Why Nigerian SMEs, startup ecosystem may burst

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By Chinedu James

Nigeria startup ecosystem may burst without funding and government support, experts have warned even as the country’s startup community continues to attract attention offshore.

Startups are considered a part of the country’s large number of small and medium enterprises (SMEs) in excess of over 30, 000. But funding and lack of a supportive financial framework; absence of basic infrastructures, and weak policy thrusts with a mix of other factors have left a constant blight on SME’s growth.

In a recent interaction with IT Edge News, the founder of Linkserve, Mr. Chima Onyekwere said the increasing negative effect of lack of funding on the growth of SMEs can be addressed if there is an SME funding agency that will provide loans to businesses without high interest rates.

Onyekwere, who is often touted as the “Father of Nigerian Internet” argued  that to accelerate SMEs growth and make them sustainable, government must create a specialised funding institution targeting SMEs particularly those in the technology and innovation sub-sector.

“The challenge for startups is: How do they get seed funding? How do they attract angel investors? How do they attract any kind of funding at all that will ensure that they maintain a significant amount of equity in their business and at the same time provide the funding to help them grow the business, develop their products, research and make the business sustainable? Funding is critical” said Onyekwere.

For Mr. Akinola Ojelade, the managing director of Gladstone Technologies Limited, SMEs are designed to die fast by extremely hostile nature of Nigeria’s business environment.

“The cost of doing business is very high. The high cost of power. Running an office in a highbrow area like Victoria Island means I have to run a generator 9 to 10 hours of the day.

“The cost of buying diesel is huge. That is the biggest cost in terms of operational cost. The second impediment to any SMEs is finance. We don’t have cheap finance in Nigeria,” said Ojelade.

Chief Marketing Director of Data Recovery Specialist Limited, Mr. Bolanle O. Omotosho expressed similar viewpoints. His words:

“Another challenge is that of funding, as manufacturers of storage devices produce newer drives, so, our tools become inadequate, in some instances. We need funding to be able to operate optimally. We will be very happy to embrace venture capitalists or whoever will take our equity and invest in us,” said Omotosho.

Amongst other challenges facing startups in the country which include lack of enabling environment and infrastructure, poor power supply, government policies poor transport network, poor access to funds tops the list of the challenges hampering the growth of startups.

“But we can say government nonchalance and inability to see the potential to grow the economy within the theme of sustainable SMEs is the chief culprit. Government is blind to the real deal in tech-SMEs,” said Vincent Gbenga, who manages a number of technology startups in Abuja.

A recent study by the Federal Office of Statistics shows that 97 per cent of all businesses in Nigeria are SMEs which also provides 50 per cent of Nigeria’s employment and 50 per cent of its industrial output.

The government agency tasked with supporting SMEs – Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) has not as effective as originally conceived being that the agency itself is underfunded according to knowledgeable experts in the industry.

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