10 Key Factors Affecting the Nigerian Business EntrepreneursAbbakin
This article takes a look at the key factors affecting the Nigerian business entrepreneurs or the Micro, Small and Medium size Enterprises, (MSMEs) receptively.
Entrepreneurship space is currently experiencing rapid grow in Nigeria, perhaps due to the high unemployment rate which climbed to a six-year high of 18.8% in the third quarter of 2018, – according to the most recent data provided by the National Bureau of Statistics (NBS).
But only 20 percent of these businesses survive the first few years of their establishments.
As an aspiring entrepreneur who is ready to launch his or her first business enterprise, it’s therefore good to start by understanding the several challenges confronting the Nigerian entrepreneurs.
These critical success factors (CSF) affecting Nigeria business environment are also the same problems confronting any prospective business man or woman from the global arena.
Entrepreneurship is critical to nation development and so entrepreneurs will also need the right environment, resources and people to grow their businesses.
From our literature review, below are list of some key factors affecting the Nigerian business entrepreneurs.
10 Key Factors Affecting the Nigerian Business Entrepreneurs
#1. Problem of Inadequate Capital
Money is the life wire of every successful business.
The major reason that often kills great business ideas or dreams of Nigerian entrepreneurs is their inability to raise capital to start or grow their businesses.
Most Nigerian Banks and investors are now refusing to take the risks and provide business loans to private ventures – who do not have the required collaterals.
Banks do cite that average entrepreneurs misuse business loans for other purposes, but behind the scenes, most Nigerian Banks are taking the available funds for gambling on the global real estate and oil markets.
There is the high commercial interest rates which also pose a barrier for entrepreneurs to access capital and grow their businesses.
If the Nigerian Banks are going to give you a loan as a small business owner, you have to really convince them that your business is highly profitable.
Which of course due to harsh economic conditions, most SMEs in Nigeria rarely turn in good profits that could make them attract loans.
Going by the level of complaints and alleged ‘excess deductions’ on loan facility, a growing number of Nigerians are now afraid to borrow money from the banks, not just because of their inability to pay back, but that they would pay twice what they are supposed to pay at the end of the transactions.
A former banker that worked in the control units of several banks with nearly two decades’ experience told The Guardian that this “over-deduction” or “excess deduction” on loan facility is subtle and normal thing done by every bank, but being discovered by few customers recently.
“The truth is that only few of the borrowers crosscheck their overall transactions, whether periodically or at the loan term. Some banks, if not all, even make provisions to suppress any protest, depending on the value involved. Some settle it quietly”.
The excess deduction means that apart from the agreed terms, changes in inflation level and any change in the Monetary Policy Rate during the period of the loan, banks deduct more money from the account of borrowers than what is due to them even without their notice.
This development where banks are taking advantage of the low knowledge-base of their customers to enrich themselves portends eroding confidence in banking relationship; and set back the level of progress reached in the financial inclusion drive.
As long as these scenarios prevail, small business owners and startup entrepreneurs must focus on high-defined activities that can create immediate growth and profits for their businesses.
#2. Lack of Incentives and Government Protection
Small scale industries in Nigeria are not protected by government neither are they encouraged by any form of special incentives.
Even where these incentives exist, problems caused by cumbersome and costly bureaucratic procedures, especially in getting necessary approvals, licences or loans still prove otherwise.
For example, tax holidays and special concessions that can reduce the cost of doing business are not being extended to Small and Medium size Enterprises, SMEs.
The administrative process of starting a business and registering a business in Nigeria took months to complete and often required paying for more.
Some government policies and regulations also generate market distortions and unnecessary sentiments.
Even, some government agencies prevent critical business activities like placing of billboards at the expense of huge tax collections form business owners.
Businesses still face the risk of being buried under the weight of multiple levies and taxes from several government agencies which could force them out of business.
#3. Shortage of Technical and Technological Infrastructures
In addition to poor access to useable funds/capital; difficulties in procuring raw materials, lack of access to relevant business information, low technological capabilities, high cost of transportation, etc., are major problems.
Aside the government statutory responsibilities in the provision of infrastructural facilities like adequate electricity, roads and water supply to SME and industries;
Having the right strategies, infrastructures and service experts are paramount if a business is to control budgets and maximize returns on investment.
A good security systems (including access controls and CCTV cameras), internet access and uninterrupted power supply are going to be the most important parts of any business, so we want these to be as reliable as possible.
#4. Expatriate Market Competitions
Like Shell in downstream oil sector, MTN in telecommunication sector and Shoprite group of stores in the Nigeria retail businesses;
Many foreign companies currently in Nigeria have high-jacked some of the Nigerian economic environments.
