In today’s dynamic Nigerian business environment, third-party vendors are indispensable to operational efficiency and strategic growth. From logistics providers navigating the complexities of urban transportation to technology partners driving digital transformation, vendors enable organizations to scale and compete effectively. However, increased reliance on external service providers introduces significant risks, ranging from cybersecurity threats and regulatory non-compliance to financial instability and reputational harm. In a market as competitive and regulated as Nigeria’s, such vulnerabilities can have far-reaching consequences.

Effective Third-Party Risk Management (TPRM) is therefore critical to ensuring business continuity, maintaining stakeholder trust, and achieving compliance with both domestic and international standards. This article examines the unique challenges Nigerian businesses face in managing vendor risks and offers actionable strategies to build a resilient, compliant, and value-driven third-party ecosystem. Importantly, this is not a challenge unique to Nigeria.

Globally, the TPRM market is experiencing rapid growth—projected to expand from US$6.1 billion in 2024 to US$16.97 billion by 2030, reflecting a Compound Annual Growth Rate (CAGR) of 18.6%. This growth underscores a broader recognition of the critical role TPRM plays in modern enterprise risk management.

Why Is TPRM Becoming a Big Deal in Nigeria?

Nigeria’s economy remains oil-driven, with emerging sectors like fintech and agriculture increasingly reliant on third-party vendors to deliver efficiency and scale. With $12.2B in development projects underway (World Bank, 2024), vendors are central to infrastructure and service delivery. However, persistent challenges such as corruption (ranked 154/180 globally), insecurity, and infrastructure deficits amplify third-party risk. Recent reforms, such as fuel subsidy removal and naira devaluation, have raised operating costs. In this context, the pressure to reduce costs may incentivize unethical practices, such as bribery or regulatory shortcuts. These dynamics underscore the critical importance of a robust Third-Party Risk Management (TPRM) framework for organizations seeking to operate with integrity and resilience in a complex and evolving environment.

A 2024 industry survey indicated that approximately 80% of Nigerian businesses rely on third parties for essential operations, yet around 65% lack comprehensive third-party risk management (TPRM) frameworks. The rapid growth of digital banking, e-commerce, and international trade has heightened vendor-related risks, compounded by Nigeria’s challenges with inconsistent regulatory enforcement, inadequate infrastructure, and rising cybersecurity threats.

For professional services firms in Nigeria specializing in tax, audit, and regulatory compliance, TPRM is both a challenge and an opportunity to help clients navigate this complex landscape. By addressing local nuances, such as Nigeria’s tax regimes and anti-corruption laws, firms can position themselves as strategic partners in building resilient vendor ecosystems.

Read more: Compliance as a Tool for Risk Management: Safeguarding Your Business in an Evolving Landscape

Understanding Common Third-Party Risks in Nigeria

Knowing the risks that come from your vendors in Nigeria is key to good third-party risk management. Here are the main risks you should watch out for:

1. Cybersecurity and Data Privacy Risks

Vendors operating in high-risk sectors such as fintech, logistics, and health tech often introduce significant cybersecurity and data privacy exposure. In Q1 2023, over 82,000 cyberattacks were recorded in Nigeria’s financial sector alone, largely attributed to outdated infrastructure and poor vendor security practices (NIBSS, 2023). Despite mandatory compliance with the Nigeria Data Protection Regulation (NDPR), many SMEs lack the technical capability to meet baseline data protection standards. This creates systemic vulnerabilities for businesses dependent on external service providers.

A SOC 2 audit is essential for assessing vendor controls against international benchmarks across security, availability, and confidentiality. It enables B2B organizations to validate trust, reduce regulatory exposure, and maintain data integrity in a volatile environment.

2. Regulatory and Compliance Risks

Nigeria’s regulatory landscape is complex, with agencies like the Federal Inland Revenue Service (FIRS), Corporate Affairs Commission (CAC), and Economic and Financial Crimes Commission (EFCC) enforcing strict compliance. Vendors failing to remit taxes, such as Value Added Tax (VAT) or Company Income Tax (CIT), can expose businesses to penalties. Vendors may engage in bribery to secure contracts, exposing businesses to penalties. Oil sector vendors often face scrutiny for non-compliance with the Nigerian Extractive Industries Transparency Initiative (NEITI).

3. Financial and Operational Risks

Nigeria’s macroeconomic instability driven by persistent naira depreciation and projected inflation of 26.5% in 2025 (IMF, 2025) amplifies vendor financial risk. Insolvency or cash flow constraints among vendors can result in service disruptions, contract breaches, or unfulfilled deliveries. Operational challenges such as unreliable power supply, port congestion, and rising fuel and logistics costs further strain vendor performance. According to the Presidential Enabling Business Environment Council (PEBEC, 2024), Nigeria ranks low on key ease-of-doing-business metrics, with infrastructure inefficiencies significantly inflating operational costs.

To maintain supply chain stability, organizations must assess vendor financial health, monitor operating environments, and embed financial and operational risk metrics into TPRM frameworks.

4. Reputation and Ethical Risks

Nigerian consumers and regulators increasingly prioritize environmental, social, and governance (ESG) standards. Vendors with poor labor practices, such as non-compliance with the National Minimum Wage Act, or environmental violations, like illegal waste disposal, can damage your brand. A 2024 social media backlash against a beverage company in Nigeria, linked to a vendor’s unethical labor practices, highlighted this risk.

5. Security and Supply Chain Risks

Nigeria’s security landscape continues to pose material risks to third-party operations, particularly in logistics and raw material sourcing. Insurgencies in the North and local disturbances in the Middle Belt, key regions for agricultural and mineral inputs, frequently disrupt supply chains, leading to delays, increased costs, and operational downtime. In the South, pipeline vandalism and piracy in the Niger Delta have also impacted transportation and manufacturing throughput. Coupled with regulatory enforcement under the Petroleum Industry Act (PIA), businesses face heightened exposure to compliance breaches and sanctions via the NMDPRA.

