Nigeria is one of the world’s leading business locations on the African continent. With a population of over 206 million people and a rich tech ecosystem, it’s no wonder startups are moving to Nigeria to start their businesses. Of particular interest to investors is Africa’s largest city, Lagos. Despite having fewer start-ups than other cities such as Cape Town, the economy in Lagos is estimated to be the largest on the continent when it comes to startups. This combined with boomingoil production, agriculture and telecommunications sectors makes the Nigerian economy an attractive prospect.
Nigeria is ranked as the 105th freest economy in 2021, and the 13th freest economy in the Sub-Saharan Africa region, making it worth considering for investors. However, when it comes to doing business in Nigeria, there are several challenges to consider. That’s why in 2021Nigeria was ranked 132rd in the World Bank’s Ease of Doing Business report out of 189 countries.
What are the top business challenges faced by investors in Nigeria?
According to Invoice NG, 80% of new businesses and startups in Nigeria fail within the first 3 years. Doing business in Nigeria could be a wonderful experience when your business venture succeeds, however before success you could be faced with significantchallengesas a startup. Some of which include the following:
Firstly, Nigeria can be politically unstable which can lead to outbreaks of violence and terrorism. This combined with the fact that 170 million people still live in extreme poverty can give rise to challenges.
Secondly, it’s important to note that getting access to capital and credit can be difficult in Nigeria. Unless you already have the capital to start the business, getting enough capital together can be tricky. Despite efforts to make financial help available for entrepreneurs, it’s extremely hard to get hold of funding for your business.
Unless you have personal savings, you’llprobably have to consider business loans which often charge a high interest rate.
As Nigeria is still classed as developing country, power supply is also a consideration. With each household getting limited access to electricity per day, you may struggle with connectivity. If you choose to set up in Nigeria, be prepared for productivity to dip along with the power supply.
In all countries, the government plays a part in setting up a business. Nigeria is no different. However, the law that guides business set up is the Companies and Allied Matters Act which is where some difficulties begin. To set up a business, there are a number of hoops to jump through, meaning that setting up a startup can take up to a month.
Once you’ve set up your business, you may also have to take into account what’s known as the ‘Nigerian factor’. Due to unclear regulations, continual hoops to jump through, poor government policies and a more laid-back business culture, things can take longer than expected.
Although Nigeria is a good business prospect, that doesn’t mean it’s free of corruption and bribery. Due to the federal political system, there are many regulatory agencies to deal with. This also gives rise to increased risk of bribes from public officials. This paired with high levels of organised crime in the country can make doing business difficult.
The bottom line is that doing business in Nigeria is challenging, but it can also be extremely rewarding. If you’re thinking of investing, then you’ll want an expert team by your side who are well versed in the risks and rewards of investing in Nigeria. That way, you’ll be able to avoid some of the common pitfalls and see your business survive past three years.