The main challenges of doing business in Nigeria

doing business in Nigeria

When I started kpakpakpa Inc in 2014, I began with the simple idea of making it easier for people looking to conduct business in Nigeria to find credible information online.

 

That idea grew into a mission and a business.

 

Years after starting, the amount of information that you can now find online about doing business in Nigeria has increased, but there is still quite a long way to go.

 

Finding credible information to gain helpful insights and guarantee a spot in the Nigerian market continues to be a challenge.

 

However, you are not alone, as many companies doing business in Nigeria face the same issue. The difficulty of locating necessary information, among a multitude of other challenges, reduces the likelihood of achieving business success in the Nigerian market.

 

Understanding the main challenges of doing business in Nigeria is important because doing so will help you mitigate potential risks and avoid pitfalls in an effort to achieve your business goals at a faster pace.

 

Highlighted below are the main challenges of doing business in Nigeria.

 

1. Hostile Business Environment

You’re probably asking the following questions:

 

“What is a hostile business environment?”

 

Our recent annual survey of Nigerian business owners and entrepreneurs revealed that 33% of businesses list a hostile business environment as a major impediment to the growth of their business.

The reality is that there are multiple issues that you have to deal with when you are doing business in Nigeria. 

 

In fact, before giving our clients an estimate as to how long a project will take, we multiply the timeline by the “Nigerian factor”.

The “Nigerian factor” has to be taken into consideration due to the many challenges that must be faced, which could increase the time and cost associated with achieving your business goals.

 

The “Nigerian factor” includes, but is not limited to: unnecessary administrative hoops that businesses have to jump through, unclear regulations that affect businesses, a business culture that does not hold people accountable to time, government policies that do not favor the business community, and a lack of good infrastructure.

 

All of these different factors contribute to a hostile business environment that stifles business growth in Nigeria.

 

2. Difficulty Finding Competent Staff

After surveying Nigerian business owners and entrepreneurs in main business challenges, in 2016 and performing the same survey again in 2019, at the top of the list of business challenges is the limited supply of qualified personnel and talent.

 

Magnitude to which a company can scale is proportional to the skill and talent of the team behind the business. 

Find the right candidates that have the educational background, professionalism, and problem-solving skills is quite a challenge for companies looking to grow.

 

Although Nigeria has a large population, the amount of talent available relative to the country’s size is small. In fact, the pool of talent is so limited because of the country’s poor education system. UNICEF estimates that Nigeria has 10.5 million children of school age who do not get into school at all, the highest in the world

 

On our Africa Market Potential Index, Nigeria ranks 38th among the 54 African countries on the social & human development pillar – which measures factors such as literacy level and access to basic amenities like healthcare.

 

For companies looking to succeed and grow in Nigeria, they have to spend the required time properly vetting candidates to be hired and prioritize getting referrals from their professional network to find the right talent.

 

3. A poor state of Infrastructure

When detailing the makeup of a difficult business climate, intangibles are the main challenges discussed since they are hidden costs that you have to factor into your budget.

 

However, there are also many tangible challenges to doing business in Nigeria that you should also consider, such as poor infrastructure. Without an efficient road network and consistent electricity, you can only be as productive as the infrastructure around you.

 

Unfortunately, bad roads and an inconsistent power supply are the two main infrastructural issues in Nigeria. These issues reduce the productivity of every business in the country.

 

However, these problems affect some businesses more than others. For example, the electricity issue affects manufacturers the most because they end up paying more money – up 3.8x the regular cost to keep their machines running on diesel-fueled backup generators.

 

Whereas, the bad roads affect everyone since important business meetings are often delayed due to traffic.

Also, the inefficient road network serves as an impediment for businesses trying to distribute goods around the country.

 

Whether you are a small business owner or a manager at a multinational firm, the poor infrastructure will definitely affect your business in Nigeria. Companies that succeed are those that build operational buffers around these infrastructural challenges and bake this cost into their business model.

 

4. Lack of Market Information and Data

At the top of the mind of 66% of business owners in Nigeria is where and how to find new customers.

 

This is a top priority for any business. Access to a customer base drives a company’s revenue.

Nigeria’s large population proves appealing for a lot of business looking to tap into a vast customer base. The large market size also comes along with the challenges of pinpointing exactly who and where your ideal customer base is in the “noise” of the huge market.

