The majority of small businesses in the informal sector, accounting for 42.7 per cent of small business owners, have been operational for less than five years, a new report has stated.
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, stifling its growth.
This is according to the 2024 Informal Economy Report released by Moniepoint.
The latest statistics indicate that this business either folds up before they clock five years due to difficult macroeconomic challenges or the high employment rate has forced more individuals to become self-dependent.
The report partly read, “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.”
It added that 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, 13 per cent have been in operations for up to 10 years and 5.3 per cent of these businesses have remained active for 11 years.
The report further noted that the government must design programs to enhance business resilience through improved access to finance.
“Programmes designed to enhance business resilience, like improved access to financing and support and development programs, could be valuable,” It added.
Last year, a report confirmed by the Manufacturers Association of Nigeria 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.
The report titled, “Perception Study: Efficiency and Impact of Regulatory Activities of Standard Organisation of Nigeria on SMEs” said numerous variables currently influence Nigeria’s economic climate and as a result unfavourable and risky for foreign investments.
“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,” It said.
According to the informal report, Retail and General Trade is the leading industry within the informal economy, making up 24 per cent of all informal businesses.
It said this category, along with Food and Drinks, Fashion and Beauty, and Agriculture, collectively account for more than (58.6 per cent) of all informal businesses in Nigeria.
On challenges faced, the report highlighted that numerous businesses in the informal economy were excluded from banking systems, thereby preventing them from enjoying the benefits of inclusion.
It lso read, “Without a bank account, for example, they are limited to doing transactions with only people they can physically interact with.
“This lack of access to banking also impacts them in other ways. 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.”
Commenting, the Chief Executive Officer Dataphyte, Joshua Olufemi, 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.
He added that, “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.”
In her foreword, the Minister of Industry, Trade and Investment, Dr Doris Uzoka-Anite, pledged the government’s commitment to ensure that small businesses thrive.
She said 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.
“We will see how we can take every recommendation and move the reports forward. We will support you in doing much better.
“We will rely on this report to better understand the informal sector and know their needs as it aligns with the renewed hope agenda of financial inclusion in the country,” Anite said.
The Punch
