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Challenges of Small Businesses in the Informal Sector

The majority of small businesses in the informal sector, accounting for 42.7 per cent of small business owners, have been operational for less than five years, a new report has stated. This sector, which contributes to over half of Nigeria’s Gross Domestic Product, has been faced with challenges of multiple taxation, and access to credit, stifling its growth. This is according to the 2024 Informal Economy Report released by Moniepoint.

The latest statistics indicate that this business either folds up before they clock five years due to difficult macroeconomic challenges or the high employment rate has forced more individuals to become self-dependent. The report partly read, “Eight in every ten small businesses are relatively new, running for less than five years. Less than 20 per cent of businesses were over five years old, indicating the challenge of keeping businesses running for over five years.”

It added that 21.7 per cent have been in operation between one to six months, 17.3 per cent have stayed up to a year in business, 13 per cent have been in operations for up to 10 years, and 5.3 per cent of these businesses 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 is unfavorable and risky for foreign investments.

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.

The AI legalese decoder can help small businesses in the informal sector by simplifying complex legal terms and documents related to taxation, access to credit, and regulatory requirements. This tool can assist business owners in understanding their legal obligations and rights, making it easier for them to navigate the legal landscape. By providing clear and concise explanations, the AI legalese decoder can empower small business owners to make informed decisions and protect their interests.

In her foreword, the Minister of Industry, Trade and Investment, Dr. Doris Uzoka-Anite, pledged the government’s commitment to ensure that small businesses thrive. She said the report would help the government better understand the informal sector’s needs and propose solutions that would enhance growth and inclusion in the country. “We will see how we can take every recommendation and move the reports forward. We will support you in doing much better. We will rely on this report to better understand the informal sector and know their needs as it aligns with the renewed hope agenda of financial inclusion in the country,” Anite said.

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