According to the 2024 Informal Economy Report by Moniepoint, the majority of small businesses in the informal sector, constituting 42.7 percent of small business owners, have been operational for less than five years.
This sector, which contributes more than half of Nigeria’s Gross Domestic Product, faces challenges such as multiple taxation and limited access to credit, which hinder its growth.
The report highlights that many of these businesses fold within the first five years due to difficult macroeconomic conditions, while a high unemployment rate drives individuals to seek self-employment opportunities.
The report states, “Eight out of ten small businesses are relatively new, having operated for less than five years. Less than 20 percent of businesses have survived beyond five years, underscoring the difficulty of sustaining businesses over the long term.”
Further breakdown shows that 21.7 percent of businesses have been operational for one to six months, 17.3 percent for up to a year, 13 percent for up to 10 years, and 5.3 percent 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.
