Nigeria’s Business Environment: Prospects and Challenges for Micro, Small and Medium Enterprises (MSMES)

Before committing investible funds to any business activity, there is the need to understand the business environment. The term business environment is composed of two words ‘Business’ and ‘Environment’. The word business in its pure economic sense refers to all lawful human activities ranging from extraction of raw material, production of tangible products, distribution of goods and rendering of services for the purpose of earning profits. On the other hand, the word ‘environment’ refers to the physical surroundings where human beings live and operate business activities. When the two nomenclatures defined above are viewed together as business environment, it refers to set of factors and conditions that surround and affect either positively or negatively, the operations of enterprises in any location or geographical enclave.  Let us therefore take at tour of the Nigerian business environment.

Nigeria is a federation of thirty-six (36) states and a federal capital territory in the heart of Abuja. Without doubt, it is a nation blessed with oil abundant resources, flora and fauna. The name Nigeria first appeared in “The Times” on January 8, 1897, in an essay written to the British Protectorate on the Niger River by a young lady called Dame Flora Louisa Shaw, who later married Lugard and became Flora Lugard. She recommended the name Nigeria in her article because it was a shorter nomenclature that is suitable for describing the territories under the control of the Royal Niger Company. She thought that the term “Royal Niger Company Territories” was too long to be a name, while the appellation “Central Sudan” was also vague and unattractive to describe the areas around the Niger River. The name Nigeria was derived from the words “Niger” (the country’s longest river) and “Area” (the territories under British influence). On October 1, 1960, Nigeria gained its independence from the British with great hope, pomp and pageantry. For fifty three years of independence, the country had its share of prosperity and adversity.

Nigeria according to popular rating is the most populous country in Africa, accounting for about 47% of West Africa’s population, with a growth rate of 2.4% per annum. It is called “the giant of West Africa” because one in every two West Africans is a Nigerian. The country’s GDP is larger than that of all the other countries in West Africa combined. Nigeria exhibits the traits of a dual economy; a modern sector heavily dependent on oil earnings side-by-side a traditional agricultural and trading economy. During the colonial era, cash crops were introduced, harbours, railways and roads were developed, and a market for consumer goods began to emerge. At independence in 1960 agriculture accounted for well over half of GDP, and was the main source of export earnings and public revenue, with the agricultural marketing boards playing a leading role. This leading role in the economy has been taken over by crude oil in recent times.

The country has continued to experience sustainable economic growth judging by the year-by-year increase in gross domestic product (GDP); however the dividend of growth has not been judiciously used for economic development of the country because of corruption, profligacy and national waste. The capacity utilisation of the manufacturing sector is abysmally low. This has been blamed largely on frequent power outages, lack of funds to procure inputs, fallen demand for manufactures and frequent strikes and lockouts by workers and employers. From 2001 the, there were notable improvement occasioned by favourable government policies on manufacturing geared towards self-sufficiency, employment generation and export promotion.

Nigeria maintains a good socio-economic profile among the comity of nations. It is currently listed among the “Next Eleven” emerging economies, and is a member of the Commonwealth of Nations. The Nigerian is one of the growing economies in the world, with a growth of 9% in 2008 and 8.3% in 2009. In the same token, International Monetary Fund (IMF) remarked that Nigeria is the third fastest emerging economy in the world after China and India, as a result of its growth rates which rose from 6.9 per cent in 2009 to 7.4 per cent in 2010. It is also believed to be the prominent exporter of oil in Africa and a formidable regional power in West Africa, when its role in ECOMOG, OAU and ECOWAS is critically analysed.

In order to take advantage of the buoyant opportunities in Nigeria business environment as enunciated above, the small, medium and large enterprises are requested to be registered with the Registrar-General of the Corporate Affairs Commission (Registrar of Companies in Nigeria). Therefore, any investor, be it local or foreigner, planning to set up any type of business (be it service-oriented or product-oriented) in Nigeria should take all steps necessary to obtain local incorporation of their companies, as this process would afford the investors many opportunities and incentives apart from the benefit of legality that incorporation confer. Business activities may be undertaken in Nigeria under the following models:

a)      Private or Public limited liability company;

b)     Unlimited liability company;

c)      Company limited by guarantee;

d)     Foreign Company/Subsidiary of foreign company;

e)      Partnership/Firm;

f)       Sole Proprietorship; and

g)      Incorporated trustees and Representative office.

To formally register any business enterprise, the prospective investors must meet the provisions of Companies and Allied Matters Act (CAMA), 1990. The Companies and Allied Matters Act, 1990 is the principal law regulating the incorporation of businesses. The administration of the Companies Act is under-taken by the Corporate Affairs Commission (CAC) and its functions include:

a)      the regulation and supervision of the formation, incorporation, registration, management and winding up of companies;

b)     the maintenance of Companies Registry; and

c)      the conduct of investigation into the affairs of any company in the interest of share-holders and the public.

Nigeria despite its abundant natural and human resources is faced with some business challenges which in recent years have surged appreciably causing serious set-backs to existing and newly established businesses (large and small).  With specific reference to the SMEs, they are faced frequently harassment from the government officials, paucity of infrastructure including bad roads, water shortage, erratic supply of electricity, and poor telecommunication system. Added to the above discouraging challenge is difficulty accessing bank credits, but the most serious and damaging problem is a lack of government interest and support for micro, small enterprises.

Furthermore, the Business Environment and Enterprise Performance Surveys (2007) identified fifteen (15) critical challenges facing businesses in Nigeria. These challenges are as listed in the table below:


Critical Challenges Facing Businesses In Nigeria


Challenges of SMES in Nigeria


Small (%)

Medium (%)

Large (%)



  Access to Finance





  Access to Land





  Licenses & Permits















  Crime, Theft & Disorder





  Customs & Trade Registration










  Inadequately educated workforce





  Labour regulations





  Political instability





  Practices Informal Sector 1.05 0.92 1.66 0.00
  Tax Administration 0.28 0.12 0.49 3.48
  Tax Rates 2.24 2.11 2.70 2.49
  Transportation 7.49 7.88 6.42 4.16

Source: Business Environment and Enterprise Performance Surveys, 2007.

Apart from the economic challenges tabulated above, there are incidences of militancy, hostage taking and bombing with impunity in Nigeria. The agelong positive image accorded Nigeria by individuals, state actors as well as international community suddenly waned because of threats to national security arising from the activities of violent groups with conflicting agenda such as Movement for the Actualisation of the Sovereign State of Biafra (MASSOB), Niger Delta People’s Volunteer Force (NDPVF), Movement for the Emancipation of the Niger Delta (MEND), Bakassi Boys, O’odua People’s Congress (OPC), Student Cults, Boko Haram and host of other criminal elements.

In conclusion, the business environment in Nigeria is robust and promising despites the various challenges mentioned above. The governments at all levels are working assiduously at redressing the power problem, multiple tax structure and bureaucratic delays in policy implementation with regards to businesses, ethno-religious crisis, kidnapping and political corruption. Despite all odds, Nigerian remains a good place for investment. Watch out for hints on industrial associations and support Agencies established to provide financial and logistic support for micro, small and medium enterprises (MSMEs) in our next edition.