The Group Chief Executive Officer, Ecobank, Ade Ayeyemi, has explained why start-ups in Nigeria have short life span.
In an exclusive interview with BusinessDay on the sidelines of the 23rd Nigerian Economic Summit in Abuja on Wednesday, Ayeyemi submitted that start-up companies in the country spend over 50percent of their capitals on providing basic infrastructure like power, water rather than on the business itself.
He therefore advocated for credit guarantee by government to small businesses.
“A start-up in our environment has a high probability of failure. And part of that failure is not due to the person but also due to the circumstances in the environment. If you don’t have power, if there is no water and you need $5,000 to set up a barbing salon today; if you are in Nigeria you spend more than half of that money on generator, diesel and water.
“If you are in Accra, you spend all your $5,000 on renting in the right places, having a good environment and buying the right clippers to attract your clients to come,” he stated.
Also, the Group CEO cited the inability of large companies and government to pay small and medium scale enterprises on time for their services as another reason why most start-ups in Nigeria are not viable.
He called for credit guarantee scheme by government to small and medium scale enterprises.
This, he said, will encourage banks to lend funds to SMEs.
He said: “The companies need money. They are risky. So, part of the risk is for government to take part of the risk out. And to say ‘we will guarantee’. Therefore, the only thing you are left with is liquidity. And then I become indifferent with whether I put the money in treasury bills or an SME. Once you get the banks to that state, then you will see the SMEs get money”.
The banker also warned against frivolous spendings by entrepreneurs. “I also do not want the SMEs to think that once there is a guarantee by the government then they can take the money and go and marry second wife. They need to be able to pay back because it is when they pay back that the money will be available for others.
“So, my credit guarantee scheme as a suggestion allows us to start. But the government should also ensure that small and medium scale enterprises do not take the money and run away”.
He expressed regret that the Nigerian society celebrates people who borrow money from banks without paying, yet they are quick to spending extravagantly.
“We celebrate people that borrow money from banks and don’t pay. And some of them are very senior members of society. You ask why are we not lending? And I ask why are those big men not paying? And at weekend, they go to Owambe parties. And they have money to distribute to people. But they don’t pay. If they don’t pay, they are reducing the abilities of the banks to be able to fulfill its role in society in bring able to lend”.
This, he said, explains why banks would rather invest in treasury bills than give credits to individuals which may later result in non-performing loans.
OWEDE AGBAJILEKE, Abuja
