Why businesses flounder in Nigeria

By Adedotun Ajayi

In the thronging landscape of Nigeria’s economic terrain, the rise and fall of businesses paint a vivid narrative of challenges and opportunities. Yet, a concerning trend emerges, the startling rate at which Nigerian businesses flounder and eventually meet their demise. The intricate web of factors contributing to this demise unveils a story rooted in systemic, economic, and operational complexities.

Understanding why these enterprises struggle and ultimately fail is crucial to unraveling the fabric of Nigeria’s business ecosystem. From regulatory hurdles to infrastructural limitations and market dynamics, the hurdles faced by Nigerian businesses reveal an intricate tapestry demanding closer inspection.

Numerous Nigerian companies have faced closure in recent years, reflecting the challenging business landscape in the country. Companies  cited reasons such as foreign exchange scarcity, difficulty accessing raw materials, and rising production costs, leading to their closure between 2015 and 2021. Additionally, factors like bank debt, policy inconsistency, and the overall poor operating environment contributed to their demise.  The recurrent themes of foreign exchange pressures, poor operating conditions, and debt burdens underscore the complex blend of challenges that have led to the unfortunate closures of these once prominent businesses, among others, portraying a larger narrative of the struggles faced by companies in Nigeria’s business environment.

In this exploration, we look into the intricate layers that underpin why Nigerian businesses, amid potential and promise, struggle to endure, often succumbing to the harsh realities of the market.

Ayomide Ogunleye, an economist well versed in Nigeria’s economic landscape, highlighted critical factors contributing to the downfall of businesses in the country. “The recurring issue of foreign exchange scarcity has been a significant blow to Nigerian businesses,” Ogunleye remarked. “It directly affects their ability to procure essential raw materials and conduct international transactions, placing immense pressure on their operations.”

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Regarding rising production costs, Ogunleye stated, “Businesses grappling with increased production costs face a dire situation. From energy expenses to procurement challenges, these escalating costs pose a formidable obstacle to sustainable operations.”

Speaking about debt-related closures, Ogunleye emphasized, “The burden of bank debt has been detrimental to many businesses. In a challenging economic environment, the weight of debt becomes unbearable, leading to closures and financial insolvency.”

He also addressed the impact of policy inconsistency, stating that, “the lack of a stable and predictable policy framework adds uncertainty to business planning. Companies struggle to adapt to shifting regulatory landscapes, affecting their long term viability.”

Moreover, Ogunleye highlighted the pervasive issue of the poor operating environment, saying, “A combination of infrastructural deficiencies, bureaucratic hurdles, and market complexities creates an unfavorable landscape for businesses. These adverse conditions stifle growth and innovation, pushing companies toward closure.”

In essence, Ogunleye’s analysis underscores the multifaceted challenges faced by Nigerian businesses, emphasizing the urgent need for comprehensive reforms addressing currency stability, policy coherence, debt management, and infrastructural improvements to foster a conducive environment for sustained business growth and prosperity.

Also, Olubunmi Adewa, another economist, said: “The struggle faced by Nigerian businesses is not merely a coincidence but a culmination of systemic challenges that hinder their growth and sustainability. As an economist deeply entrenched in observing the economic landscape of Nigeria, it’s evident that several intertwined factors contribute to this unsettling trend.

“Firstly, the economic volatility in Nigeria serves as a significant stumbling block for businesses. The unpredictable nature of currency values, coupled with inflationary pressures, creates an environment where planning becomes a gamble. Businesses find themselves grappling with constantly shifting economic landscapes, making it arduous to strategize effectively for long term growth.

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“Secondly, the inexperience of many founders amplifies the challenges businesses face. While passion and determination drive their initiatives, the lack of exposure to intricate market dynamics and regulatory frameworks often results in fatal errors that jeopardize their ventures.

“Furthermore, the critical role of effective management and leadership cannot be overstated. Visionary leadership, complemented by sound management practices, forms the backbone of successful enterprises. However, the absence of such robust leadership often leaves businesses vulnerable to external pressures and internal inefficiencies.

“An omnipresent issue haunting Nigerian businesses is the unreliable electricity supply. This perennial problem disrupts operations, increases operational costs due to alternative power sources, and severely hampers productivity, ultimately impeding the growth trajectory of these enterprises.

“However, amidst these challenges lies a ray of hope. Embracing technological advancements offers a promising avenue to mitigate the impact of unreliable power supply. Implementing renewable energy sources and exploring innovative backup systems could alleviate some of the operational burdens faced by businesses.

“Additionally, mentorship programmes and collaborative networks play a pivotal role in nurturing the next generation of entrepreneurs. Providing guidance and knowledge, sharing platforms for inexperienced founders can significantly bridge the gap and empower them to navigate the complexities of the business landscape more effectively.

“In conclusion, the predicament faced by Nigerian businesses is a multifaceted issue that demands a holistic approach. Addressing economic instability, fostering experienced leadership, resolving infrastructural deficiencies, and embracing technological innovations collectively form the bedrock for cultivating a resilient entrepreneurial ecosystem in Nigeria.

Damilola Aina, an entrepreneur, expressed her opinion on the struggles faced by Nigerian businesses, attributing their challenges to a multitude of factors. She said, “the economic instability in Nigeria is a significant hurdle. Fluctuating currency values and inconsistent economic policies make it challenging to plan for long-term growth.”

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Aina also highlighted the inadequate infrastructure, especially the unreliable power supply and poor transportation networks, significantly impact business operations. This hampers efficiency and increases operational costs, making it difficult for businesses to thrive.”

Regarding regulatory complexities, Aina commented, “the bureaucratic red tape and ambiguous regulatory frameworks create unnecessary barriers. Navigating through these complexities adds to the operational burden, hindering growth and innovation.”

Additionally, Aina addressed the issue of limited access to capital, stating, “access to funding remains a critical challenge. High interest rates and stringent conditions from financial institutions often impede businesses’ ability to secure necessary capital for expansion.”

She concluded by advocating for reforms and support systems, asserting that, “to foster a conducive environment for businesses to thrive, there’s a crucial need for policy reforms that streamline regulations, infrastructure development initiatives, and accessible funding mechanisms to fuel entrepreneurial growth.”

Aina’s perspective sheds light on the numerous challenges that impede the growth and sustainability of Nigerian businesses, urging for strategic reforms and support to overcome these obstacles.

Why businesses flounder in Nigeria

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