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7 Costs and Challenges of Doing Business in Nigeria

Nigeria is a country blessed with human, mineral and natural resources. When it comes to starting a business in Nigeria; the potentials are so great that any investor or entrepreneur will be tempted to jump in with both feet without first testing the waters.

A reasonable proof that Nigeria hold huge potential for entrepreneurs and investors is the fact that we have an abundance of successful entrepreneurs who started from scratch and built massive business empires without leaving the shores of Nigeria.

I am talking about successful entrepreneurs and Nigerian billionaires such as Aliko Dangote, Cletus Ibeto, Femi Otedola, Orji Uzor Kalu, and so on. The fact that Nigeria once produced the richest black man in the world further proves that there is money to be made in Nigeria; if only you understand her business terrain. The secret to the success of these Nigerian entrepreneurs is a story for another day.

Secondly, countries such South Africa, China, etc are scrambling to invest or setup shop in Nigeria. That’s why companies like Tiger Brands, Shoprite, Techno moved into Nigeria and are expanding aggressively. Now if you are serious about starting a business in Nigeria; then I will provide the necessary down-to-earth information needed to help you successfully start and build a business in Nigeria.

As expected, there are general business challenges and factors that startup entrepreneurs face all over the world but when it comes to economic and environmental challenges; it varies from region to region.

For instance, the economic and environmental factors affecting businesses in the United States of America or Canada is different from the factors affecting entrepreneurs in Africa or better still; Nigeria. So it’s based on this fact that I wrote this article to help familiarize you with the business terrain of Nigeria and how to handle its challenges.

The Cons and Challenges of Doing Business in Nigeria

1. Lack of Infrastructure

The first business challenge you will face when doing business in Nigeria is infrastructural challenge. Nigeria lacks the basic infrastructure and logistics to support entrepreneurship. If you are going to run a successful business in Nigeria; then you must have the financial muscle to provide your own infrastructure.

Take for instance you want to start a manufacturing firm in Nigeria; you will need to build your own factory, provide your own water supply and other amenities that smoothen business operations.

This single factor lengthens the time frame from initial planning to full business operations when compared to developed countries that have the basic infrastructure in place. Infrastructural challenge will directly or indirectly increase your startup overhead cost so you have to properly factor in this challenge in your business plan.

2. Poor Power Supply

Poor power supply is the next challenge militating against the successful growth of small business startups in Nigeria. Successful companies operating in Nigeria has found a way to deal with the challenge of power supply by providing their own power.

For instance, Aliko Dangote; the founder of Dangote Group has developed the strategy of situating a mini power plant right next to his factories as an alternative to the erratic power supply in the company. So if you are successfully going to operate in Nigeria; then you must map out a plan to curtail the harsh effect of poor power supply.

Update: The federal government of Nigeria has been making giant strides to address the power challenges the country is facing. The power sector has been deregulated and the licenses given to private investors to run their own independent power stations. Unfortunately, not much improvement has been seen in the power sector.

3. Inadequate Security

Security is the next challenge you must deal with especially if you are a foreigner wanting to invest in building a business in Nigeria. But I think it’s worthwhile I add that there has been a massive step up by the government with respect to security and based on this; I can confidently say that I am impressed with the way the government is handling the security of the state.

However, I don’t think the security challenge is going away anytime soon; as the country seems to be sliding from one security challenge to another. So you have to be prepared to deal with the current situation if you must do business in Nigeria.

4. Inconsistent Government Policies

Government inconsistency is really a challenge you will have to tackle if you must succeed in Nigeria as an entrepreneur. Governance is something entrepreneurs have no control over; all entrepreneurs can do is try to influence government’s policy with respect to enacting favorable business laws. But you must have political clout and massive resources to be able to influence government laws.

Now you may not have the political clout or financial muscle to influence government’s policy so the best strategy to combating the ever changing policy of the government is to keep a keen eye on government laws and swiftly adjust your business to align with the policies.

Inconsistent government policies have killed a lot of business in Nigeria, from increased custom duty and levy, to border closure, to the ban on rice importation, to the stringent FX policies, and the clampdown on FinTech companies providing Bitcoin services, etc.

5. Transportation Challenges

The next challenge of doing business in Nigeria is the poor transportation standard. As expected; the dependable source of raw materials you need may not be situated close to your target market. So you will have to decide if to locate your business close to the raw materials or close to your market. Either way; transportation of either raw materials or finished goods will be involved and this will pose a great challenge if you intend operating in Nigeria.

Poor transportation standard and road network is a factor militating against industrialization in Nigeria but I believe this challenge is being tackled by the government through the upgrading of roads and construction of railway lines.

6. Inability to access funds

Of all the business challenges involved with starting a small business in Nigeria; this one interest entrepreneurs the most. Inability to access funds and banks unwillingness to support entrepreneurship and small business is the major barrier to massive entrepreneurship growth in Nigeria.

However, this challenge can be surmounted if you are a die hard, creative entrepreneur. Hard core entrepreneurs are not held back by the lack of support from banks; they are not discouraged by the unavailability of startup capital. Rather than lament over the predicament, they look for creative ways to finance their business plans and ideas.

So if you are in this category of entrepreneurs; then I want to believe that your plans of doing business in Nigeria will not be thwarted or held back by the challenge of capital.

7. Lack of Governmental Support

The last but not the least challenge of doing business in Nigeria is government’s insensitivity to the plight of entrepreneurs and small business owners. And the result of these insensitivity surfaces in the form of double taxation, corruption, unnecessary levies and duties, bureaucratic bottlenecks at various government agencies like CAC, NAFDAC, etc; and high cost of obtaining business licenses.

But Nigeria operates as a free economy; which favors capitalists, so I don’t think you will be discouraged by this challenge. A good strategy to balance the excesses of the government is to have a strong business team that will strategically position your business to withstand the ever increasing demand of the government.

For instance, the federal government, under the Goodluck Jonathan administration made some good strategic moves to support both small and medium scale enterprises by initiating the YouWin program. The YouWin programme designed to help entrepreneurs’ jumpstart or expand their business, the 2013 tariff increase for the importation of used cars; so as to encourage the indigenous manufacturers like Innoson (IVM) and also attract foreign car manufacturers like Toyota, Nissan, etc.

In conclusion, this is my honest outline of the territorial challenges you will face when you start a business in Nigeria. I highlighted these challenges not to discourage you; but to help you prepare in advance because he who is prepared has half won the battle.