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Why two million MSMEs collapsed in two years


Zainab Ahmed4The mortality rate of Nigeria’s micro-, small-and medium-sized enterprises has been on an all-time high. DEBORAH DAN-AWOH explains why two million of these businesses shut down within two years

Micro, small and medium-sized enterprises are businesses that are owned, led by one or a few persons, with direct owners’ influence in decision-making. They are usually started with small capital and often have low market shares.

MSMEs are recognised as the engine of economic progress and important contributors to employment as well as economic and export growth.

According to the Nigeria SME Survey, they contribute 48 per cent to the national GDP, account for 96 per cent of businesses and are responsible for 84 per cent of employment.

This shows that SMEs are the pillars of the Nigerian economy.

In the last five years, MSMEs in Nigeria have been major contributors of employment, with a total of about 17.4 million jobs. They account for about 50per cent of industrial jobs and nearly 90per cent of the manufacturing sector employment in terms of the number of enterprises.

However, in a recent report, SMEDAN said the number of MSMEs in the country dropped by about two million between 2017 and 2021.

It said the country’s MSMEs reduced from about 41 million in 2017 to 39 million in 2021, noting that this was due to the impact of COVID-19 and other challenges on small businesses nationwide.

The Director-General, SMEDAN, Dikko Radda, disclosed this at an event organised by the Transparency Advocacy for Development Initiative in collaboration with SMEDAN in Abuja.

He said, “According to the 2021 MSME Survey, there are 39 million MSMEs in Nigeria. This is a significant drop from 41 million MSMEs reported in the 2017 survey report.

“The major reason for the drop in the number of MSMEs could be traced to the COVID-19 pandemic, the challenges MSMEs have in accessing funds to start or grow their enterprise and the problems of globalisation.”

Radda, who was represented by the Director, Planning, Research, Monitoring and Evaluation, SMEDAN, Wale Fasanya, said both the public and private sectors had roles to play in the sustainable development of MSMEs in Nigeria.

He also noted that the contribution of MSMEs to Nigeria’s Gross Domestic Product dropped by 3.5 per cent in 2021, adding that MSMEs accounted for 6.2 per cent of external trade in the same year.

COVID-19 has done more harm on businesses than good. In 2020, the pandemic swept through the world and grounded all business activities. Peter Adebiyi, a fashion entrepreneur in Ipaja, a suburb of Lagos, had to shut down all activities because everyone was forced to stay at home as a precautionary measure to contain the COVID-19 virus.

‘’During the pandemic, I made zero sales and was forced to put my business on hold. I was feeding on proceeds from my savings. It was truly a difficult time for me.”

The pandemic was a major tragedy for both large and small-scale businesses, and businesses globally suffered major setbacks.

Power failure

Apart from COVID-19, power situation was also culpable. The power problem has persistently crippled the potential for business success in the country as the unstable nature of the grid has not only thrown the country into darkness but also forced manufacturers and SMEs to embrace expensive alternative power sources such as diesel and fuel.

‘Running this business has been a combination of hard work and bouncing back after the pandemic. Getting funds has been hard, and getting funds to move out of my current location has been futile. I spend an average of N10k per week to run my shop. From January to this point, I spent N300k on fuel,” Adebiyi said.

The epileptic power system in Nigeria spares no one, as it raises operational costs of SMEs.  Bolanle Abass, a young mother who runs a small-scale frozen foods business, complained bitterly about the low power supply of her business.

“I had to put my business on hold when the light problem worsened. For three straight days, there was usually no light. I sell frozen foods from the confines of my home, but when the power problem got worse, I couldn’t keep up with the fuel price. My freezer is big, and it takes a while before the fish and beef can become iced.

“I just gave up because I began to run at a loss. It was so nerve-wracking. Most of my products also got spoiled.”


Nigeria, a once bubbling land flowing with ‘milk and honey,’ has been reduced to the survival of the fittest game of thuggery, banditry, and terrorist attacks. Most grain-producing states are located in the country’s northern parts such as Kaduna, Borno, and Nasarawa. Farmlands have been under attack by bandits and Boko Haram.

