for completing the process. The requirements and procedure are the same for both Nigerians and foreign nationals seeking to set up a digital lending business in Nigeria.
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3. MANUFACTURING COMPANY
According to www.statista.com, about 15% of Nigeria’s Gross Domestic Product in 2021 was generated by the manufacturing sector. The largest contribution was from the food, beverage, and tobacco sector, which accounted for nearly five percent of the GDP that year. Cement and textile were other main contributors to the manufacturing sector.
The manufacturing industry in Nigeria is moderately regulated compared to western nations. There is no gainsaying, however, that some sectors are more regulated that the others. At the centre of the industry are the Manufacturers Association of Nigeria (“MAN”), the Consumer Protection Council (“CPC”) and the Standard Organisation of Nigeria (“SON”) as industry-wide regulators, in addition to other regulatory agencies whose scope of oversight functions depend on the specific nature of products.
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4. AGRICULTURAL COMPANY
Agriculture is a business, a wealth creating sector. It is estimated that Africa may spend close to $110 Billion importing food unless food production is prioritized. According to Statista, Nigeria has vast potentials for thriving agricultural business with an arable land area of 34 million hectares: 6.5 million hectares for permanent crops, and 28.6 million hectares on meadows and pastures. In 2021, agriculture contributed around 23.36 percent to Nigeria’s GDP whilst 31.41 percent came from industry, and 43.79 percent from the services sector.
The foregoing attests to Nigeria’s leadership in various types of agricultural production, such as palm oil, cocoa beans, pineapple, and sorghum. Nigeria is undoubtedly the largest producer of sorghum in the world just after the United States, and ranks fifth in the production of palm oil and cocoa beans. Nigeria is also a large global exporter in agricultural sector with oil, fruits, nuts, seeds are among the ten best performing export categories.
Setting up an agriculture business in Nigeria requires knowledge of the requirements, procedures and cost as well as the of funding opportunities and regulatory compliance matters.
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5. CROWDFUNDING INTERMEDIARY COMPANY
With the dearth of credit facilities and means of raising funds from potential investors, crowdfunding intermediary company becomes very relevant. Crowdfunding is the process of raising funds from the public to finance a project or business (in exchange for the issuance of shares, debentures, or such other investment instrument) through an online platform called crowdfunding portal.
In order to set up and operate a crowdfunding portal in Nigeria, a crowdfunding intermediary license must be obtained from the Securities and Exchange Commission (“SEC”). The SEC has directed that all crowdfunding platforms in Nigeria must register and obtain license by 30th June 2021 or cease operation. Failure to obtain the SEC licence is an offence punishable by imprisonment and/or fine.
Recently, the SEC was reported to have granted a proptech startup, Procrowdy Limited, a crowdfunding intermediary (CFI) licence.
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6. FUND/PORTFOLIO MANAGEMENT COMPANY
The Nigeria’s mutual funds industry is valued at N1.58 trillion as at the last quarter of the year 2020. The industry is largely dominated by the big five (controlling about 75% of the asset under management (“AUM”) in Nigeria). As of October 2020, the Stanbic IBTC Asset Management Limited had a total AUM of N649 billion (representing 41.04% of the industry), the FBN Capital Asset Management Limited had AUM of N272.2 billion (amounting to 17.21%), the UBA Asset Management Company had AUM of N150.2 billion (equivalent of 9.5%), the Asset and Resources Management Limited managed about 6.72% of the industry (equivalent of N106.3 billion) and the Chapel Hill Denham Management Limited’s AUM stood at N61.9 billion.
However, there is still a room for small and medium players. Existing businesses in real estate, micro credit sector etc. wishing to diversify should find funds industry easy to penetrate. Also, two or more young employees in financial sector with entrepreneurial drive and a minimum of four (4) years relevant experience can pool resources together to easily jumpstart a fund manager business. This is because the financial requirement is low and other regulatory requirements are easy to meet.