 

A lack of credible business and market information is a major challenge for companies that are trying to validate their business model and find product-market fit.

 

Without market information, businesses are unable to identify their target customers – where they are located, what they need, how much they are willing to pay for services and product. It’s also difficult for companies to understand the competitive landscape and to identify potential channel partners.

 

Without proper “on ground” insights, companies cannot build robust business strategies that help them mitigate potential risks while they aim to capture available market opportunities.

 

To combat this issue, successful businesses in Nigeria collate key market information for their business from multiple sources. Although this approach works, it can take a lot of time and resources that slow down business growth.

 

This is where we, here at kpakpakpa, provide the most value to our clients. We help them succeed by being their trusted information partner – fueling their faster business growth with credible market insights and quick business connections.

 

5. Red Tape, bureaucracy, and changing government policies

When Nigeria struck oil in the late sixties, exportation of crude oil became the main driver of the Nigerian economy.

 

Although this brought wealth, albeit unevenly distributed wealth, to the country, it also meant that a lot of other industries have been ignored since then.

 

Therefore, a lot of government policies that have been put in place have not favored non-oil industries and, more specifically, small businesses.

 

Furthermore, sudden changes in government policies and bureaucratic systems have caused many businesses to fail and leave the Nigerian market.

 

Multiple agencies demanding paperwork and unclear payments from businesses cause of a lot of frustration for business owners.

 

Understanding the number of administrative protocols and different government agencies that are essential to business growth can be very intimidating.

 

That is why familiarizing yourself with relevant Nigerian regulations might require you to seek out the expertise of a local business partner or professional that is well-versed in sector-specific requirements.

Working with the right experts can reduce time spent doing your own research and save you a lot of money down the line.

 

6. The high cost of business financing

The lack of capital at affordable interest rates hinders the business growth in Nigeria.

Nigerian banks give out loans with an average interest rate of 25%. With such a high interest rate, businesses are unable to find suitable capital to fund their enterprise.

 

Even when a business does succeed in securing the necessary capital, a huge chunk of their returns ultimately goes to the repayment of their loan.

 

Although international firms can access capital at a cheaper rate outside of Nigeria, they are also affected by this issue because they seek partnerships with local businesses that have the financial strength and capability to grow.

The ratio of companies in Nigeria that have access to such finances is small.

So why are the interest rates so high?

The answer is Creditworthiness.

 

Only recently has the Nigerian financial system started prioritizing creating a database to improve the visibility of the repayment of credit taken by consumers and companies.

 

To make sure that companies pay back loans, banks rely on non-movable collateral, such as land, as security to loan repayments.

 

Until the creditworthiness is improved in Nigeria and there is more trust between banks and lenders, the interest rates will remain high. Companies have to develop unique funding strategies to overcome this challenge.

 

7. Trust

“Progress moves at the speed of Trust”

 

Slow business deals with new business partners.

Lack of trust in an educational system that produces a limited supply of qualified candidate.

Bankers not having a good creditworthiness check that results in high-interest rates.

Lack of trust of governmental agencies, who haven’t in the past shown efforts to help small businesses

The limited amount of credible business information.

 

The main challenge here is TRUST.

 

And the lack of sufficient trust leads to slow business progress.

 

The lack of trust is one of the most important issues when it comes to doing business in Nigeria.

 

At the end of the day, most businesses rely on trust as an intangible commodity that is traded between stakeholders.

 

If you can’t trust your business partner, your logistics provider, your new hire, government policies, the market information you’ve received, or your target consumer base to purchase your products, then the likelihood of making and committing to appropriate business decisions that are necessary to reach your business goals is significantly reduced.

 

Trust is something traded everywhere, and not just in Nigeria. However, without the proper law enforcement policies in place, lack of trust in business practices and local entities makes doing business in Nigeria even more daunting.

 

This is where our focus is -here at kpakpakpa. Building trust in the African business community.

 

By remaining aware of the challenges mentioned in this article when it comes to doing business in Nigeria, and building trust with all the stakeholders in your business,  you will be able to use this information to construct a reliable strategic plan that will help you avoid business pitfalls and roadblocks, as your company secures a place in the Nigerian market.

 

Photo Credit: Flickr – World Bank Photo Collection 

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About The Author

Nifemi Aluko

Connecting global organizations with quality information and insights to help them succeed in the Nigerian market… Passionate about business, technology, and music.

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