Some of them have over 20-years history of success and have gained good brand reputation, making it difficult for local and upcoming investors to compete.
Thus, an entrepreneur having interest in related economic sectors must have a good funding mechanism in place to enable the company step-up with its competitors in the industry it has chosen.
#5. Lack of Organizational and Management Skills
New businesses have failed; some of which were necessitated by several reasons, whether it’s government’s failure to provide the requite infrastructure or the business owner’s poor decision making abilities.
Knowledge they say is power!
Before proceeding further in your business, it is always important to “get completely qualified”.
Many entrepreneurs today never care about this aspect before jump-starting and running their own businesses.
However, the problem of providing technical and managerial know-how is being tackled through various schools, training institutions and respective industries, so acquire the knowledge you need for your business success.
#6. Entrepreneurs Inability to Form Partnerships
Partnership involves two or more individuals, investors, shareholders, or suppliers who agreed to share the responsibilities, gains, funding and liability of a business.
Most Nigeria business men and women are having hard times creating collaborative engagements that can strengthen the future of their businesses.
This is because most business partnerships are negotiated through third-party involvements, legal business structuring and formatted partnership agreements that entrepreneurs ordinarily find difficult to understand and implement.
Having and working with investment partners that will take advantage of you and don’t contribute as much as expected is going to be a no no for young entrepreneurs.
In our future training you will learn how to find and settle with the right partners that can grow your business.
#7. Problem of Identifying a Potentially Viable Project
The challenge of most entrepreneurs begins with what to produce, to whom to produce, and where to locate the businesses.
With the number of businesses already existing out there; it is always difficult to come up with the right business idea – one that the customers will accept.
However, these choices are usually informed by the needs and desires of the target market, or the prospective customers through marketing research and feasibility studies.
Your business effort will no doubt be a waste if you find it difficult securing sales for your products or services.
#8. Career, Personal and Financial Risks
Majority of people do not have the luxury to quit their day jobs to pursue starting a business.
However, there is this worry about how to meet their personal or family financial obligations – without additional means of income?
When entrepreneurs decide to be in business, they are putting some (if not all) of their net worth at risk.
While starting a business, an entrepreneur may run the risk of living a stressful life that is out of balance, with working hours taking away other family or personal activities.
Nevertheless, with good management support and outsourcing, emerging businesses can consider hiring someone to take out some of these tasks on your behalves.
#9. How to Market their Products or Services
Businesses of all sizes are in constant need of getting increased customers and providing real value for a competitive price.
The critical success factors for a product business are well known: — starting with selling every unit with a gross margin of 50 percent or more, establishing brand reputation, and continuous product improvement.
On the other side, if your area is a service business, it’s relatively hard to find guidance on what will get you funded, and how you can scale your business.
Most service businesses don’t have the physical products to offer investors. So, a good business development, management and marketing strategies are critical.
#10. How to Hire the Right Employees
Getting the right people who can do the job is a challenging process for most entrepreneurs.
Many businesses in Nigeria are having issues about hiring great people, building a strong production team, and implementing good customer service systems.
While hiring the wrong employee is expensive, costly, and time consuming. A happy customer means a returning customer – with more money to the business.
Today, many Nigerian graduates will have the high certifications needed; yet lack the hard skills and experiences for the jobs.
A good and qualified employee will pay back in productivity, successful customer relationship, and a positive impact on your total work environment.
Perhaps the Nigeria’s current business climate is unconnected to business failures? Several common but limiting factors have, however, constrained SMEs in Nigeria over the years.
In the face of the present economic recession, the SMEs are expected to serve as catalyst for reversing the economic down-slide.
Though the 37 Million Micro, Small and Medium Scale Enterprises, MSMEs in Nigeria were still largely informal in nature, they have contributed immensely to the national economy.
Therefor government agencies, business organizations, institutions and upstanding individuals are urged to stand up for economic empowerment through entrepreneurship in Nigeria, Africa and across the world.
Talking about the ease of doing business in Nigeria? This should go beyond improving Nigeria’s ranking on the World Bank’s annual Doing Business report by 20 places.
There should be reforms at the Nigerian ports to ease delays, boost transparency and export promotion.
The government reforms must “move beyond the bureaucracy of doing business, and push on infrastructure, human capital development, security, and other institutional improvements which are also key for competitiveness.”
The solution for Africa is trade not aid, and low-cost but not cheap. The governments should make it easier for companies to launch businesses, invest in power, promote local content, and ensure upskilling of the workforce”.
— Herman Singh, MTN Group Chief Digital Officer at The Innovation Africa Digital Summit (IADS) 2018.
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