Negotiation in Nigeria
by: Okey Okere, Michael Davids
Why should I read this document?
Nigeria has Africa's largest population and largest economy. It is the continent's backbone and most strategic market. This document provides valuable insights for foreign companies intending to do business in Nigeria or with Nigerians. It gives some guidelines on building trust and strong relationships with decision-makers and key business targets.
Five most important things to know about negotiations in Nigeria (if you only read one thing, that is what you should read)
Get Ready to Haggle! Nigerians love to haggle. It's practically a national sport. It is not surprising to hear an asking price that is two or three times higher than the ultimate price the seller could accept. When dealing with Nigerians, learn how to bargain and go with a winning strategy.
Make Them Feel Like They Won! Nigeria is a "Masculine" society. Buyers feel happy when they think they came out on top. You should not lose money but find ways to make them think you are doing them a huge favour.
Be Patient. Negotiations in Nigeria take time. Sometimes, even when it seems you have a deal, your counterparty can reopen or restart the talks. In many circumstances, buyers would associate hurried negotiations with fraud.
Leverage relationships to get favourable considerations. The lines separating personal and business relationships are often blurred. Decision-makers usually rule in favour of persons with whom they have prior relationships and trust.
Leverage Short-term Benefits. People in Nigeria usually want to establish the "absolute truth". They would prefer to use clear measures to appraise bids. They also want to see quick results from whatever you offer. When negotiating, it may be advisable to leverage the short-term benefits of your offer.
The people who live in Lagos, Nigeria’s largest city, often jokingly say, “I did not come to Lagos to count bridges”. This expression epitomises the spirit of the “Nigerian hustle”1. That saying essentially means “I don’t have time for sightseeing: I came to make money!” Nigeria is a nation of businesspeople. The head of investment at CIB Portugal described them as people that are full of entrepreneurial spirit2. Furthermore, as the country with both Africa’s largest population and economy, it is too big to ignore3. The former French finance minister, Michael Sapin, noted that “if you are not in Nigeria, you are not in Africa”4. Hence, while it is important to consider entering this market, how does one do business with Nigeria? How does one negotiate sales or purchase terms with these shrewd people? This article sheds some valuable insights that may help companies negotiate better with Nigerians.
1. The spirit of entrepreneurship in Nigeria. Source: africadata.com/blog/2017/08/11/10216/
2. Azevedo: Nigerians are Full of Entrepreneurial Spirit. Source: www.thisdaylive.com/index.php/2016/12/07/azevedo-nigerians-are-full-of-e...
3. John Campbell on Nigeria and the Nation-State: Rethinking Diplomacy with the Postcolonial World. Source: macmillan.yale.edu/news/john-campbell-nigeria-and-nation-state-rethinking-diplomacy-postcolonial-world
4. French firms to invest 240bn Euros in Nigeria. Source: www.vanguardngr.com/2015/02/french-firms-invest-240bn-euros-nigeria-others/
Get Ready to Haggle!
For the most part, Nigerians tend to be very entrepreneurial. Historically, they have been "flexible and venturesome, willing to seek far and wide and to take risks in the quest for profit" (Ojo, 2013, p. 4, citing Schatz, 1977). In this context, an item’s asking price may likely be significantly higher than expected. Nigerian traders often quote an asking price that is two or three times the regular sales price. As Tolu "Poetolu" Akinyemi, a Nigerian poet, aptly described (Akinyemi, 2017, p. 139):
"A true Nigerian in the market knows the price given, when she asks is the value, twice or thrice, and so, haggle she must."
When buying from Nigerians, you could safely assume that you have significant room for lowering the asking price. Similarly, when selling to Nigerians, do not feel offended if they offer to pay a fraction of your quoted price. Practically, everything is negotiable in Nigeria. Nigerians usually feel they can negotiate with you on anything – be it mangoes from the roadside fruit stand or a luxury office suite in posh Banana Island, Lagos. They expect you to haggle with them and want to negotiate with you too. Haggling is like a national sport and a critical part of the culture. A study revealed that buyers and sellers alike employed various socio-linguistic strategies and tactics when haggling at meat stalls in some markets in Lagos, Nigeria. They may use humour, dysphemism and euphemism. Both sides would also cajole, flatter or even flirt with the other party, if needed, to get a better deal (Ayoola, 2009, pp. 387-400).
