Future of SMEs in Nigeria’s Harsh Economic Climate
Do you, like me, think of starting a small and medium-scale enterprise but are scared of taking the leap of faith? Or are you like my friend, let’s call him Solomon Grundy, who registered a domain for a sports website on Monday? The site went live on Tuesday. It was indexed by Google on Wednesday and reached peak traffic on Thursday. It started to slow on Friday; it got hacked on Saturday and was taken offline on Sunday. And that was the end of SportsNigeria!
The rapid-fire sequence of life events coupled with Nigeria’s harsh economic climate ensures that each year, many SMEs fall on hard times, just like our Solomon Grundy.
The Reality of SME Failures
Here are the stats:
- According to 2021 data from the National Bureau of Statistics (NBS), more than 20% of SMEs fail in the first year, and nearly 50% fail within the first five years.
- About 39,654,385 SMEs operated in Nigeria as of December 2020, compared to 41,543,028 in 2017, marking a 4.5% decrease.
- Over 40% of SMEs fail due to low demand for their products/services, while 19% fail because of intense competition, and 17% due to poor product offerings.
However, these statistics don’t tell the whole story.
A 2020 PwC survey across 29 states provided insights from 1,629 key stakeholders, revealing pressing issues faced by Nigerian SMEs:
- Unlocking finance, finding customers, and infrastructure deficits are the biggest challenges.
- Electricity remains the highest operational cost, followed by rent and cost of capital.
- The top economic pressures include price reductions, rising inflation, and low demand for products/services.
- Local government levies are the most difficult taxes to comply with.
- MSMEs prefer private equity over debt financing.
Case Study: Bose Ajuwata’s Journey
In 2020, Bose Ajuwata, a Theatre Arts graduate, left Nigeria in search of greener pastures. She braved the Sahara and the Mediterranean Sea, eventually reaching Italy. However, due to a lack of proper documentation, she returned to Nigeria two years later.
Before leaving, she worked as a tailor with an SME. With support from friends and seed money from the International Organization for Migration, she launched her own tailoring firm in February 2023.
The fashion industry is critical to Nigeria’s economy, contributing to job creation, innovation, and GDP growth. NBS data shows that the “textile, apparel, and footwear” sector has averaged 17% growth since 2010. Given this demand, Bose needed to upskill. But her dream almost derailed with the dawn of a “new economy” following President Bola Tinubu’s May 29, 2023, inaugural speech: “Subsidy is gone!”
Suddenly, Bose’s three-month-old business faced economic downturns. The naira plummeted, making it difficult to import materials. Sales dropped, and she had to lay off two single-mother employees. She cut back on expenses and made tough financial choices.
Resilience and Adaptation
Sound management requires acknowledging present realities while applying hard work and prudence. Before the “new economy,” Bose focused on her existing products with marketing strategies like competitive pricing, improved user experience, and quality enhancements. But she knew she had to do more.
Strategies for Survival:
- Online Expansion: Bose launched her products online, selling via Jumia, Konga, and Amazon while leveraging Facebook, Google Ads, and email marketing.
- Diversification: She expanded into textile-related ventures, such as fabric trading, to sustain revenue.
- Market Segmentation: She categorized her market based on age, religion, gender, purchasing power, status, and physical location to cater to specific customer needs.
- Partnerships & Networking: Bose collaborated with other SMEs to share facilities, cross-market, and leverage mutual strengths.
- Financial Literacy: With proper training in bookkeeping, she made more informed financial decisions.
Government & Private Sector Support
SMEs can benefit from government and private sector initiatives, including:
- CBN Interventions: Various loan programs for equipment and working capital financing.
- Bank of Industry Loans: Special financing for SMEs.
- Private Sector Initiatives: Programs from the Tony Elumelu Entrepreneurship Programme, Academy of Women Entrepreneurs, Ford Foundation, MTN Foundation, and more.
Thriving Despite Economic Hardships
In 2023, BusinessDay newspaper recognized the top 100 promising SMEs in Nigeria. Their success was attributed to their ability to adapt and thrive despite economic challenges. These businesses demonstrated remarkable growth, profitability, strong frameworks, and high expansion potential.
Bose and her brand, February 1st Couture, didn’t make the list, but she embodies the resilience and adaptability of many Nigerian entrepreneurs. Her future plans include growing her brand beyond Nigeria Fashion Week and GTBank Fashion Weekend, with dreams of showcasing at Paris and New York Fashion Weeks.
The Future is Bright!
Despite Nigeria’s economic challenges, SMEs can succeed through innovation, resilience, and strategic adaptation. The key lies in leveraging opportunities, government support, and strategic business decisions to navigate and thrive in tough economic climates.