To mitigate disruptions and ensure continuity, organizations must implement rigorous vendor due diligence, diversify supply bases, and conduct periodic compliance and security audits.

Read more: How Cybersecurity and Data Privacy Drive ESG Strategies in Nigerian Businesses

Why Vendors Pose Strategic Risks in Nigeria?

Vendors in Nigeria face tough conditions like poor infrastructure, ambiguous regulations, and economic challenges. This makes managing them tricky due to:

• Limited Vendor Due Diligence Capacity: Many businesses lack the tools, data access, or internal capabilities to assess vendor financial health or compliance with legal and regulatory standards

• High Informality in Vendor Ecosystem: A significant portion of vendors operate without formal registration or licensing, thereby complicating verification, onboarding, and background checks.
• Weak Contract Enforcement Mechanisms: Prolonged litigation timelines and inconsistent enforcement in Nigerian courts reduce the effectiveness of contracts as a risk mitigation tool.
• Vendor Concentration Risk: Overdependence on a single or limited vendor pool increases exposure to service disruptions, especially in volatile sectors like logistics and energy.

To manage these risks, companies need a special approach that fits Nigeria’s business scene.

Staying Ahead with a Strong TPRM Framework

A strong third-party risk management (TPRM) plan helps Nigerian businesses avoid problems with vendors, and here’s how to create one:

1. Conduct Rigorous Due Diligence: Before onboarding any vendor—and at regular intervals thereafter—assess their financial, legal, and operational standing to reduce exposure:

• Financial Health: Verify Corporate Affairs Commission (CAC) registration and review SOC 1 reports where applicable.
• Data Security: Confirm NDPR compliance, presence of internal control frameworks, and request SOC 2 assurance where necessary.
• Tax Status: Ensure vendors are registered with the Federal Inland Revenue Service (FIRS) and hold valid tax clearance certificates.
• Regulatory & ESG Compliance: Review adherence to NESREA environmental guidelines and national labour laws.
• Continuous Monitoring: Reassess after major changes—such as FIRS tax filings, NDPR updates, regulatory reforms, or ESG reporting cycles.

When in doubt, engage a qualified tax, legal, or audit advisor to support due diligence and compliance efforts.

2. Draft Robust Contracts

• Tax Compliance: Ensure vendor tax compliance is up to date, request Make sure vendors pay VAT and Withholding Tax on time, with penalties if they don’t.
• Data Protection: Vendors must follow Nigeria’s data laws (NDPR) and report any data leaks within 72 hours.
• Sustainability: Add rules to support Nigeria’s green and ethical banking standards.

Note: Always work with Nigerian legal experts to make contracts valid and enforceable locally.

3. Foster a Compliance-First Culture: Finance, HR, and procurement must spot vendor risks like tax evasion and data privacy. HR should check vendors during onboarding, while workshops on anti-corruption laws keep teams aware and compliant.

4. Prepare for Crisis Management: Crisis events, whether regulatory, operational, or reputational can originate from third-party failures. Embedding crisis management within your TPRM framework helps maintain business continuity.

• Business Continuity & Disaster Recovery: Develop and regularly test response plans for data breaches, vendor failures, and compliance issues.
• Regulatory Response: Set clear protocols for managing FIRS penalties or NDPR violations.
• Supply Chain Resilience: Identify high-risk vendors and regions and maintain pre-vetted backup suppliers.
• Reputation Management: Align with corporate communications and PR teams to manage external messaging during a crisis. Timely, transparent communication helps preserve brand integrity and stakeholder confidence.

Crisis preparedness is not an afterthought; it is a strategic imperative. By proactively planning for disruptions, businesses can sustain operations, protect reputation, and maintain regulatory standing even under pressure.

The Role of Tax, Audit, and Regulatory Professionals in Strengthening TPRM in Nigeria

Tax, audit, and regulatory experts play a pivotal role in building resilient Third-Party Risk Management (TPRM) frameworks in Nigeria:

• Tax Compliance Oversight: Ensure vendors meet their obligations under the Federal Inland Revenue Service (FIRS), Lagos State Internal Revenue Service (LIRS), and Petroleum Industry Act (PIA).
• Independent Assurance: Leverage audit expertise to conduct vendor audits, validate tax remittances, assess financial health, and uncover potential risks.
• Regulatory Alignment: Navigate complex legal frameworks such as the NDPR, NESREA, EFCC, etc. requirements to ensure full vendor compliance.
• Strategic People Management: Integrate human capital considerations into vendor oversight, aligning labor practices with Nigerian employment laws and ESG objectives.

Read more: FinTech: Credit Management as a Pathway to Profitability

Conclusion

Vendors remain central to Nigeria’s economic growth, but without adequate governance, they can introduce significant operational, financial, and reputational risks. A well-structured TPRM framework anchored on due diligence, enforceable contracts, digital monitoring tools, and continuous evaluation empowers organizations to mitigate third-party risks while unlocking strategic value.

By leveraging multidisciplinary expertise across tax, audit, and regulatory domains, Nigerian businesses can build secure, compliant, and future-ready vendor ecosystems that align with evolving expectations around FIRS compliance, data protection (NDPR), and ESG performance.

At Stransact, we partner with organizations to navigate the intricacies of local compliance requirements. Our integrated approach helps clients align vendor operations with regulatory mandates and organizational goals.

Reach out to us at [email protected] to learn how we can help you build a resilient third-party management strategy.