Small and medium scale enterprises are the foundation of any thriving economy, matter of fact you can call it the life blood of any nation.
A recent survey by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS) showed that MSME’s contributed a whopping 48% to Nigeria’s gross domestic product, (GDP) impressive. But the studies also reveal that the number of MSME’s has decreased to 39.6 million from 41.5 million prior to 2019. Why the death of almost 2 million enterprises you might ask?
In this post we delve into the challenges faced by SME’s in Nigeria. These challenges can be broadly categorized into two.
External Challenges.
- Inadequate Infrastructure: Top of our list is the challenge of infrastructure. businesses grapple with poor road networks, erratic power supply and others which hinder their ability to thrive. The high cost of alternative power sources and logistics increases operational costs, thereby reducing profitability.
- Regulatory and Bureaucratic Hurdles: Navigating Nigeria’s complex regulatory framework is often a nightmare for SME’s. According to statistia, in 2020, Nigeria’s ease of doing business ranked 131st worldwide, with a general score of 56.9. The processes involved in business registration, tax compliance, and obtaining necessary licenses can be time-consuming costly and frustrating, deterring many from formalizing their businesses.
- Economic Instability: characterized by fluctuating exchange rates, inflation, and inconsistent government policies, economic instability severely affects SME’s creating an unpredictable business environment, making it difficult for SME’s to plan long-term investments and operations. This has led to the massive exodus of major cooperations and business to favourable climes.
- Limited Access to Finance: Many SMEs in Nigeria struggle to access finance due to stringent lending criteria, high-interest rates, and lack of collateral. This prevents SME’s from expanding, upgrading technology, and maintaining liquidity, which are crucial for their growth and longevity.
Internal Challenges:
- Technological Deficiency: Many SME’s in Nigeria lag in adopting modern technology due to high costs, lack of technical know-how, and resistance to change. This technological deficiency hinders efficiency, scalability, and competitiveness in an increasingly digital global market all of which are important to the growth of any business enterprise.
- Skilled Workforce Shortage: The shortage of skilled labor posses a significant internal challenge for Nigerian SME’s. The Sub-Saharan African Skills and Apprenticeship Stakeholders Network revealed that the Dangote refinery engaged 11,000 skilled workers from India while neglecting youths from Nigeria and other African countries. Noting that the reason for the neglect was that youths from Nigeria lacked the adequate skills needed to be engaged in the assignment. Many employees lack the necessary skills and knowledge to perform effectively, impacting productivity and innovation. Hence the need for expensive training and capacity building for Staff.
- Customer Relationship Management: Maintaining strong customer relationships is vital for repeat business and growth. Many SME’s, however, do not invest in customer relationship management (CRM) systems or practices, leading to poor customer service, low customer retention, and negative word-of-mouth recommendations.
Ok, so we’ve x-rayed the challenges facing SMEs in Nigeria, let’s now proffer solutions to the issues highlighted above.
Improving Access to Finance
- Relevant agencies should encourage the development of SME-focused financial products and services by banks and other financial institutions at single digit interest rates
- Credit Guarantee Schemes engineered to reduce the risk for lenders and make credit more accessible to SMEs should be prioritized.
- Alternative Funding Sources: The use of venture capital, angel investors, and crowdfunding platforms should be encouraged.
Enhancing Infrastructure:
- Public-Private Partnerships: Foster collaborations between the government and private sector to invest in infrastructure development.
- Incentives for Renewable Energy: As a matter of urgency government should Provide incentives for SMEs to adopt and invest in renewable energy.
Simplifying Regulatory Processes:
- Regulatory framework should be simplified to reduce the time and cost associated with business registration and compliance.
- Digitalization of Processes: Implement digital solutions for regulatory processes to enhance efficiency and transparency.
Strengthening Management and Workforce
Training and Development Programs.
- Now more than ever there needs to be accessible training programs to improve managerial skills and workforce capabilities at all levels to boost effeciency and productivity.
While SMEs in Nigeria face significant challenges, the aforementioned are viable solutions that can propel these businesses towards sustainable growth.
We’d love to hear from you! What challenges have you faced as an SME in Nigeria, and how have you addressed them? Share your experiences in the comments below and Don’t forget to subscribe to our newsletter for more insights and updates.
Till next time ciao!