Nigeria is now an investment hotspot for some of the world’s largest brands, from General Electric to Unilever, the Economist Intelligence Unit (EIU) report on Enabling a more productive Nigeria: Powering SMEs has said.
The country’s attractiveness has been further bolstered by favourable demographics and a rising middle class.
Nigeria is now Africa’s leading economy, overtaking South Africa last year to become the continent’s largest nation in terms of GDP. Its commercial capital, the megacity of Lagos, has surpassed the Egyptian capital, Cairo, to become Africa’s biggest city in terms of population.
According to the EIU, for Nigeria to take its rightful place among the world’s top emerging markets, the country must overcome a series of obstacles.
The report added that most pressing are economic diversification, job creation and a more effective conversion of growth into what matters most: rising incomes for the country’s 173 million citizens.
“One change-maker for all three goals will be the country’s vast network of micro, small and medium-sized enterprises (SMEs),” said EIU.
“Famed for their entrepreneurism, Nigeria’s SMEs span everything from hairdressers to app developers, from welders to film production houses.”
The report also said to support SME productivity, Nigeria’s government must stabilise macroeconomic policy and install a more transparent tax and customs system.
The study added that light-rail infrastructure and port development are critical to support Nigeria’s commercial ecosystem, and should be prioritised at a time of fiscal consolidation.
“Nigeria’s road and rail system remains insufficient, but landmark transport projects are already delivering benefits for SMEs and new projects could herald significant gains in facilitating the movement of people and goods,” said the study.
“However, in an era of low oil prices, fiscal consolidation is expected to hit capital spending and the government faces tough choices on what to prioritise.”
The study added that investments should continue to be directed towards light rail transit to enable faster commuting for city workers, and towards infrastructure feeding the country’s vital port systems.
The EIU said information and communication technologies (ICTs) are at the heart of SME businesses— stimulating productivity, helping overcome tough operating environments and opening up new markets.
“ICTs are enabling SMEs to emerge across Nigeria by helping them overcome infrastructure shortages, lowering operating costs and creating new business opportunities in areas like the creative industries, retail and services,” read part of the study.
“Rural businesses, long isolated from the biggest market opportunities, are now able to operate over larger geographies.”
The study said Nigeria had the ingredients for a vibrant solar energy market, including a sunny climate and unmet consumer need.
“Nigeria’s privatisation of the power sector holds promise for fixing the country’s energy supply, but its impact will not be felt in the near term,” added the EIU.
According to the EIU, to boost formal financing, SMEs must improve their book-keeping and corporate structures, and banks need to hire more SME business experts to inform lending decisions.
The study says SMEs have little access to bank finance, relying on savings, loans from friends, families, or “angel investors” and venture capital.
“Government funding schemes are helping, but not all SMEs are aware of public funds or how to access them. SME access to finance is also held back by the decision of many to remain informal and unregistered.”