Businesses in Nigeria are no longer throwing caution to the wind, as the creation of new enterprises has reached its lowest levels in three years, driven by a weaker expansion plan, a new report shows.
According to a State of Entrepreneurship report published by the FATE Institute, the research and policy arm of FATE Foundation, the business birth rate in Africa’s top crude producer declined to 24 per cent in 2024, even as 87 per cent of the surveyed respondents were optimistic about opportunities.
“In 2024, the business birth rate in Nigeria fell to 24%, from 30% in 2023 and 32% in 2022. This slowdown in business creation was largely due to Nigeria’s harsh economic conditions,” the report revealed.
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According to the report, which surveyed more than 10,000 businesses across the 36 states, the entrepreneurial index of the country also saw a downward trend, reaching 0.46. This score is lower when compared with 0.52 in 2023 and 0.58 in 2022, indicating a deterioration in the state of entrepreneurship in the country
“The decline in the entrepreneurial index reflects the following: lower business birth rates when compared to 2023; fewer businesses experienced growth and created jobs; low levels of skills adoption among entrepreneurs; and the persistence of challenges such as exchange rate depreciation, high inflation, insecurity and poor power supply.”
Nigerian businesses are experiencing a tough economic situation that’s continued to weigh on growth, expansion and overall profitability.
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A devaluation of the naira and immediate scrapping of petrol subsidies without speedy targeted cushioning saw inflation spiral to an almost three-decade high, and the currency lost more than 70 per cent of its value.
Even though the economy is stabilising with headline inflation moderating for the fourth consecutive month in July and a potential downward trend, and the naira is now more predictable today than at any time in the last few years, businesses are still cautiously optimistic, as 68 per cent expressed plans to expand.
“This is a significant drop from 78% in 2023. This indicates that many entrepreneurs are cautiously optimistic about the future given the numerous challenges in the business environment,” the report stated.
Anambra, Ebonyi lead entrepreneurial state index.x
Anambra and Ebonyi states led the entrepreneurial rankings at the sub-national level with a score of 0.77, significantly above the average index of 0.46, according to the report.
“These states performed remarkably well in aspects such as business birth rates, the share of registered businesses and the share of female and youth-led businesses that experienced growth and accessed finance,” it revealed.
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Also, Kogi, Kwara and Oyo were ranked third, fourth and fifth, respectively. Among the top five states from last year (Kano, Kogi, Kaduna, Borno and Bayelsa), only Kogi retained its spot as one of the top five states in 2024. At the bottom, Niger, Cross River and Zamfara had the lowest scores.
“Overall, relative to last year, 20 states recorded a decline, while 15 states improved their rankings. Two states – Plateau and Zamfara – maintained the same spots in 2024.”
What the government must do
To spur entrepreneurial growth and boost the economy, the government should ensure macroeconomic stability by implementing business-friendly policies to attract long-term foreign direct investment and enhance non-oil exports, according to the report.
The FATE Institute tasked the government to speed up foreign exchange inflows to address exchange rate volatility and inflation, which are major bottlenecks for small businesses.
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“To support the growth of NMSMEs, the government, working with stakeholders, needs to establish incubator programmes to support entrepreneurs, especially youth and female-led businesses, in leveraging technology and accessing affordable finance. Recapitalising development finance institutions is crucial in improving the coverage of affordable finance for entrepreneurs,” the report stated.
“Additionally, making business registration accessible to informal entrepreneurs, as well as creating public-private dialogue platforms to facilitate peer learning on state performance on the Entrepreneurship Index are vital to addressing business challenges, fostering inclusive policies, and boosting business confidence.”