These attacks have impeded SMEs in the agricultural space and thus affected business progress and stability.

Micheal Bassey, who runs a foodstuff business, lamented how insecurity had disrupted the supply of certain products.

“It has become increasingly difficult to get farm produce to sell. Most of my suppliers in the North cannot send me goods because of the insecurity.” I am just tired and thinking of another business to do. Even with the products I supply my customers, I have had to increase the price because of all these contingencies. I hope things get better because I am on the verge of giving up.”

Inflation & foreign exchange

The inflation rate in the nation has been on a galloping ride, and the volatile nature of the forex market poses great consequences on the business. Inflation is nearly 20 per cent and a dollar exchanges at N430-N440 in the official market and above N650 in the parallel market.

Nigeria largely thrives on import and most of the production materials are brought into the country with forex. SMEs in these businesses bear the brunt. For example, wheat, palm oil, and flour prices have continued to soar.

Inaccessible loans and high-interest rates

The Central Bank of Nigeria has increased the interest rate from 11.5 per cent to 14 per cent in the last four months.

According to a report by MetLife Chamber, 39 per cent of SMEs have taken out loans to offset the burden of production fueled by inflation. This means SMEs who seek loans will pay higher costs to service the loans.

This is the reality for 46-year-old Fatima Edwards, who lost her business after she couldn’t access loans to scale up.

“My businesses folded up after I could not get funds to reinvest. I had been a victim of theft and was in desperate need of funds to restock, but the loans at the time scared me to death. I wasn’t sure I could keep up with the rates, so I did not take it. And going to the bank was a no-go area. It would require lots of documentation.’’

Peter Adebiyi also explained that getting access to loans was a dead end.

“I applied to get a loan, but they told me it wasn’t available. I did all the registration and kept checking back for three months and I always got the same reply, that the loan was not available. I finally gave up on it.

“They say that these loans are available and yet we can’t access it.”

Experts speak

Financial experts have pegged the high mortality rate of SMEs on a lack of capacity to survive macroeconomic challenges.

The Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, highlighted the inconsistencies of the economy, saying that they were partly responsible for the demise of these businesses.

“SMEs have limited capacity to absorb shocks. In the last two years, business shocks have been extremely high. So the mortality rate of SMEs is high,: he said.

He also identified lack of business experience as a factor

“There are many SMEs. Many of these business owners can’t handle business. They just gather funds and just start a business without good management skills.

“If you have poor business management skills, anything can throw you out of balance. It combines both capacity to manage the business and exogenous factors.’’

Another expert, Gabriel Idahosa, who is the Deputy President of the Lagos Chamber of Commerce and Industry, pegged the problems on the rising cost of materials to run businesses and a slowing down of demand induced by inflation.

“The reason is the escalating inflation. The SMEs need to operate. They can’t increase prices if you have fuel and diesel inflation. If you are an SME and use products from another town, the cost of transportation is very high. Transporters are increasing the fares every two weeks because of an increment in the price of diesel.

“A lot of SMEs can’t survive this onslaught on their profit margin. And the business starts making losses. They may try to sustain it for a short while, but after a while, they collapse,’ he noted.

Director of Research and Strategy at the Chapel Hill Denham, Tajudeen Ibrahim, also blamed the inconsistencies on the Nigerian system.

“For the past three to four years, the exchange rate has not been what it used to be. With inadequate power supply, some SMEs depend on power to run their businesses. So, it is a major challenge for them.

“Another element is the lack of basic infrastructure. For instance, a pepper trader bought in Osogbo and sold in Lagos. Each time that road conditions are worse. So, naturally, those people will either cut back on business or fold up.’’

Yusuf further noted that the lasting solution was a conducive environment devoid of economic and infrastructural lapses.

“The environment for business operations is very tough. Imagine an environment with a regular power supply and no galloping inflation.

So, these are the factors, and the primary thing to do is to create an enabling environment for SMEs.”

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