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SMEs: Warning Signs of Business Failure in COVID-19 Era

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Signs of Business Failure

By Timi Olubiyi, Ph.D.

The high failure rate of start-ups and SMEs in Nigeria, give a bleak picture of the sector’s potential to contribute significantly to job creation, economic growth and poverty reduction.

The big question is why do businesses fail so easily? This could be adjudged to the fact that most of the SMEs especially the micro-businesses are unstructured and operate informally in the country.

Nonetheless, when these businesses are in the failing path, the entrepreneur or SME operator is unaware of it happening, until it is often too late.

The survival of SMEs is even a bigger worry this time because of novel coronavirus (COVID-19) related negative impact, harsh business environment, insecurity among others.

With the pandemic, virtually every aspect of our lives is affected, with a significant adverse impact on trade, investment, business sustainability, and employment generation.

The primary objective of this article is to present the causes and predictors of the failure of these SMEs in the country.

In the context of this article, the term failure means any form of closure, either through bankruptcy, liquidation, prevention of further losses, abandon and re-starting another business, and/or due to personal choice (such as early retirement).

Small businesses in the context of this article is defined based on the number of employees in a business entity. Therefore, small and medium enterprises (SME) is a business employing 1 to 200 persons.

However, micro business is defined as entities employing 1 to 9 persons and small businesses employ 10 to 49 persons. In a similar vein, medium enterprises are businesses employing 50 to 199 persons. All businesses that employ from 200 persons and above are termed as big or large enterprises.

It is imperative to state that business failure is the last stage of an organization’s life cycle. The failure of SMEs or any business organization is an event which can produce substantial losses to creditors, stakeholders, and/or stockholder.

While there is multitude of conditions and reasons that can result into business failure, the key predictor of SMEs’ failure and death of businesses is the business environment.

Nigeria, like most African countries, lack basic infrastructure and action plan for businesses to thrive conveniently and the environment is a harsh one for businesses especially start-ups.

Even though small and medium-sized enterprises (SMEs) have been proven to be a catalyst for economic development in countries all around the world, this is not entirely the situation in Africa, including Nigeria.

Sadly, the prevalence of business failure usually impacts negatively on national development and growth of any nation.

The prevalent business failure in Nigeria could be one of the major setbacks to economic growth and high unemployment rate in the country.

Records reveal that SMEs are the largest employers of labor globally and if this vital sector suffers failure predominant, then the level of unemployment in the country might not abate.

From observation around, especially in Lagos State, the economic nerve center, and SME hub of the country, only a fraction of new businesses survives for the first five years and only one-third of new businesses can survive for 10 years.

According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months, which is a whopping 80 percent business failure rate.

In addition, it is estimated that the failure rate of SMEs in Nigeria is as many as 80 percent within the five years of operation, according to findings of Stanbic IBTC.

Experts also corroborate these assertions, saying about 80 percent of Small and Medium Enterprises (SMEs) in Nigeria fail within the first five years of their existence due to lack of experience and other wrong business practices.

The anticipated catalyst to this high rate of business failure in Nigeria is the COVID-19 pandemic with the current realities.

We are likely to witness an extremely high post-pandemic business shut down, job loss, and a persistent decrease in outputs and revenue expectations of SMEs in Nigeria.

However, government can do more by rolling out measures to support this SMEs especially through the COVID-19 disruptions.

With government intervention, high number of business failures can be forestalled because the pandemic is already impacting negatively on distribution and supply chain of businesses.

Nonetheless, even though the environment is a critical factor in the ease of doing business, a harsh and difficult one exists in this country with or without COVID-19.

Government action plan and focus is imperative to develop this sector which is widely accepted as economic growth driver.

Recently, a survey conducted on small business in Lagos State indicated that the failure predictors is in two broad categories, namely internal or managerially controllable causes and external or non-controllable causes.

The internal factors the participants of the survey cited are (1) Financial resources like funding inadequacy, lack of profit, poor accounting practice, cash flow inadequacies, lack of viable investment opportunities, and low or no source of income. (2) Physical resources like the company location, abysmal culture, old equipment, and technology issues. (3) Human resources like managerial inadequacy, poor staffing, poor morale and customer dissatisfaction.

