Nigeria, a developing country, is leveraging the power of entrepreneurship to combat poverty. Small and medium-sized enterprises (SMEs) can drive economic growth by introducing innovative products and services, increasing productivity, and driving GDP growth in a country where 87 million people live below the poverty line.
Nigeria has the largest economy and population in Africa (over 230 million people) and SMEs account for 48% of national GDP, 96% of businesses, and 84% of employment. This helped the country to increase the rate of financially included adults from 56% in 2020 to 64% in 2023, largely driven by entrepreneurial ventures in financial technology (FinTech), according to Enhancing Financial Innovation & Access.
However, despite the rising number of SMEs, Nigeria still offers its citizens limited opportunities in terms of job availability and a weak economy. The poverty rate in Nigeria has constantly risen over the past few decades and the country now has the second-largest poor population in the world. Furthermore, the World Bank has predicted that 40.7% of Nigerians will live below the global poverty line by the end of 2024, an increase from the current 38%. In February 2024, inflation hit a record high of 31.7%, up from 24.7% in late 2023.
A decline in the number of start-ups
Economic unrest has had an impact on the number of newly-created start-ups. In 2023, 30% of entrepreneurs launched their enterprises, down from 32% in 2022. The decrease in new businesses is a worrying sign for Nigeria’s economy with SMEs playing such an important role in employment and GDP.
According to Muda Yusuf, economist and former Director-General of the Lagos Chamber of Commerce and Industry, the decline in new businesses is primarily due to economic instability.
He explained that the rising cost of doing business – driven by inflation and foreign exchange instability – has made it difficult for entrepreneurs to plan and forecast effectively which deters new business ventures. Yusuf also stressed the negative impact of infrastructural inadequacies, notably an unstable electricity supply, on achieving economic sustainability.
SMEs step in to tackle poverty
However, many Nigerian businesses are ignoring any drawbacks and obstacles and helping to tackle poverty by creating jobs and economic opportunities, and implementing social impact initiatives in sectors such as agriculture, education, and financial technology, aiming to empower communities and individuals economically.
With over 33% of young people in Nigeria being unemployed, SMEs have stepped in to provide them with the knowledge and skills they need to start their own businesses that can survive in the long term. To give one example, as of 2023 the Bank of Industry had disbursed ₦312.5 billion (almost US$US2 million) to encourage young entrepreneurship, reaching out to over 4.2 million businesses and contributing to the creation of almost nine million jobs.
To reduce the dependency of Nigeria’s oil-based economy on the fluctuation of oil prices, SMEs are viewed as key to diversifying the country’s economy, pushing it to develop its agricultural and IT sectors, as well as manufacturing and technology.
Leveraging technology for economic growth
As digital technologies grow in popularity, entrepreneurship is essential to maximize the potential of Nigeria’s tech-savvy citizens. The nation’s IT industry has grown significantly, especially in FinTech.
Millions of Nigerians have gained access to the financial system through the creation of businesses that provide peer-to-peer lending, mobile banking, and payment systems. Notable worldwide brands include Flutterwave and Paystack.
Encouraging local production and exports
Micro, small, and medium enterprises (MSMEs) are a vital part of Nigeria’s economy, contributing over 90% of entrepreneurial activity. The agricultural sector employs over 1.5 million people, with the produce being consumed domestically and also exported. Young entrepreneurs aged 15 to 29 are also becoming increasingly involved in agriculture and local manufacturing, positioning Nigeria as a growing hub for domestic production and exports.
In 2023, Nigeria saw a 67% increase in manufacturing investments, largely due to local sourcing, particularly in food and agriculture. It is widely known that despite economic challenges such as inflation and energy costs, companies that rely on local inputs are better able to weather economic turbulence. An example is The Dangote Group which sources its materials locally for its cement and agricultural businesses and has been able to maintain production levels. Its 2020 revenue increased by 15.9% despite economic challenges caused by the COVID-19 pandemic.
What of the potential for improvement?
To boost entrepreneurship. Andrew Nevin, Chief Economist at PwC Nigeria, recommends reducing the regulatory environment to make it easier for SMEs to establish themselves, gain access to finance, take advantage of government initiatives, and pay taxes which could help approximately 37 million businesses and enable more individuals to build their own companies.
Akinwumi Adesina, President of the African Development Bank, highlights the importance of increasing access to funding for businesses, particularly women and young people. He recommends increasing microfinance options and providing low-interest loans through government-backed initiatives which could benefit up to 40% of the population, particularly those living in rural regions, who are currently underserved by traditional banks.
Ngozi Okonjo-Iweala, Director-General of the World Trade Organization, emphasizes the need to improve Nigeria’s digital infrastructure. She advocates for policies that reduce internet access costs and increase broadband penetration which could benefit over 60 million Nigerians, particularly those in rural areas, by providing access to online markets and resources.
