The Challenges Faced By Entrepreneurs in Nigeria

The Challenges Faced By Entrepreneurs in Nigeria

Corruption is something that retards economic growth, and it exists in virtually all economies, not necessarily developing economies or indeed Africa--although .based on the structures in the more advanced countries, they are able to control or to curb these kinds of practices. In Nigeria, the EFCC, which is the Economic and Financial Crime Commission set up by the government, has been able to deal largely with corruption. They have made quite a substantial amount of investigation and recoveries. There has been talk of something like $5 billion recovered including some of the money stacked outside of the country by corrupt leaders. The current operating climate for entrepreneurs is gradually becoming competitive and less rent-seeking.
However, that is not the real constraint that retards entrepreneurship in Nigeria. Based on the research carried out by Lagos Business School (LBS) recently, the following factors tend to weigh down entrepreneurs: The first is "Markets." The majority of our people don't have access to markets, and in order for them to have access to markets, they have to understand the requirements of the market. This is one area where we are lacking--for instance, if you want to have access to the U.S. market, you must have the knowledge of the market regulations in the USA. Such understanding will assist the entrepreneur to produce in order to be able to meet the needs of the market. Adequate and timely market information must be provided. Also, products must be competitive and meet required standards.
Another major factor is "Infrastructure." This is basically [true] in all developing countries, but more so in Nigeria. Poor infrastructure has been a major cause of Nigerian products not being competitive in the International market. Public power supply has been the major constraint to enterprise development. According to a study carried out by the World Bank in the last 10 years or so, it was pointed out that if government is able to remove power as a bottleneck, Nigeria will gain at least 30% competitiveness in production.
Four years ago, we had a similar problem in telecoms; then, we had not more than 400,000 phone lines. But today, four years after telecoms deregulation the story is different. This reform agenda of the government that liberalized the telecoms sector and provided an enabling operating climate for private sector participation in that sector has yielded positive results. About 50 million lines.-tile majority of which are either mobiles or fixed wireless are now operational in the country. So we are able to cross the bridge of infrastructural deficiency in the telecoms sector through getting our policy and regulations right as well as using transparent means to license private sector operators.
Another important constraint is "Finance." Access to capital is a major constraint in Nigeria. The government has tried to do something about this through having one form of intervention or the other in the past. However, about five years ago, the Banker's Committee decided to set aside 10% of their profits as equity investments in small businesses. Everybody hailed that decision, and that was good. Unfortunately, the rate at which the money was being dispersed to enterprises has been very poor. so why was this happening?
First of all, you have to understand the mindset of the small business owners in Nigeria. They own their businesses, and they like to control it themselves. Unlike what obtains in USA, Canada and Europe where most people wanting to start a business will look for a partner, somebody with equity. The philosophy is "let's share the risk together. let's leverage on the knowledge of one another," and things like that. But back in Nigeria, the prevailing philosophy is "I want to start it myself. I want to do it myself, at least up until the particular level that I know I have full control. Then, maybe I can sell part of it, but for now, let me .do all the sweating, and let me do all the things that come with that sweating."

The second side ~is that up until five, maybe not more than eight, years ago, the financial services sector had been used to lending through debt, not equity, so the mindset, again, is different. Most lending has to be done with collateral, so if you default, they sell off your collateral. In the new participatory' case, there is nothing to sell off, which means the banks have to do their homework a lot more to know the right type of businesses to invest I -whether they are growing businesses or not. They need to know all that, and that is where they can get their reward. So that has also become. a challenge for them. The challenge for the banks is that they need to learn the ropes of venture capitalists.
On both. sides, there are real challenges, and these have slowed down the investments in equity. There is need for value orientation and sound financial education.
Another factor is inadequate documentation of processes and outcomes. The records are poorly kept; and it is difficult for small businesses to have regular financial statements and things like that. This common business practice in developed economies must be shown to entrepreneurs and why it is important for them to have their own financial records--even to know how their businesses are growing. Western small businesses are very careful about documenting processes and outcomes. I think the outcomes documentation is likely due to Small Business Administration (SBA) requirements, which we don't have. But beyond the SBA requirements, the fact that entrepreneurs are able to document their processes help them to consistently control the outcome. That is one learning point that, must be imbibed by all entrepreneurs. In  addition we, need to start documenting some of the processes which have been successful as well as documenting various operational challenges and the solutions to these, using daily reflection journals. This leads to effective use of feedback mechanisms in future operational plans as well as in developing strategic plans.