Other factors depend on business leaders’ decisions.

Example of this includes no management structure, no differentiation of ownership and management, no succession plan, unprofitable business model, lack of uniqueness, poor knowledge of the operating sector and its value chain, value dysfunctional, even rapid growth and over-expansion was cited, and not in touch with customer needs, etc.

These factors can easily be forecasted with some level of reliability, and therefore, a company has a good chance of reducing this form of business risk.

The company leadership usually have control over internal factors, what is required is just adequate managerial skills and continuous education to set things right.

However, findings indicated that this important feature is usually missing in the SME operators and business leaders.

The external or non-controllable causes of small business failure as perceived by a sample of small business owners and managers surveyed are as follows: government policies, natural factors infrastructure failures and deficits, stiff competition, rising costs of doing business, social, legal and political changes, even common macroeconomic factors such as business cycles, recessions, insecurity, government debt, inflation, high taxation, exchange rates, high-interest rates, excessive regulations, and/or a lack of interest from the public in the business’s offerings are just a few.

The power (electricity) situation in Nigeria has been a great cause for concern for businesses, investors, and citizens at large and is equally significant in the overall performance of the economy.

These infrastructure gaps and weak macroeconomic factors can be blamed on the depressed economy and prevalent business failure in Nigeria.

Because a depressing economy will impact negatively on firm’s sales, which in turn negatively affect firm’s business continuity.

It is imperative to state that these macroeconomic factors and external causes cannot be controlled or forecasted by entrepreneurs and SME operators.

Consequently, it poses a big risk to businesses unless government intervene decisively and give the needed policy responses. This is the big prayer of all SMEs and entrepreneurs in the country.

The warning signs of failure of SMEs are either one or the multiplicity of internal and external factors mentioned above.

SMEs can also fail if the business lack a contingency plan to react and mitigate any of the challenges in the event of any crisis.

The best way to manage and mitigate business failure due to these factors is to maintain an adequate level of capital.

A company with adequate financial resources can more effectively weather some level of business risk. Even at that, it is important to state that the prevalence of business failure is a vital indicator of the state of economy in any country.

Conclusively, despite the high rate of business failure much is still desired, if 80 percent of new businesses fail, according to Bloomberg, then 20 percent of new businesses can succeed and this percentage can also scale up. But how? Whether you desire to start a new business or you are already running a business, you must understand that success depends on careful strategic planning and sound fiscal management.

SME operators need to critically identify the actual business growth drivers and leverage strongly on them for sustainable business study.

With the COVID-19 pandemic forcing most SME operators to work remotely or even stay at home, this new normal could affect service quality and also cause severe business disruption.

Therefore, entrepreneurs need to understand the current competitive marketspace, customers’ needs and their current buying habits.

For SME operators to stem the tide of the current realities, effective communication with employees and customers is necessary to thrive, this can be achieved with effective use of technology and mobile telephony.

Furthermore, strategy to mitigate the predictors of business failure along with adequate business process review needs to be in place to cope with the operational stress generated by COVID-19.

Additionally, it is key to leverage on technological innovation and adopt a workable risk management strategy. When this strategy is in place, companies can anticipate the risks and respond appropriately to guarantee business sustainability. Good luck!

How may you obtain advice or further information on the article? 

Dr. Timi Olubiyi holds a Ph.D. in Entrepreneurship and Small Business Management. He is a prolific investment coach, Chartered Member of the Chartered Institute for Securities & Investment (CISI) and a financial literacy specialist. He can be reached on the twitter handle @drtimiolubiyi and via email: [email protected],for any questions, reactions, and comments.

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Unlocking Full Human Potential: Growth, Diversity, and Purpose

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multichoice 2024 Step up

In Nigeria’s diverse workforce, the conversation around diversity and inclusion (DEI) extends beyond gender to address tribal diversity, socioeconomic representation, and other cultural nuances. Policies that promote inclusivity are crucial for fostering collaboration in Nigeria’s multicultural corporate environment.

