NRG Bloom - Setting Up In Africa
Nigeria is truly a unique country. With an abundance of culture and diverse ethnic groups, it is truly the leading economy in Africa. Amongst its 223M strong population is a large workforce that is youthful and ambitious. But despite this vast human resource, successive governments have failed to fully capitalise on the potential by nurturing the economy and public services for success. To fill the gaps, innovation from the private sector has had to overcome the challenges.
A disjointed and fragmented energy market led NRG Bloom to Nigeria where we are repurposing wasted gas that would otherwise be flared (burned) for electricity to power Bitcoin mining. As everyday challenges highlight the benefits of decentralisation, cryptocurrency adoption has skyrocketed, making Nigeria a logical choice for a company like us.
Despite the positives, there are numerous hurdles for any company thinking of operating in Nigeria.
Moving goods across the country
Nigeria, especially the oil rich Southern peninsular, is embedded in wetlands. While the relatively mild climate helps regulate temperatures and stabilises the environment against extreme heat and drought. It presents a logistical challenge as it often requires multiple methods of transport within the same country. Air and road, road and river etc.
For us, roads stretched the nerves as we watched our vehicles (and the heavy equipment onboard) negotiate the worn roads. Severe underinvestment in transport infrastructure, outside of major highways, is clear. The result is often delays which can impact everything from an engineer starting his work, to rescheduled site visits.
Goods do get across the country but experienced help is crucial for keeping the operation moving against clearance, inspections and roadside checkpoints. In Africa, contingency planning is mandatory.
Community Partnership
Nigeria has a long history of corporate violations mainly stemming from the oil industry. While the welcome for newcomers is warm and open, unfamiliar faces can attract a mix of curiosity and suspicion.
Oil was first discovered in 1956. Since then, multinational energy companies have gravitated towards Nigeria and a country that holds the 10th largest oil reserve in the world. Under licence from Nigerian authorities, the energy companies were able to operate without true accountability, often at the expense of local communities.
Over time community influence has grown as Nigeria’s social and environmental catastrophes have attracted global attention. Recent trends have seen oil majors like Shell and Exxon Mobil exit Nigeria’s onshore business, selling assets to indigenous companies. Despite their long history in Nigeria, the international oil majors appear to acknowledge that local firms are better equipped to navigate local customs, business practices and community engagement.
Considering Nigeria ranks in the bottom quartile of global living standards, its rural communities that are often hardest hit. New entrants to the country must understand that providing new economic opportunities and demonstrating a long-term commitment to communities is a key factor in building trust.
The Naira
Despite the $45BN (2023) in revenue from oil, Nigeria’s growth efforts have been hampered by damaging currency devaluations. The Nigerian Naira, at the time of writing, had lost 70% of its value against the US dollar.
While the Central Bank of Nigeria (CBN) maintains the official rate of exchange against major currencies, most transactions occur at the unofficial (“black market”) rate. Like any other currency, the rates fluctuate daily influenced by factors including the availability of foreign currency, government policy and global oil prices.
Since 2023 the speculation has heightened around the currency as a result of the physical currency shortage and decision to unpeg from the Dollar.
For everyday Nigerians, this plays out in many ways. From restrictions on cash withdrawals from ATMs to currency exchanges being unavailable. Business owners blame the high fees paid. The system leaves multinational operators, such as major hotel chains, as the only companies able to accept payments from foreign banks.
The practicalities for new businesses are challenges in paying everyday expenses and the inability to engage larger amounts for wages, business expenses and infrastructure spend. To navigate the shortfall, robust solutions from local banking to cryptocurrencies and third country payment solutions must be in place.
Access to Capital
By force of circumstance, African companies have started by finding innovative solutions to daily problems. Although many solutions remain confined within national borders due to a lack of capital. Great ideas do find willing investors but the available capital is heavily oversubscribed by investment requests. Research published by the AVCA, found that only $3.6BN (of $285.2BN) global deals in venture capital was allocated to Africa.
While many institutional investors do target Africa, the continent’s underdevelopment arguably places a higher onus (than European or American opportunities) on investing for wider social, environmental and economic impact. There is certainly an awareness that Africa can be a complex region to operate in. While this does narrow overall access to capital, it leaves enormous opportunities for investors that understand the domain.
Energy Consistency
Let's face it - Africa does have a power problem. For the size of the population, Africa needs an additional 250GW to meet forecasted future demand. While many businesses, locating beside a power production facility is simply not viable. For us, the close proximity access to power production (along with our focus on utilising otherwise wasted energy) was a determining factor.
In a country where one third of the electricity produced does not reach the grid, advancing Nigeria’s economy remains a challenge. Periodic blackouts, load shedding and the widespread outages are symptomatic of electricity supply inefficiencies hampering those reliant on grid electricity. Backup diesel generators are a fixture across Nigeria but it comes with an environmental price tag.
Understanding the criticality of uninterrupted power supply to your operation is crucial as Nigeria has a long way to go before consistent and widespread electricity supply.
