No doubt, Small and Medium Enterprise (SMEs) is one of the major contributing factors to economic growth and development of a country, but small businesses are faced with many challenges. In this post, we’ll share with you top 10 challenges facing small businesses in Nigeria and the workable ways to solve the problems.
In the whole of Africa, Nigeria is one of the leading business locations in the world. When doing business in Nigeria, there are various challenges facing a classic Nigerian business.
The World Bank’s Ease of Doing Business Report in 2016, out of a total of 189 countries, Nigeria was rated 169th. 80% of new businesses and startups in Nigeria do not make it beyond the first 3 years.
Doing business in Nigeria could be a delightful experience when your business venture succeeds, nevertheless before success there could be huge challenges and complications that a new business or startup has to phase.
Starting up a business venture basically comes with its own risk that may impede the growth of such business, however some issues and challenges are very mutual to all businesses in Nigeria.
Top 10 Challenges of small businesses in Nigeria
- Government regulations
- Management capacity
- Corruption & Bribery
- Market developments
- Access to capital & credit
- Poor Power Supply
- Exorbitant power consumption bill
- Business registration
- economic instability
- Lack of infrastructure
Very importantly, the government plays a significant role in the decision of how business is done in Nigeria. No government completely abandons all decisions about doing business to the market.
These guidelines are meant to keep businesses in-check and make sure they follow a common rule. The law that regulates doing businesses in Nigeria is known as Companies & Allied Matters Act (CAMA).
African countries rank low on the World Bank’s ‘Doing Business’ ratings. This is because of the difficulty that has to do with setting up a business.
Here in Nigeria, it could take between 2 weeks and 1 month to establish a business which always entails going through quite a number of regulatory hoops.
The government is becoming more understanding of local start-up ecosystems, but basically, the Nigerian government has to put more effort to make doing business less difficult and more interesting.
Access to capital & credit
One of the very difficult tasks, for any businessperson that wants to begin their own small business venture, is to secure capital for it.
To put in simple terms, capital is that amount of money available to be spent on various activities in the business.
Except you are already financially capable, raising funds has never been an easy task and it takes a lot of determination and patience. Lack of financial capacity is the sole most substantial challenge when it has to do with doing business in Nigeria.
Even with the conceptualization and implementation of financial programs meant to support businesses, the government has always been in a struggling position to ensure that financial capital is easily made accessible to entrepreneurs.
In most cases, entrepreneurs have to turn to personal savings, business loans, families and friends, or government grants to get financial capital for business.
The major factor we are speaking about here is disruption, such as digital or technological disruption. This is one thing that affects businesses in all industries in Nigeria.
There is also market risk due to the fact that there is a global insecurity in economic growth.
When one is not sure of the direction the entire economy is heading towards, it makes strategic development and business planning more difficult and risky.
Many corporate organizations (such as banks), in a bid to get ready for these risks, are now providing support to start-ups, so that they are part of the disruption, or are developing smaller, more active and autonomous parts of their own organization to look to the future and be aware of new developments in the market that can affect how business is done.
Poor Power Supply.
Having access to regular electricity and a power supply is one of the major concerns for businesses in Nigeria. As of June 2018, an average Nigerian household can have access to 6hours nonstop power supply out of 24 hours in a day. This is why generators have become a common alternative source of power supply in Nigeria.
At least 9 out of every 10 households in Lagos State alone have a power generator as an alternative source of power. Over the past years, succeeding governments have fruitlessly attempted to confront Nigeria’s energy deficit problem.
Mr. Raji Fashola, the present Minister of Power, Works and Housing, has held responsible the poor electricity supply to users on insufficient financial investments in the power sector.
Corruption & Bribery.
While Nigeria is one of the world’s foremost investment destinations and is officially a well-functioning business environment, corruption and bribery are serious hurdles. The federal structure of the political system means there is a broad range of monitoring agencies, which could lead to demands for bribes from public officials.
According to Transparency International’s corruption perception index of 2013, Nigeria was ranked 14 most corrupt nations in the world. Organized crime is an important issue in some parts of the country.
On the other hand, this is a problem the current administration of President M. Buhari is battling hard against at all government levels.
Solutions to the Challenges of Small Businesses in Nigeria
When there are problems, there would definitely be solutions, below are some of the solutions to faced by SMEs in Nigeria.
- Free-business registration for SMEs
- Broaden the financial base of SMEs
- Capacity building
- Provision of infrastructures
- Constant training and development
- Healthy financial records
- Effective marketing strategies
- Good personnel management policy
- Feasibility study
- Macroeconomic stability
- Intensify fight against corruption
Free-business registration for SMEs
A serious government can build a sustainable SMEs economy by launching free-business registration for prospective owners.
Alternatively, the government can make registration of a new business 50% reduction in registration.
Hundreds of SMEs founders may truly have the take off capital, yet some of them need training and management.
How can this be done?
The Chambers of Commerce and nongovernmental organizations can come up with the idea of creating forum and seminars for SMEs to get training on management to help them sustain their businesses.
Broaden the financial base of SMEs
The government of Nigeria needs to broaden the financial base of SMEs. This can be done by helping to integrate the operations of the formal financial institutions with that of informal financial agents.
The financial institutions can be of help in this regard by relying on the informal agents for loan repayment by the SMEs since they have inbuilt control to ensure full repayment of loans when they become matured.
Provision of infrastructures
Government can intensify its efforts at improving infrastructures in order to encourage and promote rural industrialization thereby reducing rural-urban migration.
Constant training and development
Owners of small businesses shouldn’t rely on their capacity, there is need for them to gain more knowledge from other like-minds and others who are guru in the field.
Healthy financial records
Similar to the above is the ability of business owners to maintain adequate and proper financial records.
Effective marketing strategies
We are in the world that is driven by technology as such, SMEs managers should device effective marketing strategies such as creative personal selling, customer oriented product lines or services.
Social media platforms are the great tools for driving marketing and getting leads in the news world of marketing, SMEs owners should use them.
Good personnel management policy
SMEs owners should develop good personnel management policy. The success of an enterprise greatly depends on the owner’s relationship with his employees.
The hiring policy in SMEs should not be based on non-business considerations, such as friendship and family relations. Some of the business blogs in Nigeria provide more insight into how to achieve management policy.
One of the successes of a business is to have to know what the business entails, money alone is not enough to create a success business.
Prospective business they should analyze their administrative adequacy and avoid rushing into any business for the mere fact that there are no job opportunities for them.
The Federal Government should create a stable macroeconomic environment. Macroeconomic stability is desirable because it is characterized by low inflation, stable and investment friendly interest and exchange rates.
It aids planning and enables businesses to make reasonable forecast on costs, turnover and returns on investment.
Intensify fight against corruption
Despite the whistle blowing policy launched by the government, corruption and bribery still strive at the point of registration by the some government officials at the point of business registration.
There would definitely be some difficulties in starting in new business, but we believe that the government of Nigeria has a huge role to play in mitigating the problems. Also, on the part of the business owners, the problems facing small businesses in Nigeria are surmountable, for instance, some of the profitable farming businesses in Nigeria are implementable with little capital.