Nigerians are famously known to be very pleasant, friendly, and generous to foreigners (Globe Media Ltd, 2020). Nevertheless, foreigners (especially tourists) are more likely to “lose” during negotiations. There are many reasons for this. First, foreigners are often unaware of the going rates for items. They could counteroffer perhaps only 5% lower than the asking price, happily leaving the seller with, in some cases, even a 200% markup.
Figure 1: Haggling at the Fruit Market. Source: Andrew Moore / Flickr, as seen in Abdulkareem (2017)
Furthermore, Nigeria is a relatively impoverished nation (compared to most European countries). It has cheaper labour costs, and its currency is significantly devalued against the main international currencies. With the Purchasing Power Parity (PPP) factor, 1€ would often buy you much more in Nigeria than in Europe. For instance, a bottle of Coke or Pepsi costs around 2.50€ in a Dutch restaurant, but only 0.26€ in a Nigerian establishment. Most services cost cheaper in Nigeria compared to Europe. The average European unaware of the PPP effect might already expect to pay more for goods or services and would most likely lose negotiations.
Figure 2: Price of a bottle of Coke/Pepsi in a Restaurant – Europe vs Africa. Source: Numbeo (2020)
From a theoretical perspective, a combination of four of Hofstede's dimensions of culture could explain this situation. Nigeria scores low on Hofstede's Individualism (IDV) index. This score means that it is a collectivist country that emphasises group affiliations. It also scores reasonably high on Masculinity (MAS), meaning that it favours winning at all costs. In addition, Nigeria is somewhat in the middle range on the Uncertainty Avoidance Index (UAI). This score means that Nigerians are flexible with ambiguous or uncertain situations. Lastly, the country scores high on Indulgence (IVR), meaning that Nigerians generally exhibit a willingness to realise their impulses and desires regarding enjoying life and having fun. These four dimensions of culture suggest why Nigerians are happy to bargain with strangers – in many cases, befriending them in the process. Therefore, when dealing with Nigerians, start negotiations with enough wiggle room for concessions, be flexible, friendly, and ready to make compromises.
Make Them Feel Like They Won!
A strategic way to win negotiations in Nigeria is to make your counterpart feel like they came out on top. As a bargaining tactic, structure negotiations to make the other party believe they are getting more than you from the deal. Nigerian traders often use this tactic. They could show the potential buyer a (probably fake) receipt indicating how much they paid for the item they want to sell, proving how small their profit margin would be. Traders would also combine this act with phrases like "please, leave something for us" to make the buyer think the trader is getting the short end of the deal. In masculine societies (like Nigeria), "the winner takes it all". Nigerians are comfortable with that concept and (especially when buying an item) never want to feel like they lost on the bargain. It is also likely that Hofstede's first dimension – Power Distance (PDI) – contributes to Nigerian buyers wanting to feel like they got the better part of a deal. In societies with higher Power Distance like Nigeria, buyers usually flex their power over sellers. This power show is typical in informal arrangements and corporate circles, especially for transactions involving high-value items.
The pace of negotiations, especially for high-value items or services, tends to be relatively slow. You should expect lengthy negotiations as the amount of time needed to arrive at an acceptable deal is usually not a big issue in Nigeria (Alliance Experts, 2021). Sometimes, even when it seems you have an agreement, your counterpart can reopen or restart negotiations. Depending on the transaction's value or strategic importance, persons with higher authority could imbue themselves into the negotiations and demand that the process starts over. It could also be possible that the authority figures have vested interests in the transaction. They might have a related party with a competing offer and therefore need to justify why the procurement team should revisit your previously agreed terms. In collectivist societies like Nigeria, group affiliations and personal relationships play a role in business transactions and negotiations. It is therefore essential to be patient, accept delays and expect changes. In many circumstances, buyers would associate hurried negotiations with fraud. If you are on a tight deadline to make the sale, you could patiently explain to the buyer why you need to close the deal quickly. You could also speed up negotiations by telling the buyer that further delay could cost them certain benefits like special discounts.
