Oct 20, 2016

Sun International's Pullout ,The Nigeria Gaming Industry And The Rest Of The Economy -

On the 25TH of August of 2106 we woke up to splashing headlines by several local papers announcing Sun International’s (SI) pullout from Nigeria. Some noted that it was the 4th South African company to pullout from the Nigerian market citing the hostile economic environment as the reason. As expected I was inundated with inquires from several quarters especially from those eying the Nigeria gaming market
 – they were eager to know whether the announcement signaled a negative outlook on the industry’s prospects. The report was bound to raise concerns internationally given Sun internationals revered position in both the gaming and hospitality sector. Truthfully the pullout had nothing to do with the gaming industry, SI runs one casino in the whole of Nigeria; it is pertinent to mention that casinos occupy the lowest rung in Nigeria’s budding gaming industry.

While the reasons for the pullout were widely reported, SI gave several reasons necessitating the pullout, …. “The Federal Palace Hotel continues to operate in a difficult environment with the Nigerian economy facing a number of crises including the low oil price, Boko Haram and a weakening naira and it has still not recovered from the significant impact that the Ebola epidemic had on the business’.

While Nigeria’s infrastructural challenges are not new, some of the reasons proffered may sound reasonable on the face of it but on close inspection are far from compelling; sensationalising the pullout as part of a South African exodus without any form of juxtaposition with relevant data portends unjustifiable harm to Nigeria which desperately requires foreign direct investments to shore up its reserves as well as jumpstart its economy , my conclusion is that some of our journalist in a bid to reinforce the current disenchantment with government’s perceived failure in managing the economy inadvertently acted as economic saboteurs . 

So lets take the issues one by one.  

While it is official that Nigeria is in recession, several South African companies are thriving depending on the industry and several more are investing in our economy inspite of the perceived hostile economy. As at today there are well over 100 South Africa companies operating in Nigeria and only a handful are commercial failures. The list of well-known failures includes Telkom, Woolworths and Tiger Brands. But they aren’t representative of the wider experiences of South African companies.

It is in the nature of doing business that some companies succeed and others fail. There are many reasons why some have not done as well in Nigeria. These include not conducting proper due diligence before entering the market, selecting the wrong acquisition target, inappropriate market strategies, choosing the wrong partner and mismanaging stakeholder relations or outright competition. For example Woolworths was competing in the same space with Chinese imported textiles and it wouldn't have taken a genius to know that they were bound to fail miserably. 

Ebola for one lasted only 90 days, in one of Nigeria’s daring showcase of effective governance ,ebola was eradicated with a casualty figure of only 7 people. So that alone couldn’t have been a big factor in the poor room occupancy rate for the hotel group,even 2 years after Nigeria was declared free of the disease . For one Federal Palace Hotel (FHP) had out priced its self from the market; Furthermore intense competition from guesthouses, boutique hotels, bread and breakfasts and the incursion of market disrupters like air bnb left the group vulnerable and unattractive.

Another reason given for the pull out was the menace of Boko Haram (BH). This leaves one wandering how that directly affected FHP given that there was never a BH attack in Lagos or any part of the Southern Nigeria, BH attacks have largely remained in the north eastern region of Nigeria  with some isolated attacks in Kano and Kaduna and this attacks ceased since the new government came into power early last year. 

Another reason given elsewhere was the continued retention of the passports of some of SI staff who are under investigation by EFCC; while I am not privy to the facts prompting the investigation it is not news that several foreigners operate locally as if they are above the laws of their host cities (the MTN matter readily comes to mind) – in a recent chat with a senior management staff of SI, he readily confessed that multinationals were prone to abusing the laws of their host countries and SI was not exempted . 

So while Nigeria’s tough operating environment includes deficient infrastructure, erratic power supply, foreign exchange shortages, high inflation, currency volatility, corruption, high capital cost, red tape, high rentals, as well as excessive and unpredictable regulations we still have lots of South African companies like MTN, Multi choice still doing good business in Nigeria. 

So what could have prompted this level of sensationalism? My hunch is that SI needed the media stunts in order to cover for its inability to turn profits for its shareholders. It is not a new trick, last year me and a few other Nigerians were aghast when we stumbled on a report by a listed South Africa company who blamed the whole group's misfortune on it’s $700,000 investment in a loss making company in Nigeria in which were all shareholders in and thus familiar with the facts. 

Because of our poor investigative reporting culture, our media houses failed to balance out the fact that SI ‘s pullout is part of its overall strategy for Africa – it has all along been divesting from Africa with a focus on Latin America. In 2015 alone it divested by selling majority stake to in the Gaborone Sun in Botswana, the Kalahari Sands in Namibia, the Lesotho Sun and Maseru Sun as well as the Royal Swazi and Ezulwini Sun in Swaziland to MNG group. Sun International also reduced its 100 percent stake in the Royal Livingstone and Zambezi Sun in Zambia to 50 percent, with MHG holding the balance.

The latest announcement by SI has more to do with its focus on Latin America arising from its general depressed growth from the African continent than Nigeria’s hostile economic environment. Graeme Stephens,the group CEO said
“In South Africa, the economic environment remains a serious concern. We do not anticipate any meaningful growth in gaming revenue until there is a recovery in the economy and renewed consumer confidence,” .

Yahaya Maikori
Solicitor, Gaming and Gaminfication Consultant, Enterpreneur & Global shaper

 Ed's Note - this article was first published here.



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