Five Factors Limiting Small Business Operations

In a study conducted in 2011, we found five main factors limiting small business operations in Nigeria. Although previous studies have been carried out on this issue in the past, our own study (which I conducted with a colleague, Wumi Siyanbola) sought to adopt an exploratory approach; thus, giving us the opportunity to spend time with a number of small business owners, and we simply allowed them to tell their own stories. In this piece, my intension is to detach myself from my academic mind-set, and present these factors in a way that anyone can understand.

1. Insufficient Funding and Poor Access to Finance

Most of the small business owners (SBOs) identified the lack of finance as their main operational limitation. In their opinion, they would like to grow their businesses and take them to the next level, but their dreams are cut short by the lack of funds. The result also showed that many SBOs are upset at commercial banks, and view them as enemies of progress, because most banks do not like lending them money. When asked about the existence of Micro Finance Banks (MFBs) and Venture Capital (VC) companies, the SBOs described MFBs at simply an extension of the typical commercial banking approach i.e. they are more interested in collecting their monies, as deposits, and less interested in offering them any credit assistance. On the part of VCs, SBOs view them with suspicion, as people who want to take-over their businesses (their “babies”, which they have spent time nurturing). The VCs usually ask for very high equity percentage, beyond what the SBOs are willing to offer, and also come up with unfavourable terms for the investments.

2. High Cost of Doing Business

The cost of doing business in Nigeria is high, and this necessitated the country’s poor ranking in the World Investment climate survey conducted by World Bank. The SBOs complained that in conducting their business activities, they have to bear every expense on their own. Sadly, it is not every cost that small businesses can pass-on to their customers, because if do, their product/service offering may become too expensive and no longer competitive. One SBO explained that every small business is a local government on its own, because we provide our own power, water, security, and means of communication and transport, amongst others; coupled with the constantly increasing cost of raw materials and inputs. There isn’t any social support for small businesses whatsoever.

3. Inadequate Infrastructure

This factor is very much linked to the high cost of doing business. Infrastructural inadequacy is a critical limiting factor to the smooth operations of small businesses. Imagine you are a business man/woman living in Lagos, where there is very limited electricity supply, poor roads, with an ineffective transport system, and slow internet connectivity; and you want to compete with the SBO in China, India, UK or US? You must be joking! What of the amount of man-hours lost in traffic gridlocks due to the poor state of roads? Interestingly, to explain the dreadful state of roads, one ex-law maker (Hon. Patrick Obahiagbon, aka Igodomigodo) described the process of travelling through the Lagos-Ibadan expressway, one of the country’s major trade routes, as engaging in a Makaba dance. Those man-hours lost due to bad roads and traffic gridlocks could have been channelled into more productive use.

4. Multiple Taxation and Corruption

From the results, all the SBOs interviewed complained seriously about the problem of multiple taxation and its negative impact on their bottom-line. Small businesses are made to pay all manner of fees, levies and taxes to agents of various levels of government. These range from shop permits, business licences and tenement rates, to radio/tv licences, ground fees, quality certificates, and security levy to local vigilante groups to mention a few. This strangulating situation is further worsened by corruption. For instance, for businesses to move their raw materials to site, they would have to make several stops along the road, and forced to give out money to all manner of “characters” – from uniformed security personnel and vehicle inspection officers, to state and local government officials, traffic wardens, transport associations and “area boys”(Omo onile). How do you expect small businesses to survive? They barely struggle to breakeven, talk more of making profit.

5. Inconsistent Economic Policies

Since 1960 to date, every administration has come up with one policy or the other targeted at promoting the development of the MSME (micro, small, and medium enterprises) sector in Nigeria. Sadly, these policies have been seriously marred by ineffective implementation. As a matter of fact, there have been instances when it appeared that government really meant well for the sector; yet, the same lack of, or limited nature of, implementation of such policies still hindered MSMEs from benefitting from such schemes. Worse still, is the fact that when a new administration takes over power, most of the policies of the past administration are set aside, and new policies are introduced. Yet, it remains business-as-usual as the new policies may still be faced with the same problems of poor implementation. For instance, on the issue of government always announcing that large amounts of money have been set aside to support the growth of the sector, one SBO angriliy expressed his opinion, stating that: “we keep hearing about funds being set aside to boost the SMEs sector, but I have never benefitted, and do not know any of my colleagues who have benefitted. It all ends on the Tele, we dont get to see anything. Infact government is one of the greatest enemies of small businesses, because we get no support from them whatsoever.”

Recommendation

In conclusion, it is worth noting that a comprehensive article on the points discussed above has been sent to an academic journal. To summarise our recommendations in that article, there is germane need for a National MSME Sector Summit that would bring all the stakeholders together to discuss and brainstorm over the challenges facing the sector in Nigeria. The challenge, however, is the dearth of information. There hasn’t been a major baseline study covering the entire MSME sector for many years now. Possibly, this should be the starting point. We all need to be well informed about what is happening in the sector, from a very scientific perspective. The question now becomes who would fund a detailed baseline study for the sector? I suggest the Ministry of Trade and Investment should take the lead!!!

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