IFE OGUNFUWA of Punch examines bottlenecks that have hindered foreign phone makers from establishing production plants in Nigeria as promised
There are indications that some foreign original equipment manufacturers of mobile phones have abandoned their plans to establish factories in Nigeria citing entry barriers into the market as the problem.
Despite experiencing market acceptability for their products and having growth prospects in Africa’s largest market for mobile devices, some of them have developed cold feet towards the establishment of the production centres in the country.
Makers of major mobile phone brands like Tecno, Samsung, Nokia, Motorola, and Blackberry had in the past indicated interest in establishing production plants and had promised to create millions of jobs. But findings by our correspondent showed that siting manufacturing facilities in Nigeria was no longer on the table for the OEMs.
Findings also revealed that the market shares of some of the OEMs had been eroded by the emergence of cheaper phone brands.
Statistics from Euromonitor showed that mobile phone brands owned by Transsion Holdings, maker of Tecno, Itel and Infinix, have the highest market share in the country.
The 2018 report indicated that Tecno had 41 per cent market share, Itel had 25.8 per cent market share while Infinix ranks fourth with 8.5 per cent market share.
According to the data, Nokia ranks third in the Nigerian market with 8.7 per cent market share while Samsung devices are the fifth fast-selling brand with 7.6 per cent market share.
Contrary to the market reality of the past when OEMs tinkered with the idea of setting up phone manufacturing plants in Nigeria, the possibility appeared to have become very slim if not obliterated.
For instance, the Chief Executive Officer, Samsung Electronics Africa, Mr Sung Yoon, during a visit to Lagos last year, stated that the company would not establish a factory in Nigeria due to its low market share, infrastructural deficit and grey market in the country.
He said the company had manufacturing plants in Vietnam, China, South Africa and Korea, adding that producing mobile devices required over 400 components that had to be imported.
James Rutherfoord, who was the vice-president /managing director, Nokia West and Central Africa at the time, had in 2013 reportedly said the idea of establishing a phone factory in the country did not make any economic sense, though Nigeria was its strategic market on the continent.
“At this point in time, it is a difficult one because most of our component suppliers, all the people that make chips, batteries and all the other components of the devices are not around here. They are all in the Far East. So it’s very difficult to create a factory very far away from them.
“It goes beyond Nokia just waking up and deciding to open a factory in Nigeria. We need the whole ecosystem of people producing the components to be very close, otherwise, we will have products that cost higher.”
While Transsion Holdings had yet to respond to media enquiries as of press time on Sunday, it was gathered from reliable sources that the company still had plans to set up a factory but the unfavourable business environment was delaying its plans.
Speaking on the barriers to entry into the Nigerian market, the President, Association of Telecommunications Operators of Nigeria, Mr Olusola Teniola, identified some barriers to market entry as import duties, stamp duties, taxes and levies that were imposed on imported components of mobile phones.
According to him, the removal of the barriers will encourage investment by phone manufacturers in the country.
Teniola explained that the infiltration of counterfeit mobile devices that offered lower prices through the porous borders of the country was creating unfavourable competition for manufacturers that had to bear a lot of costs to produce phones.
He said, “The issue of fake phones, which represents 10 per cent of the phones that are readily available in the market, also acts as a barrier and a dissuader for manufacturers to come in.
“When you have smugglers bringing in substandard products, they can now under-price those that have actually had to take on the costs of running their businesses in Nigeria plus the cost of manufacturing in Nigeria.
“You cannot go below a certain price because it will be below your cost. So, smugglers of fake phones come in and go below your cost because they are not registered; they do not pay taxes in Nigeria and they don’t pay import duties because they smuggle their phones into the country. So, their prices are way below. That is a threat.
“This will kill the manufacturing industry, especially when the government is trying to encourage OEMs to come into the country. The government needs to remove and give incentives because there’s literally a high cost to OEMs. We need the government to assist by giving the concessions for a period of time. We need the Standards Organisation of Nigeria, the Nigerian Communications Commission and the Nigeria Customs Service to collaborate to fight the menace of fake phones that are smuggled across the borders of Nigeria.”
The Head, Corporate Communications, Zinox Technologies, Mr Gideon Ayogu, acknowledged that Nigeria had a difficult business environment compounded by infrastructural and institutional gaps.
According to him, local players are facing the same challenges as foreign operators in the industry.
He lamented inadequate government support, lack of incentives, delay at the ports as some of the challenges they faced regularly.
He said, “Interestingly, the Information and Communications Technology sector reflects a microcosm of the challenges in the wider Nigerian business climate. Despite the increasingly global relevance of technology – a development that has further been brought into stark reality with the identity of the top five most valuable companies in the world, all of which are technology companies – the ICT sector in Nigeria suffers from a glaring lack of government’s support.
“Crippling bottlenecks and costly delays encountered with the importation of essential hardware and components, the huge cost of doing business, the near-absence of enabling regulations and other incentives such as tax breaks, all make it difficult for OEMs to thrive.”
He advised phone manufacturers to acquire the knowledge of the Nigerian business environment in order to navigate the peculiarities of the country’s corporate environment and the cultural nuances of the citizens to survive.
The National Information Technology Development Agency had on several occasions wooed investors at international conferences, telling them of the advantages that made doing business in Nigeria attractive.
“We are interested in investors willing to establish world-class Original Design Manufacturing factories in Nigeria to guarantee quality components for local assembly,” the Director-General, NITDA, Dr Isa Patanmi, said while addressing investors at the 2018 Gulf Information Technology Exhibition in Dubai.
This report was first published in The Punch written by Ife Ogunfunwa