Lagos-based Nigerian fintech company, Moniepoint has released its 2024 Informal Economy Report which reveals that nearly 43% of small businesses in the informal sector have been operational for no more than five years.
According to the report, the sector which contributes to over half of Nigeria’s Gross Domestic Product has been faced with challenges of multiple taxation and access to credit.
It adds that the aforementioned challenges are chiefly responsible for the stifled growth of small businesses in the country, adding that these businesses either fold up before they clock five years due to difficult macroeconomic challenges or the affected small scale business owners learn to become self-dependent due to the high employment rate that is prevalent in the country.
According to the report, while 21.7 per cent have been in operation between one to six months, 17.3 per cent have stayed up to a year in business, leaving 13 per cent in operations for up to 10 years and 5.3 per cent of these businesses active for 11 years.
The report which admonished the government to design programs that will enhance business resilience through improved access to finance read in part:
“Eight in every ten small businesses are relatively new, running for less than five years. Less than 20 per cent of businesses were over five years old, indicating the challenge of keeping businesses running for over five years.
“Programmes designed to enhance business resilience, like improved access to financing and support and development programs, could be valuable.”
Recall that the Manufacturers Association of Nigeria, MAN, had in a report last year, stated that about 80 per cent of Small and Medium Enterprises fail before their fifth anniversary due to harsh economic environments, lack of access to capital and poor business practices, which have stunted growth and transition of micro-businesses.
This goes in line with Moniepoint’s recent report which highlights some of the limitations small business owners suffer.
MAN’s report which was titled, “Perception Study: Efficiency and Impact of Regulatory Activities of Standard Organisation of Nigeria on SMEs,” further stated that numerous variables currently influence Nigeria’s economic climate and as a result unfavourable and risky for foreign investments.
According to the report, “80 per cent of SMEs fail before their fifth anniversary due to harsh economic environments, lack of access to capital, and poor business practices, which have stunted the growth and transition of micro-businesses, according to the Small and Medium Scale Enterprises Development Agency of Nigeria in Nigeria.”
Relatedly, the informal report had asserted that Retail and General Trade is the leading industry within the informal economy, making up 24 per cent of all informal businesses wherein Food and Drinks, Fashion and Beauty and Agriculture, collectively account for more than (58.6 per cent) of all informal businesses in Nigeria.
“Without a bank account, for example, they are limited to doing transactions with only people they can physically interact with,” the report read adding that, “this lack of access to banking also impacts them in other ways.”
The report suggests that “many programs and initiatives from development institutions, including the Nigerian government, exist to support businesses of all sizes in the country. However, with most of the businesses in the informal economy invisible, access to them remains constrained. They also do not have the requisite documentation to apply for these grants. This means that although opportunities for them do exist, they are often unable to access them in ways that can help them grow meaningfully.”
On his part, Chief Executive Officer of Dataphyte, Joshua Olufemi while commenting, noted that proper documentation of individuals and groups through incentives such as training, loans and grants by only local government enterprise hubs remained a viable solution to formalising the informal sector.
According to Olufemi, “Efforts must be made to ensure that such data is used responsibly and ethically. It is important for the government not to introduce any sanction or punitive measures when using anonymised but geotagged data from digital payment actors in the identification and formalisation measures that need to be reduced.
“Proper identification of individuals and groups through incentives such as training, loans, and grants by local government enterprise hubs is key to formalising the informal sector. Likewise, coordination with the financial sector, mobile money, and digital payment platforms to do clustered identification and formalisation.”
Also, the Minister of Industry, Trade and Investment, Dr Doris Uzoka-Anite, pledged the government’s commitment to ensure that small businesses thrive. According to her, the report would help the government better understand the informal sector’s needs and propose solutions that would enhance growth and inclusion in the country.
