Nigeria ranks as one of the top business locations in Africa.
The giant of Africa has booming entertainment, financial, technology, manufacturing, communications, and service sectors.
The nation is also ranked the 27th largest economy worldwide, based on its nominal GDP. According to the World Bank’s Ease of Doing Business Report in 2020, Nigeria is ranked the 131 of the 190 countries analyzed.
A recent study postulates that about 80% of startups fail within the first few years in the country. Actually, about 80% of all startups will fail within the first 2 to 3 years.
There are several risks and challenges associated with doing business in Nigeria. This article explains the five (5) real-life disadvantages of doing business in Nigeria.
The challenge of accessing funds for capital is one of many hindrances startup founders face is the ability to raise capital for their businesses. Despite the introduction of financial programmes and credit schemes by the government, entrepreneurs still find it difficult to raise capital for their businesses. However, this problem is not specific to Nigeria alone.
You should also know that Nigeria attracts the bulk of Africa’s fintech VC dollars and the latest one is the aquisition of PayStack by Stripe for $200M. This shows you that Nigerian companies are thriving irrespective of the problems.
The following 5 issues are peculiar to Nigeria and you should have it at the back of your mind to plan for it.
1. Irregular power supply
Poor electricity supply is one of the major disadvantages of doing business in Nigeria.
Based on a recent study, an average household witnesses only 6 hours of power supply per day. Consequently, this has made several households and businesses resort to generators as an alternative source of power.
However, the cost of running generators is expensive.
Despite the measures that the federal government has taken to solve this problem, it is still a challenge to business owners.
2. Lack of infrastructure
The basic infrastructural facilities necessary for a business to thrive are lacking in Nigeria. Business owners have to incur the cost of electricity, water supply, and a host of others to the list of their expenses.
Also, due to the poor road network in the country, transporting raw materials is a major challenge. Therefore, entrepreneurs usually locate their businesses in a region that has close proximity to where they can source for raw materials.
The rate of insecurity is a cause for concern.
Entrepreneurs are now scared of traveling to different regions by road and transporting their goods.
There are pockets of instances of terrorism, banditry, and kidnapping which are limited to certain regions in Northern Nigeria and this has discouraged from investing, especially by foreigners looking to tap into the country’s large population.
4. Inconsistent government policies
According to SWOT analysis, one of the greatest threats to businesses, which they have no control over, is government policies.
It is one thing for an entrepreneur to raise capital and start a business. It is another thing for the government to suddenly prohibit the production and distribution of such goods and services.
Inconsistent government policies, such as stringent FX policies, border closure, increased custom duty, the ban on rice importation, amongst others, have affected a lot of businesses.
Other real-life disadvantages of doing business in the country include:
5. Bribery and corruption
Despite Nigeria being a top investment destination in Africa, bribery and corruption still remain hindrances.
According to Transparency International Corruption Perception Index, Nigeria was the 14th most corrupt country in the world in 2013.
The government, has, however, implemented policies to tackle this recurring menace.