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Sunday, July 31, 2011

Top 7 reasons why businesses fail in Lagos Nigeria

By Onwueme Paul

According to one management book I read some time ago, 64% of businesses fail within their first 3 years of incorporation. The reasons are many but in Lagos Nigeria, I have been able to come across a few I would like to share here with my dear readers.

1. Insufficient Capital

Many businesses in Lagos Nigeria have failed as a result of insufficient capital to run the business. There are many Lagos Nigeria businesses that are unable to pay workers salaries for several months because the capital they need for promoting their business is lacking. Take for instance the case of daily times of Nigeria plc before it was privatized, the management could not even come up with money to run production prints talk more of paying workers.

2. Poor Management

Mismanagement of resources is another reason many businesses fail in Lagos Nigeria. According to Professor Pat Utomi of the Lagos Business School “once our local business men start making profit many of them think they have become big men and begin to buy expensive cars and live large instead of reinvesting their profits to fund growth”. I remember those days I undertook a management course one of the grey areas often mentioned as a source of weakness for many Nigerian businesses was poor managerial abilities. Part of this management problem includes employing low quality staff either as a cost cutting measure or as a way of fulfilling social rituals such as employing friends and cronies at the expense of merit. Our businesses are not well managed.

3. Lack of Technical know-How

Some businesses need professionals and technical experts to operate them. Like in industrial printing for instance, employing people with poor technical skills will have a telling effect on production quality and this is sadly the case with many of our businesses. They could perform better if only they invest more in technical expertise.

4. High cost of doing business

The operating environment in Lagos Nigeria is such that many businesses incur heavy costs in order to thrive. Borrowing is expensive because of high interest rates. There is poor electricity supply so people have to buy generators which need constant servicing and maintenance and fueling all of which don’t come cheap. Traffic congestion on Lagos Nigeria roads as well as multiple taxation also contribute to reduce man hours and profit margins on sales.

5. Unstable Government Policies

Despite the improving democratic culture in Lagos Nigeria, government policies have not been stable. This could readily be attributed to poor policy implementation, inadequate government presence in effecting changes that affect businesses among others. Take Nollywood industry as an example, but for their large turnout of movies many Nollywood businesses would have died as a result of piracy.

6. Poor enabling environment

Where are the roads, effective law enforcement, improved transportation systems, industrial estates and free trade zones, optimal capacity utilization, not so corrupt government officials? Why wouldn’t businesses fail if government fails to live up to its role of creating an enabling environment?

7. Local preference for foreign made goods

Nigerians generally prefer foreign made products or services to locally made ones. This is due to a long standing bias they have about goods made abroad being of superior quality and wouldn’t mind paying more for it. Unfortunately this is not always the case as many made in Nigeria products are actually of equal value or even better than some foreign made goods. However this bias has had negative effects on local businesses that have products which are in direct competition with foreign made goods.