“An organisation is only as good as its people. Ensuring those people perform to their best is the role of human capital. Today, the field has a range of tools to ensure real-time engagement and agile interventions for optimal job satisfaction and performance”, – Catia Teixeira, MultiChoice Africa Holdings Group Executive Head of Human Capital.

In both our professional and personal lives, we all strive for growth and development. These opportunities are deeply rewarding, supporting the kind of self-actualisation that makes life most fulfilling. In the Nigerian workplace, where career growth often intertwines with societal expectations and the drive for self-improvement, human capital plays an even more significant role. Opportunities to grow are not just fulfilling but are deeply rooted in our collective ambition for a better future.

Employee engagement is a reflection of how actualised individuals feel in their roles. Engaged employees are more likely to perform at their peak and contribute positively to the workplace. In Nigeria, where the “hustle culture” is celebrated, organizations must create environments that not only nurture growth but also recognize and reward the efforts of their people.

When employees feel enriched and their work aligns with their aspirations, the results are transformative. Growth and development are not just personal milestones—they are the foundation of a thriving organization and, by extension, a more productive society.

Identifying Growth Opportunities

In every workplace, some employees stand out from the first day, while others take time to grow into their potential. Talent management processes must cater to both. For instance, a twice-yearly organizational talent review can help Nigerian companies identify where employees excel and where they need support.

Interactions within the workplace also play a crucial role. In Nigeria’s highly networked professional landscape, creating opportunities for cross-departmental collaboration can open new doors for employees. Systematic development plans, supported by tailored training, ensure that these opportunities translate into tangible growth.

Take the MultiChoice Academy, for example, which offers over 4,000 online courses spanning finance, HR, marketing, and other fields. This mirrors the Nigerian appetite for continuous learning, especially as industries rapidly embrace digital transformation. While face-to-face training remains valuable, customized e-learning platforms are pivotal in bridging knowledge gaps and preparing employees for the future of work.

For any training program, balance is key. Organizations must align employee development with business goals while ensuring individuals feel empowered to pursue their aspirations. In Nigeria, induction programs that connect new hires with company visions and purpose are critical to building this alignment.

One of the most rewarding aspects of human capital management is witnessing success stories unfold. In a country like Nigeria, where talent is abundant, but opportunities may be unevenly distributed, developing talent internally can make a significant impact. Long-term employees bring invaluable institutional knowledge, and nurturing their growth ensures they continue to drive organizational success.

At MultiChoice, we are deeply committed to equipping our workforce with the skills and confidence needed to excel. Whether it’s training young leaders, empowering women in leadership, or developing heads of departments, every investment in our people enhances their value – as individuals and as indispensable assets to the company.

What Diversity Means

At MultiChoice, gender equity remains a key focus. Women make up 46% of our workforce, and 46% of leadership roles are held by women—a significant achievement in a society where women often juggle professional aspirations with traditional family roles. Our promotions policy is designed to push these numbers to 50%, ensuring equity across all levels of the organization.

When entering new markets, MultiChoice intentionally applies its culture of inclusion, empowering women to excel in leadership positions. This commitment extends to addressing barriers unique to Nigeria, such as access to resources and mentorship for women in underrepresented fields.

Data Drives Change

To drive meaningful change, data is indispensable. Nigerian companies often face challenges like high employee turnover and workplace inefficiencies. By leveraging data, organizations can address these issues strategically.

MultiChoice uses platforms like Office Vibe to generate insights into employee engagement, satisfaction, and work-life balance. Weekly surveys and random polls provide actionable feedback, enabling quick interventions and fostering a culture of continuous improvement.

In Nigeria, where trust in leadership significantly influences workplace morale, data can also help bridge gaps between management and employees. Regular focus groups, coupled with robust analytics, ensure employees feel heard and supported. When organizations align employee needs with business goals, the result is a workforce driven by purpose and achievement.

The Collective Goal

In Nigeria, where community and collective growth are deeply valued, human capital strategies should emphasize the power of shared purpose. By investing in people, organizations contribute to a larger vision of national development.

