The recent surge in critical inputs is making it increasingly hard for start-ups and early-stage businesses to survive.
The situation has worsened the failure rate among start-ups in Africa’s most populous nation, despite having the highest entrepreneurship rate globally.
MSME operators in Nigeria are left to battle a combination of issues, ranging from poor power supply to restrictive economic policies, tax multiplicity, and others, which are already threatening to keep many out of business.
A 2022 Nigeria MSME report shows that 80percent of small businesses in Africa fail within the first five years of their existence.
The cost of doing business for businesses has continued to increase with the recent surge in prices of all inputs. In addition, to the frequent grid collapse that has increased costs for start-ups.
“Things are getting harder for small business operators in the country without an end in sight,” said Femi Egbesola, national president of the Association of Small Business Owners of Nigeria (ASBON).
“The cost of operation for businesses keeps rising daily. Prices from rent to costs of raw materials have more than doubled for businesses,” he said.
Egbesola noted that more businesses are going to shut down their operations amid the fresh cost of doing business crisis, coupled with the credit crunch and high borrowing costs.
Africa’s most populous country has been grappling with double-digit annual inflation since 2016. The country’s high monetary policy rate of 27.5 percent by the Central Bank of Nigeria is making it difficult for small businesses to access cheap loans.
Experts say the high-interest rate has made it difficult for critical sectors such as agriculture and manufacturing, as most businesses cannot survive under a high-interest rate environment.
Energy is a key element of the production process; however, Nigeria’s inability to supply and distribute sufficient electricity has left businesses at the mercy of alternative energy sources, such as the use of generators that consume diesel and petrol, which takes 40 percent of the total production cost, according to the Manufacturers Association of Nigeria (MAN).
With the high energy spend, small business owners often transfer the burned-on cash-strapped Nigerian consumers, who have to bear the brunt.
“I started my business in 2019, and I process fruits and vegetables. I have three generators and often buy 5 to 10 litres of fuel daily to power my two refrigerators,” Toyin Oladimeji, chief executive officer of Ola Foods, said.
“I buy a litre of fuel for N840 and spend between N4,200 and N8,400 daily on power alone,” she said, noting that with stable power, this extra cost would have been avoided and spent on the expansion of her business.
“Sales are fast dropping, and prices of inputs are surging. It is really difficult for business operators as costs keep rising,” she added.
Small businesses are the hope for economic prosperity for the country, seeing that they represent around 90 percent of all firms globally, provide roughly 70 percent of all employment, and, by some estimates, contribute up to 70 percent of Nigeria’s GDP.
According to the Business and Sustainable Development Commission, sustainable business models could open economic opportunities worth $12 trillion and create 380 million jobs by 2030, with more than 50 percent being located in developing countries.
Achieving this will require a transformation associated with adapting new business models, bringing in new innovation and technology, and doing business more sustainably and ethically.
