Small and Medium Enterprises (SME’s) account for up to 48 percent of the National GDP, 96 percent of businesses and 84 percent of employment in Nigeria. Despite the large numbers of Nigerian SME’s and its impact on the economy and national development, Africa still has a very high rate of business failures.
The country’s dwindling economy has caused at least 1.9 million SME’s to lose heir businesses since 2017 and even more business closures persists at an alarming rate.
What is responsible for these business failures? Well…the failure of Nigerian SME’s can be attributed to a lot of challenges but for this content, the focus will be on just one. Failure is any kind of closure, including bankruptcy, liquidation, stopping further losses, giving up and starting a new business, and/or closing by choice (like retiring early or shutting down).
Small businesses make up the majority of most business in the country. These small businesses are usually unstructured and comprise of about one to nine staffs. Taxi services, small convenience stores, spas and beauty salons, local restaurants, dry cleaning services and several other similar small business fall under this category. They largely operate with no data or registration database or legal ties.
In Lagos state for example, a majority of small businesses that exist are dominated by Nigerians who have had to move from other states in the country to looking for greener pastures for themselves and their family. They can do this so easily because the barriers to enter into the business eco-system are low. Simply put, any one can decide to start up a business of their choice without any legalities or procedures. There are no compulsion for people to register their business or provide certain certifications before they can set up their businesses.
This creates inexperienced business operators who pay zero attention to skills, technology, and business structure. They are also not accountable for their business because the lack the knowledge and experience to hold themselves responsible for their business failure.
This is what encourages the cycle of business failures for some SME’s . This is only going to get worse because people are still completely blind to the importance of equipping themselves with diverse business skills and strategies before starting up a business. With the alarming rate that most Nigerian SME’s are shutting off, it would be hard to see any huge impact or difference in the Nigerian sector in terms of economic growth, poverty reduction and creation of jobs. Business failure is the last stage of the business life cycle.
This is just one of the major reasons why a lot of Nigerian SME’s are stuck in a loop of failure. The economy and environment as a whole also plays a huge factor to business collapses on or before the 5 year mark. Business owners should endeavor to equip themselves with all the necessary skill sets for their specific businesses if they want a promise of a long-term profit generating business.