At MultiChoice, every success story is a testament to this philosophy. From training young leaders to empowering women in leadership, the organization demonstrates that growth is a journey best undertaken together. For Nigeria, this represents a powerful blueprint for building a future where individuals and organizations thrive in harmony.

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Between Governor Bala and the Presidency

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Bala Mohammed Tinubu

Abba Dukawa

Although I’ve never met Governor Bala Muhammad in person, only seeing him on television, his recent outburst against the federal government’s economic policies resonates deeply with poor citizens’ view.

His concerns stem from empathy for the citizens’ going through unbearable hardships, which have worsened due to the economic situation where millions of citizens struggling with high cost of living, poverty and hardship, reflecting the reality on the ground where citizens face significant economic challenges.

His view resonated with the people in respect of political affiliations have praised Governor Bala for speaking truth to power, acknowledging that the economic policies aren’t working. But his outburst of the economic policies has sparked a heated response from presidency.

Even though President Bola Tinubu claims to have no regrets about his economic policies, aiming to strengthen the country’s economy, policies must be empathetic.

The Tax Reform Bills, in particular, have generated widespread concern, with experts warning of negative implications and advising the government to postpone the bill and engage in further consultations.

The National Economic Council, comprising 36 state governors and led by the Vice President, had expressed reservations about the bill, emphasizing the need for adequate consultation with stakeholders.

However, the Presidency swiftly rejected the NEC’s advice, stressing that the bill is crucial for supporting President Tinubu’s administration in bolstering the country’s fiscal institutions.

Governor Bala Muhammad’s expressed his concerns when hosting Sheikh Yahaya Jangir, a frontline campaigner for the Muslim-Muslim presidency, at the Bauchi Government House.

The governor urged President Tinubu to listen to Nigerians and correct his errors, stating that it’s his duty as a leader to tell the truth.

As Governor Mohammed noted, “I am sure you have heard that we are quarrelling with the president. Yes, it is true we are quarrelling because our people are suffering, and the president has refused to listen to us.”

His comments should not be seen as a critique of the president’s policies, not a personal attack. It’s essential for President Tinubu’s administration to understand the growing concern among Nigerians about the country’s economic direction and the need for effective strategies to address the current economic hardship.

The Presidency, through his Special Adviser, Sunday Dare, responded by urging Governor Mohammed to prioritize the welfare of Bauchi citizens instead of engaging in political posturing. Dare emphasized that the President’s administration is focused on national development and collaboration with state leaders.

It’s worth noting that Governor Mohammed has implemented various poverty alleviation programs, including the Kaura Economic Empowerment Programme (KEEP), to reduce the state’s high poverty rate. He has also prioritized education, with a focus on reducing the number of out-of-school children in the state.

Additionally, Governor Mohammed has taken steps to improve the state’s healthcare system,  His administration’s efforts to address these challenges echo the experiences of poor citizens in Bauchi State and across Nigeria.

Overall, Governor Mohammed’s commitment to addressing the pressing issues faced by his state and its citizens resonates deeply with the experiences of poor Nigerians..

Dukawa write it from Abuja can be reached at [email protected]

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Tinubu’s Titanic Wahala

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Letter to President Tinubu

By Tony  Ogunlowo

‘Titanic’ can mean something that is very big, gigantic or enormous and it was also the name of a ship that sank on its maiden voyage.

When the Titanic sank in 1912 it sank due to a number of avoidable factors: a ship deemed unsinkable that wasn’t fitted with watertight compartments, a ‘unprofessional’ seasoned captain who was apparently bullied into going at full speed through known ice-berg strewn waters, lack of common binoculars for the deck watch and the unavailability of enough life boats for all the passengers.

This all put together, as they say, was a recipe for disaster. Red flags were ignored.

Translating this to President Tinubu’s modern-day Nigeria, the avoidable factors that can sink the country are way too obvious.

Nigerians have long enjoyed the benefits of fuel subsidy. Costly as it is to maintain it’s enabled the economy to keep running by keeping the cost of things low. It’s removal, as can be seen, has created a domino effect, as the experts predicted, resulting in the prices of even the basic commodities skyrocketing as everyone passes on the additional costs.

