More than half (62 percent) of small businesses in Nigeria have a median monthly revenue lower than N300,000 while 47 percent earn lower than N200,000, a new small firm diaries report has said.
The report which got its findings from 161 firms across three states such as Enugu, Lagos and Kaduna was conducted over the course of a 12-month period between August 2021 and August 2022.
Published by Michelle Kempis, global research manager at Financial Access Initiative Research Center of New York University and Timothy Ogden, managing director at FAI in partnership with the Nigerian National Bureau of Statistics and the Lagos Business School, the report aims to better understand small firms in low-income neighborhoods of developing countries.
“Our qualitative work provides little to no evidence that the volatility of revenue is planned, desired or predictable. A major theme of the small firm diaries, therefore, is the challenges that firms encounter managing this amount of volatility,” the report said.
It added that firms’ monthly median operating margin was N78,575 and that of all firms, 93.8 percent (151) had positive monthly median margins while most firms had positive operating margins, their margins are slim.
“The 60 percent of firms with positive median monthly margins have a median monthly operating margin below N120, 000, and half have a median monthly operating margin below N87, 750.
“Only 20 percent of firms have a monthly operating margin above N 200,000. The 10 firms with negative median monthly operating margins range from N8, 400 to N353, 200 in losses,” it said.
The Micro Small and Medium Enterprises sector is important to market economies as it acts as the wheel of the economic growth of any country. By creating new products and services, they stimulate new employment, which ultimately results in the acceleration of economic development.
In Nigeria, the sector currently contributes 50 percent of the GDP and has provided over 48 percent of all employment opportunities in the country, according to the United Nations Industrial Development Organisation.
But many of the 39.6 million businesses in Africa’s biggest economy have been struggling to survive in recent years owing to the fallout of the COVID-19 pandemic and the Russia-Ukraine war.
Small business operators have been grappling with a combination of issues, including poor power supply, rising borrowing costs, soaring inflation, restrictive economic policies, foreign exchange volatility, and tax multiplicity.
According to the Small and Medium Scale Enterprises Development Agency of Nigeria in Nigeria, 80 percent 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.
The small firms report also revealed that over 75 percent of firms were affected by rising cost of inputs, while half of them faced fluctuations in demand,
“Risks not directly related to the supply chain, such as theft or weather damage were much less likely to be reported,” it said.
It said of all the firms that dealt with the rising cost of inputs, the majority used savings to address the issue—48 percent compared to just three percent taking a loan.
“This is consistent with other findings noting the need for, and lack of, working capital credit.”
Authors of the report, said only 22 percent of the employees get paid eight months or more in a 10-month period; 56 percent of employees work at the same firm for fewer than five months.
“Turnover was the highest in the service industry where 62 percent of employees work for five months or less in a 10-month period compared to 56 percent and 45 percent in light manufacturing and agri-processing,” they said.
The report recommends more focus on small firms, design policies and programs around achieving stability, explore liquidity and working capital lending and develop support programs for employees (not just firms).
“Small firms deserve specific attention. They are distinct from other types of firms, yet are a critical source of jobs and incomes for low-income groups, and make an important contribution to value chains and economic development.”
Source: BusinessDay(Report)