Leverage Relationships to Get Favourable Considerations
As a collectivist society, the lines separating personal and business relationships are often blurred. Decision-makers usually rule in favour of persons with whom they have prior relationships and trust. These relationships take time to build – years in many cases. However, if established, they could last a lifetime, providing astounding benefits. For instance, while Nigerians often drive a hard bargain, they would more readily accept your (fair) price if they know you. They could overlook cheaper alternatives and seal a deal if they trust you. Therefore, it is advisable to build and leverage strong relationships with key targets to get favourable negotiations. While doing this, it is also essential to use high context communication techniques to smoothen the deal. These techniques include tact and diplomacy, avoiding direct "NOs", listening patiently, addressing the client respectfully, and of course, reading the air. If no prior relationship exists, you could find a "broker" to introduce you and speak for you. Ideally, the broker should be an influential person who the client (or the primary decision-maker on the client’s side) trusts. Above all, if you are unfamiliar with Nigerian customs, it is always helpful to have a local partner who can manage such circumstances.
Leverage Short-term Benefits
Clients in Nigeria (or their representatives) may not always prioritise the long-term benefits of your products or services. Nigeria is a short-term oriented society, which means that people in Nigeria usually want to establish the "absolute truth". They would prefer to use clear measures to appraise products or services. They also want to see quick results from whatever you offer. While you should not diminish the long-term benefits of your offer, it may be advisable to leverage the short-term benefits to the Nigerian party when negotiating. You could also support this by showing the track record of the performance of your products or services with factual data. In Nigeria, a track record of good performance would convince potential buyers that they are getting a good deal. Lastly, it is vital to identify whatever legitimate benefits your offer would provide for persons directly involved in the negotiations. Experts advise negotiators to remember that their counterparts may be more yielding if they know the direct benefits the buyer's representative could derive. These benefits could include training on how to use the products sold; it could also be a bonus or commendation for obtaining such a good bargain or an immediate impact on working conditions. However, negotiators should carefully avoid inducing their counterparts through improper gifts. While corruption is quite common in Nigeria, many organisations and government agencies are taking severe measures to deal with offenders.
Short case study
A foreign tech firm successfully implemented an ERP system for a Nigerian food manufacturing company. It helped the company reduce its production wastage by over 40%. However, 18 months after the implementation, the company ran into severe problems and financial challenges that made many of its staff members leave for other jobs. This situation caused a knowledge gap, as many of the staff that understood the processes and systems designed alongside the implementation were no longer available. To fill the gap, the Nigerian company reinvited the firm to provide offshore support for about one year while rebuilding the capacity and retraining staff. The Nigerian company kept up with payments initially, but after a while, it owed the tech firm almost $100,000. In a bizarre twist of events, the CEO of the Nigerian company informed the tech firm that he would not make the outstanding payments and blamed them for the failure of the ERP system. He later offered the tech firm a final settlement of around $45,000, far less than what they had billed. The tech firm threatened a lawsuit, but the Nigerian CEO was adamant that the foreign firm would find it almost impossible to make its threat good. In another bizarre twist of events, the tech firm accepted the offer and promised the Nigerian company that they would still be happy to support other future projects. The tech firm's CEO called the Nigerian CEO and smoothened the relationship. The tech firm had already pre-anticipated problems with the Nigerian company. In its billing, it provided a healthy cushion on margins for the support services. In addition, the Nigerian CEO was highly impressed with their show of good faith. He recommended the tech firm to his friend, whose company was interested in a similar ERP implementation.
Resources and interesting links
Consumer Analytics, Market Entry and Brand Positioning Professional Services
Nigeria's National Bureau of Statistics (NBS)
Statistical data on Nigeria
Nigerian Investment Promotion Commission
The Nigerian Federal Government agency that "encourages, promotes and coordinates investments in Nigeria."
Local market expertise, relationship builders, handholding services