The pros for investing in small and medium scale businesses in Nigeria
Nigeria is a country with immense potential for economic growth and development. The country has a large population of over 200 million people, a rich natural resource base, and a strategic location in West Africa. However, Nigeria also faces many challenges, such as political instability, insecurity, corruption, and poor infrastructure. These factors have hindered the performance of the formal sector and the large-scale enterprises that dominate it.
This is where the small and medium scale enterprises (SMEs) come in. SMEs are businesses that employ less than 250 people and have an annual turnover of less than N100 million. They account for about 96% of the total number of businesses in Nigeria and contribute about 48% of the national GDP. They also provide employment opportunities for millions of Nigerians, especially the youth and women.
Investing in SMEs in Nigeria can offer many benefits for both local and foreign investors. Here are some of the pros for investing in this sector:
- High returns: SMEs can generate high returns on investment due to their low capital requirements, high growth potential, and ability to adapt to changing market conditions. Some of the sectors that have shown strong performance and profitability for SMEs include agriculture, manufacturing, ICT, education, health, and entertainment.
- Diversification: Investing in SMEs can help diversify the portfolio of investors and reduce their exposure to the risks associated with the formal sector and the oil industry, which are prone to volatility and external shocks. SMEs can also tap into niche markets and cater to the needs and preferences of different segments of the population.
- Social impact: Investing in SMEs can have positive social impacts on the country and its people. SMEs can create jobs, reduce poverty, empower women, promote innovation, enhance skills development, and foster social inclusion. They can also address some of the pressing challenges facing the country, such as food security, health care, education, and environmental sustainability.
- Government support: The Nigerian government has recognized the importance of SMEs for the economic development of the country and has implemented various policies and programs to support them. These include tax incentives, grants, loans, guarantees, regulatory reforms, infrastructure development, and capacity building. The government has also established institutions such as the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), the Bank of Industry (BOI), and the Development Bank of Nigeria (DBN) to facilitate access to finance and other services for SMEs.
- Market opportunities: Nigeria offers a huge market opportunity for SMEs due to its large population, growing middle class, increasing urbanization, rising disposable income, and expanding internet penetration. The country also serves as a gateway to other African markets through its membership in regional economic blocs such as ECOWAS and AfCFTA.
In conclusion, investing in SMEs in Nigeria can be a rewarding venture for investors who are looking for high returns, diversification, social impact, government support, and market opportunities. However, investors should also be aware of the challenges and risks involved in this sector, such as poor infrastructure, insecurity, corruption, bureaucracy, competition, and lack of skilled labor. Therefore, investors should conduct thorough research and due diligence before making any investment decisions.