The fund/portfolio manager’s licence, granted by the Securities and Exchange Commission (“SEC”), is required for any business which manages any collective investment schemes (“CIS”) or investment portfolios on behalf of clients or retail investors (including stocks, bonds, etc.) or invites public members to invest for Return on Investment (“ROI”) in whatever aspects of commerce. Recently, SEC embarked on clampdowns on real estate companies and agric-investment companies who advertise their investment products with a promise of ROI without any regulatory licence. According to the Commission, those businesses require a fund/portfolio management licence under its regulatory supervision to avoid the recently reported cases of massive fraud by unlicensed investment companies, leading to loss of over N300 Billions and suicides by victims.
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7. ONLINE GAMING BUSINESS
The gaming industry in Nigeria, especially sports betting, has witnessed tremendous growth generating over N730 billion annually, an output which is largely attributable to the Nigerian’s huge love and passion for sports, especially soccer and advancement in technology, evident in the increase in GSM subscription and mobile penetration, amongst others.
It is no gainsaying that the advent of technology in Nigeria has increased access to mobile devices and made financial transactions easier, especially with several payment gateways and other fintech platforms helping to create e-wallet services and liberalise how sports betting players can deposit money into their betting accounts in order to participate in sports betting activities. It is interesting to note that given the advancement of technology in Nigeria, the Value Added Service (“VAS”) providers and telecoms service providers now use telecommunications platforms to operate lotteries and other mobile gaming across the country. This naturally made it imperative for the Nigerian Communications Commission (“NCC”) to step up to protect and promote the interest of the telecommunications services in relation mobile lotteries.
Another reason Nigeria is a potential nation for sports betting investment is its population of about 200 million, with 65% of that number being less than 35 years, out of which about 60 million fall between ages 18 and 40, the same age brackets that have been noted as the most active sports betting players. Given the high rate of unemployment in Nigeria and the huge passion for sports, especially soccer, it is therefore easily understandable why the Nigerian youths (being the majority of the nation’s population) see sports betting as either their main means of earning income or a “side hustle.”
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8. PAYMENT FINTECH COMPANY
The data on fintech payment in Nigeria released by the Nigeria Inter-Bank Settlement Systems (NIBSS) has revealed that transactions worth N33.2 trillion were performed electronically in August through the NIBSS Instant Payment platform (NIP). This brings the total value of e-payment deals in the last 8 months to N238.7 trillion! This surge in electronic transactions shows a steady increase in e-payments in the country and a proof that more Nigerians are embracing cashless policy as more innovations are welcome to the payment ecosystem.
The above record is a clear indicator for a huge potential for more technological innovations and business investment in the country’s payment subsector. More payment fintechs are needed to drive more financial inclusion in Nigeria!
Currently, there are about seven (7) categories of payment company licences that are grantable in Nigeria, namely:
(i). Super-Agent Licence permits its holders to undertake agency banking. Agency banking is a financial service rendered on behalf of banks to unbanked communities or population in order to increase financial inclusion to those who would have been otherwise unable to benefit such financial services under a formal banking system (See https://lnkd.in/dkJrZTqF).
(ii). Payment Solution Services Provider (“PSSP”) Licence permits holder to engage in payment processing gateway and portals, payment solution/application development, merchant services aggregation and collections (See https://lnkd.in/eZYEbzRg)
(iii). Payment Terminal Service Provider (PTSP) Licence for PoS Terminal deployment and services, PoS terminal ownership, PTAD, Merchant/agent training and support (See the last table here https://lnkd.in/dr9q7Hiv).
(iv). Switching and Processing Licence for Switching, Card Processing, Transaction clearing and Settlement Agents Services, non-bank acquiring services and other activities permissible under Super Agents, PTSP and PSSP licences.
(v). Mobile Money Operation Licence for e-money issuing, e-wallet creation and management, pool account management and other activities permissible under Super Agent licence (See https://koriatlaw.com/how-to-set-up-fintech-company-for-mobile-money-operations-application-requirements-and-procedure/)
(vi). Payment Service Bank licence is a deposit-taking licensed fintech bank that primarily focuses on the rural areas and unbanked locations, targeting financially excluded persons providing selected payment services. READ MORE HERE: https://koriatlaw.com/how-to-set-up-a-payment-service-bank-in-nigeria/
(vii)7. Regulatory Sandbox Licence granted on a case by case basis (after CBN’s review of the products and services of a proposed fintech business) to drive any fintech innovation that is not suitable under any of the existing licensing categories. (See https://koriatlaw.com/how-to-obtain-regulatory-sandbox-approval-in-nigeria/).