With inflation currently at 32.7% and still rising, things are only going to keep on getting more and more expensive. As a result, the new minimum wage of N70,000 will have less purchasing power than the previous 2021 minimum wage of N30,000. If fuel subsidy removal was meant to boost the economy it has done the opposite and will stagnate any efforts to kickstart it.

The governments inability to control corruption or severely punish corrupt officials which is robbing the country’s coffers of billions and billions of Naira every year is a stumbling block for development.

If a corrupt government official who built 750 houses with stolen funds or an ex-governor accused of misappropriating N80 billion are allowed to walk around freely, supposedly on bail, without fear of eventual conviction it questions the message the government is sending out to future looters: if the culprits were in Russia or China the outcome will be totally different.

Even though an austerity economic policy may seem harsh like it was designed to rob Peter to pay Paul, it should be short, sharp hardship with green pastures in the foreseeable future – not ever! A good start will be to cut down on the number of foreign loans being obtained every year as their repayment can take a huge chunk out of the country’s annual income.

The new tax laws are long overdue and it should include that VAT earned in a state stays in that state: so, if your state doesn’t generate any VAT (- such as from the sale of alcohol products) you don’t get to share in what other states have collected.

Insecurity in the country is not something that started yesterday. Previous governments have blood on their hands for not nipping these insurrections in the bud before they grew to become monstrosities. You don’t pat yourself on the back, like the Nigerian Army likes to do believing you have the threat ‘under control’ – you eliminate the threat completely using what ever means necessary.

Unless the order (given by ‘Somebody’) is not to destroy them completely and to quote the late Sani Abacha,”…any insurgency that lasts more than 24 hours, a government official has a hand in it..”, no wonder Boko Haram continues to flourish and bandits like Turji Bello continue to taut the government. When the armed robber Lawrence Anini did something similar in 1986 he was fished out within months, tried and executed.

As I’ve written before the Nigerian Police Force is long past its sell by date and considering the ever growing population of Nigeria with its associated acts of anti-social behaviour its time to seriously consider devolving the NPF into state-run outfits. The growing popularity of state-run security outfits, such as Amotekun, proves this is feasible and effective.

Considering the fact the country is going through severe economic hardship the President, himself, should curb frivolous spending where possible: no more new Presidential yachts or planes ( – that includes the new one for the VP), a cap on ridiculous-no-real-job SA and SSA appointments and most important of all a cap on ALL politicians salaries and perks (which is to say if politicians are patriotic enough they’ll agree to a pay cut, forgo some of their benefits and pay for their own jaunts abroad).

Implementing the Steve Oronsaye Report which recommends merging and closing of ministries etc that has been passed over by every President since President Goodluck commissioned it in 2011 will cut government operating costs even further. This should not just be at Presidential level but extended to all the states: this will not just streamline the bloated and largely inefficient civil service but will also weed out ghost workers and white elephant project.

The ‘japa’ movement which the government is trying to discourage should be allowed to continue. It’s morally wrong for a government that can’t provide suitable employment for its citizens to try and prevent them from seeking opportunities abroad : ‘japa’ is not just limited to Nigerians, it’s a worldwide phenomenon.

People, British, American, Filipinos, are migrating worldwide to where ever there are opportunities for them to prosper. That’s the way the world works now: nobody is going to stay in a ‘sh*t-hole’ country if there are no opportunities for them to grow. Scr3w patriotism! It’s every man for himself! So, if a country can’t provide adequate employment opportunities people will pack their bags and ‘japa’! And if you restrict them from leaving the country what are they going to do? Get up to mischief – 419, cultism, kidnapping!

These same people send money back to their home countries all the time: Nigerians in diaspora in 2023 alone sent home more than $19.5 Billion Dollars. This is a huge injection of foreign currency for a country that desperately needs it.

So, just like the Titanic the warning signs are there and the inevitable that will happen should they be ignored. The question is which way is President Tinubu going to go. This is what I call the ‘Titanic Wahala’, ignore the obvious and the proverbial will hit the fan, sooner or later.

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