NIGERIA: Small and medium size enterprises (SMEs) struggle to survive in Nigeria's tough business climate

Record ID: 236161

  • Title: NIGERIA: Small and medium size enterprises (SMEs) struggle to survive in Nigeria's tough business climate
  • Date: 25th July 2013
  • Summary: SCREEN-SHOT OF VCONNECT'S WEBSITE
  • Embargoed: 9th August 2013 13:00
  • Keywords:
  • Location: Nigeria
  • Country: Nigeria
  • Topics: Business,General,Economy,Politics
  • Reuters ID: LVADRZ0Z63HZKBR2TJ9JP6QD3CPR
  • Story Text: On a street in the sprawling commercial capital city, Lagos, run-down left overs of entrepreneurial dreams gone bust give an account of the victims of Nigeria's harsh business environment.
    It's a rugged road to high returns in Africa's most populous country; epileptic power supply, high interest rates on loans, rampant corruption and extortion are among many challenges that leave honest small business owners in the dust.
    Yet soaring unemployment amidst vast oil riches means small scale businesses are the only option for many.
    At the Bob Natty Joe bakery, a worker pounds on a lump of flour that will be used to make Agege bread, a popular staple food eaten by millions of Nigerians in the city.
    But with no electricity, machines choke from the smoke and soot coming from the diesel powered engine and coal burning oven.
    Production at the bakery, which has been running for over 20 years is at an all time low, closely followed by its profits.
    The 64-year-old owner, Tijani Adepoju says with a daily return of only 1,500 naira (9 US dollars) he cannot afford to upgrade his machinery to up production.
    "We ought to be using electricity, the machines we are using are very old and new ones are very expensive. But what do we do, there is nothing we can do, we need help," said Adepoju.
    Despite being the continent's top oil producer and holding the world's ninth largest gas reserves, Nigeria suffers crippling power shortages.
    Experts say fixing the power issue would cut business costs by up to 40 percent and add 3 percent to GDP.
    But even with the problems, which include insecurity and national level graft, investors keep coming.
    They are drawn by alluring returns, a huge and growing population with latent potential for a consumer boom, light crude oil ideal for making motor fuel and sophisticated financial markets.
    It is this potential that SMEs want to tap into and propel the living standards for millions who do not directly benefit from the country's vast oil wealth or foreign investment.
    Recent data by the Small and Medium Enterprises Development Agency of Nigeria or SMEDAN and the National Bureau of Statistics shows there are over 17.3 million small and medium enterprises in Nigeria, with 32 million people involved in the sector, contributing about 45 percent to the country's Gross Domestic Product (GDP).
    Imit chocolate produces high and low quality chocolates for confectioners. It is currently working on breaking into the final consumer market. But manager, Jumoke Ogunlesi, who resigned from her job as a school teacher to help her ageing father run the factory, says drawn-out regulation processes and inconsistent power supply are major hindrances to the company's plans for expansion.
    "We have issues with power, you know so and regulations makes the expenses very high for the organisation, money that probably could have been recouped is now been used for all these other things," said Ogunlesi.
    While the power issue may not go away soon, SMEDAN officials say they are working to make the SME sector more robust and accessible through affordable funding and training.
    "All what we need to do is to bring our participants and after they have been trained and they're able to put up their business plan, then we can now make a referral to Bank of Industry for further action," said Olayinka Fisher, the Lagos State co-ordinator for SMEDAN.
    Beyond funding, many entrepreneurs say the process of getting started can be even more daunting.
    To help Nigerian businesses get noticed, an online platform known as Vconnect gives entrepreneurs an avenue to list themselves online.
    With a minimum of 48,000 naira (306 US dollars), the site provides promotional tools like customized business adverts.
    It has over 700,000 listed small businesses accessible to client users at no cost and records more than 200,000 searches daily.
    Deepankar Rustagi, managing director, VConnect says the platform gives SMEs a voice they never had.
    "We feel in our economy one of the major elements which contributes to the economic sector is the small and medium scale segment. The growth of the small and medium scale segments will actually take the economy forward and small and medium scale businesses require a lot of tools to promote themselves and one of them is the marketing tool. We help them promote themselves at an economical and a way which will not require them to come off their office," he said.
    With Nigeria being home to Africa's richest man, a cement tycoon who started out like many SMEs in the country today, business people are on to something.
    But improved infrastructure, government support and an overhaul of registration red tape that many say pales more serious problems like insecurity, could be the key to unlocking Africa's second biggest economy.
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