Profiles - February 4, 2022

What are the Biggest Challenges of Doing Business in Lagos?

February 4, 2022

6 min read

Lagos is Africa’s largest city and the fourth-highest GDP on the continent. Yet, according to data, 80 percent of new enterprises and startups fail within the first three years in the megacity.

Doing business in Lagos can be a wonderful experience if your business is lucky to be one of the few that surmount the series of challenges confronting small businesses in the city and Nigeria generally.

However, no matter how successful your business is, there are still several hurdles to cross. Although challenges come with the entrepreneurship territory regardless of your location, the problems hit different when you do business in a country marred by institutional failure and acute infrastructure deficit.

Here are five challenges of doing business in Lagos.

Access to capital

Raising startup capital is one of the most challenging jobs for any entrepreneur just starting out. Unless you’re one of the rich kids, generating funds is a complex undertaking that typically needs a great deal of perseverance and patience.

Many entrepreneurs rely on personal savings or support from family and friends to bootstrap the business. And when they exhaust the initial capital and need more money to keep the business going, the loan cycle continues. Some aren’t so lucky with raising additional funding, and as a result, they run out of business.

Electricity failure

In Nigeria, getting a steady and reliable power supply is a big challenge for businesses or anyone living in the country. As of June 2018, an average Nigerian family could only get 6 hours of continuous power supply per day out of 24 hours. This is why generators are widely used in Nigeria as a backup power source.

In Lagos State alone, 9 out of 10 homes have at least one power generator as a backup power source. Successive governments have failed in fixing the age-long power outage issues.

The current Minister of Power, Works and Housing, Babatunde Fashola, has blamed the insufficient electricity delivery to consumers on a lack of financial investments in the power sector.

Inconsistent government policies

In Nigeria, the government has a significant influence on how business is conducted. No government or economic system defers business decisions to the market. These rules are intended to keep businesses in check and guarantee that they all obey the same set of rules. The Companies and Allied Matters Act (CAMA) is the law that governs business.

The World Bank’s ‘Doing Business’ ratings in 2018 put Nigeria at 131. This is primarily due to the difficulty of starting a new business and the bottlenecks of government regulations. Setting up a business in Nigeria might take anything from two weeks to a month, and it always entails passing through a slew of administrative hoops.

Bribery and corruption

While Nigeria is one of the world’s top investment destinations, corruption and bribery remain a major roadblock. Kickback is commonplace at every government agency, and some public officials boldly demand bribes to discharge their duties.

According to Transparency International’s corruption perception index, Nigeria ranked 14th most corrupt country in the world in 2013.

Traffic

Lagos is the economic hub of Nigeria, with a plethora of activities taking place there. These characteristics draw nearly 20 million Nigerians to do business in the city, resulting in a daily inflow of automobiles on the city’s road networks. As a result, there is a lot of traffic congestion.

The impact of traffic congestion on entrepreneurs includes delays in business appointments and schedules, logistics delivery delays, health hazards, delays in emergency response, security threats to road users, and high transportation costs.