Africa is currently experiencing a impressively rapid rise in the number of small and medium businesses. This is necessary at a time like this, since the International Monetary Fund (IMF) predicted that “by 2035 the number of Africans joining the working age population will exceed that of the rest of the world combined”. According to the World Economic Forum (WEF), “ Helping African SMEs to flourish is crucial not only for Africa but for the global economy, because it creates a growing middle class with disposable income, in tandem with market opportunities for new investors.” Skystone Capital takes a most cogent and timely look into the major factors limiting businesses in Nigeria — A west African country with huge potentials to transform the continent’s economic landscape due to it’s very high population of young people making up about 10% of Africa’s population and small businesses accounting for a big portion of SMEs in Africa.

The problem of unemployment in Nigeria dates back to her independence, just like many other nations in Africa. The desire to combat this is what necessitated the rise of small businesses over the years to support the country’s economy. This is why a good number of governmental and non-governmental bodies are beginning to recognize the key roles that small businesses play in the Nigerian economy. According to the SMEDAN; small businesses are responsible for the employment of a startling 80% of the Nigerian workforce. Despite the numerous indispensable roles that small and medium enterprises play in the advancement of Nigeria’s economy, they continue to face numerous challenges that threaten their existence. Today, it is a sad fact that 80% of small business outfits in Nigeria fail within the first five years of their formation. Notwithstanding the efforts/supports of the government towards establishing small businesses (especially at registration and incorporation stage), most of these enterprises are not living up to expectation, due to reasons that are not far-fetched. [/b]It is therefore consequential at this time of Nigeria’s development (when the amount of graduates who are seeking gainful employment are rising yearly at a geometric rate — with very little hope of securing a white collar job), to look into the factors hindering the growth of small businesses (which are the proven viable alternative to alleviating the teeming population from poverty) — as it is not possible to solve the pertinent problems unless they are well identified and understood.

- The Electricity Setback: Electricity is by far one of the most essential needs of most businesses, ranging from printing houses to farms, and to even, photo studios and I.T. start-ups, etc. Large scale manufacturing and processing businesses also have huge demand for electricity as the absence of the same raises their production cost to alarming levels. Nigeria needs adequate power supply in order for the level of production to increase beyond what it is today. It is well documented that the Nigerian power industry barely supports 20% of the Nation’s energy needs; and a similar percentage of the cost of commodities in Nigeria is electricity influenced. This means that the attempt to meet power needs pushes up the cost of running businesses in Nigeria, while the inability to meet power needs (for financial reasons) cripple small businesses. A 2016 report by The Sun Newspaper once revealed that an estimated 70% rise in running cost was recorded by Nigerian businesses in the said year, as a result of power generation — which is what makes Nigerian goods less competitive (yet very expensive) on the global market, leaving people with no other option than to flood the Nigerian market with imported commodities which often add to the woes of small/medium businesses fighting for a sizable market share of the Nigerian population in order to continue thriving.

- The Transportation Setback: No doubt, good transportation networks is also consequential to the thriving of business anywhere. Lack of adequate transportation facilities and the subsequent high cost of transporting products from where they are produced to where they are needed is also a limiting factor for businesses, especially small businesses in Nigeria. Copious research evidences have also positively correlated high transportation costs to inflated price of finished goods in a significant manner. Reducing transportation cost will therefore reduce the price of commodities in Nigeria. Furthermore, access to raw materials can affect production time and rate, even though it is often more advisable to site production points close to the source of raw materials (which is hardly ever the case in Nigeria). To this wise, businesses that have need of raw materials far away from where they are cited are often crippled by the transportation setback obtainable in Nigeria, especially in metropolitan areas such as Lagos.

- Other Basic Amenities: Inadequacy of basic amenities and infrastructural facilities such as good water supply, good communication/network access, internet, etc. also affect how small businesses and their owners perform in Nigeria, and it is a known fact that; improving the welfare of the entrepreneur will generally improve the outcome of the entrepreneurship venture/business anywhere. Gumel (2017) opined that Information communication technology (ICT) plays a huge role in the ability of small businesses to deliver their services profitably. In effect therefore; a big challenge facing small business owners and managers is their ability to establish a good relationship with their customer base. It has been proven that managing such beneficial network with customers can’t be possible without the effective use of ICT by small businesses. Hence the availability of good computers, network facilities and effective telecommunication services is indispensable to 21st- century business. Research has shown that the adoption of ICT by panoply of small businesses in developing countries such as Nigeria is already beginning to transform the way people do business, but surely; more can be done — as many small businesses still haven’t began to take advantage of it. Adebayo et al., (2013) opined that among other things, the major stumbling blocks affecting the adoption of ICT by SMEs in Nigeria is the high cost of computer equipment, limited access to financing (as discussed in the succeeding paragraph), inadequate infrastructure, especially electricity (discussed above), and lack of government support.

- FINANCIAL FACTORS: Lack of access to finance is the major factor limiting businesses in Nigeria. 70% of young businesses in Nigeria have been reported to close due to lack of access to adequate finance.

Companies need money to expand and better deliver goods and services to their target customers. In the case of a country like Nigeria; they also need a lot of money to remedy the challenges caused by lack of electricity, effective transportation, and basic amenities discussed above. In fact, good access to finance can help young businesses thrive and scale through, in spite of the hurdles and of poor electricity and access network roads cited.

Research has shown that the amount of capital invested in a business is critical to the growth, sustenance and survival of the same. Gbandi and Amissah (2014) found the failure of small businesses enterprises to access long-term financing as the chief cause of small business failure in Nigeria. A 2015 survey involving 100 small businesses in Aba (eastern Nigeria) showed that lack of adequate funding was a major impediment to many small and medium manufacturing businesses in the surveyed area seeking to become public limited companies.

Money is needed by Small and Medium enterprises for many reasons such as start-up capital, growth and expansion to better meets the needs of target customers, advertising, etc. Most SMEs rely on the savings of the SME owner, borrowing from close friends, and family members, etc. to source the most of these fund, but studies have shown this to be very ineffective, hence the lack of adequate resources by small and medium businesses in Nigeria. An attempt to get loans by small businesses owners often comes with a lot of weighty demands and perquisites such as double digit interest, expensive collateral, etc., that many are unable to meet.

Source: https://medium.com/@SkystoneCapital/major-setbacks-limiting-small-medium-businesses-in-nigeria-5f7ea1091ea2

Let's discuss house. What other setbacks do start-ups face in Nigeria do you think was not mentioned. Share your own experience if you run a small/medium business ...let's brainstorm on possible solutions. Happy Monday!

Cc: Seun, Dominique, Lalasticlala, HigherEd, Writerights, flirtykaren et al.