9. MICRO-FINANCE BANK
Micro-finance banks are fast growing credit companies in Nigeria with an edge of being deposit-taking institutions over and above the State-licensed money lending companies which are licensed only to lend money but not to process cash deposits from customers. According to the Nigerian Bureau of Statistics, Microfinance Banks in Nigeria recorded an 82% boost in lending rising from N300.2 billion in 2019 to N546.6 billion in 2020. Interestingly, loans by Microfinance banks surged to N1.12 trillion as of the end of June 2022, which means additional N602.8 billion new loans have been issued, representing a 115.7% increase compared to N521.25 billion recorded as of the end of 2021.
Although, there are different categories of Micro-Finance Bank (“MFB”) licence in Nigeria with different share capital requirements, however, the Tier 1 Unit MFB is highly recommended for ease of market entry and high chance of success in the licence application. Below are the different categories:
- Tier 1 Unit MFB (with urban authorization), this MFB is licensed to operate in the banked and high-density areas, and is allowed to open not more than four (4) branches outside the head office within five (5) contiguous Local Government Areas as approved by the CBN. The Minimum Share Capital for this class of licence is N200,000,000 (Two Hundred Million Naira).
- Tier 2 Unit MFB (with rural authorization), this MFB is licensed to operate only in rural, unbanked or underbanked areas, and is allowed to open one (1) branch outside the head office within the same Local Government Area. A Tier 2 Unit MFB requires a N50,000,000 (Fifty Million Naira) Minimum Share Capital.
- State MFB, this MFB is licensed to operate in either a State or the Federal Capital Territory (FCT) Abuja and is allowed to open branches within the same State or the FCT, where it is licensed. Please note that a State MFB is required to obtain CBN’s approval before opening each new branch or cash centre and it is not permitted to open more than two branches or cash centres in the same Local Government Area unless it has established at least one (1) branch or cash centre in every Local Government Area in the State or the FCT (as the case may be). Please note also that a newly licensed State MFB shall not commence operations with more than ten (10) branches. A State MFB requires a N1,000,000,000 (One Billion Naira) Minimum Share Capital Company.
- National MFB: This MFB is authorized to operate in more than one State including the FCT. A newly licensed National MFB shall not commence operations with more than ten (10) branches. A National MFB requires a N5,000,000,000 (Five Billion Naira) Minimum Share Capital Company.
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10. FINANCE COMPANY
Finance companies are also lending companies that are licensed by the Central Bank of Nigeria and have same potentials as a micro-finance bank. The striking differences between a Finance Company and a Micro-Finance Bank is the fact that the latter, in addition to proving loans, can also accept and process cash deposits from public members whilst the former cannot accept cash deposits except through borrowings.
Finance companies are companies licensed as sub-sector or middle tier players in the financial system to complement the roles of banks and meet the needs of micro, small and medium enterprises. A Finance Company Business means the business of providing financial services to individual consumers and to industrial, commercial, or agricultural enterprises.
Please note that every company desiring to be licensed as a Finance Company shall be on a “stand alone” basis and thus be strictly limited to solely engaging in Finance Company business as defined above.
In Nigeria, no proposed Finance Company shall incorporate/register its name with the Corporate Affairs Commission until a written approval (called Approval in Principle) has been communicated to the promoters by the Central Bank of Nigeria, a copy of which shall be presented to the Corporate Affairs Commission during application for incorporation.
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About KORIAT & CO.
We are a commercial law firm in Nigeria with network of lawyers and consultants in Ghana, Kenya and Rwanda. The above article is not legal advice and does not automatically make our readers our clients unless they specifically instruct us to act or represent them in any way.
We assist local and foreign clients to process company registration and business licences in Nigeria, Ghana, Kenya and Rwanda.
Please contact Koriat & Co. through admin@koriatlaw.com or 09067842241 if you require additional information about or assistance in registering a company or processing application for a business licence in Nigeria, Ghana, Kenya and Rwanda.
