From the late 1990s to the present, digital transformation has developed into an essential element of any successful company. Many firms today are implementing digital transformation to improve customer engagement, employee empowerment, product change, and operational efficiency.
Studies have shown that the businesses that will survive the 21st century are those willing to embrace digital transformation.
Nigeria’s economy has been significantly boosted by the remarkable growth of digital entrepreneurs and the Micro, Small, and Medium-Sized Enterprises (MSME) subsector. According to the last Nigeria MSME Report 2022, there were no fewer than 39.7million MSMEs (96.9 were microenterprises while 3.1 per cent were SMEs); MSMEs contributed 46.9 percent to the national GDP, accounted for 96.7 percent of all businesses, 6.21 per cent of gross export and were responsible for 84 percent of employment.
Several policies, such as the National Digital Economy Policy and Strategy (NDEPS) 2020–2030 by the Federal Ministry of Communications, Innovation and Digital Economy (FMoCDE); the National Digital Innovation, Entrepreneurship, and Startup Policy (NDISEP) by the National Information Technology Development Agency (NITDA) and the Nigeria Startup Act of 2022, among others, have been put in place to enable the growth and development of digital entrepreneurship in Nigeria.
Despite the numerous enabling policies, there is a high mortality rate for digital businesses and startups in Nigeria and the reason is not far-fetched, as revealed by a new study by the Nigerian Communications Commission (NCC).
Reasons For Startups’ Mortality
The NCC, in its “2024 Consultancy Study on Developing Sustainable Digital Entrepreneurship Business Model in a Digital Nigeria,” revealed that the unfavorable conditions in the digital business ecosystem culminate in barriers to successful and sustainable digital businesses in Nigeria.
The study covered major cities: Lagos, Port-Harcourt, Enugu, Kano, Abuja, and Yola across the six geopolitical zones in Nigeria within a set of purposively sampled organizations focused on Nigerian Digital Entrepreneurs. A total of 10,107 samples were obtained from the six designated cities between 18th July and 30th September 2023.
The findings of the study revealed that over 50 per cent of businesses sampled are registered with the Corporate Affairs Commission (CAC) – mostly under the “Business Name” registration category; about 42 per cent are registered with SMEDAN and 70 per cent have a corporate bank.
Yet, only 30 per cent have a running website, and quite worrisome, less than 30 per cent have a registered trademark or patent.
On the rate of startup and digital business formation, the study revealed a decline in the rate of Startup and digital business launches in Nigeria in the last four years (from 2019/2020).
“This decline can be attributed to several macroeconomic factors such as high inflation rate, high cost of living, high foreign exchange rate, emigration of skilled professionals, difficult access to funding, and the problem of insecurity. The average rate of Startup and digital business launches in Nigeria in the last 10 years is estimated at 14.3 per cent,” the study further explained.
On funding and investment received since inception, the study averred that 34.09 per cent of Nigerian entrepreneurs and businesses sampled have never received any funds, adding that less than 35 per cent have received below N10 million in funding since their inception. 34.20 per cent have received less than 10 million; 16.63 per cent have received between N10 million to N19.99 million; 8.60 per cent have received between N20 million and N29.99 million; 3.70 per cent received between N30 million and N39.99 million; 1.29 per cent received N40 million and N49.99 million and 1.02 per cent received N50 million and above, the study disclosed.
“The condition of the Nigerian digital business environment is far from copacetic as it has for long been plagued by several unfavorable conditions, which hover around policy implementation, regulations, infrastructure, access to funding, cybersecurity, and macroeconomic factors.
“Our survey revealed that over 40 per cent of the sampled entrepreneurs rated the following aspects of the Nigerian digital business environment as below average: Tax regulations for startups and entrepreneurs; Access to funding and investors; Policy implementation for growth of digital entrepreneurship; Cybersecurity; Ease of running a business (operational costs) and Availability and access to infrastructure. These aforementioned aspects are the bane of many digital entrepreneurs and businesses in Nigeria,” it stated.
On reasons for startup failure in Nigeria, the study averred that a myriad of factors influence and affect startups’ ability to thrive and succeed in Nigeria, adding that the average Nigerian digital startup business has to deal with issues such as access to funding, regulations, multiple taxation, macroeconomic factors like inflation, foreign exchange rate, and interest rate, as well as business management challenges not limited to leadership, financial management, innovation, customer management.
“Our analysis shows that: notably, over 56 per cent of sampled respondents rated the following (in order of impact) as the top causes of startup failure in Nigeria: cybercrime, fraud, etc; economic instability; unfavorable government policies; high operational/running costs; lack of funding; poor national infrastructure; problem of insecurity; stiff competition; lack of innovation; incompatible founders; poor business management and leadership; lack of customer patronage; funds mismanagement. The top five causes of Startup failure in Nigeria are cybercrime, economic instability, unfavorable government policies, high operational/running costs, and lack of funding,” it stated.
The United States Government, in September 2023, opined that Nigeria lacks the macroeconomic framework to address its challenges of foreign exchange instability, the study stated, adding that, “Our engagement and interview sessions with tech hubs, Startup incubators, investors, government MDAs, etc revealed that an average of six in 10 Nigerian startups fail within the first one to five years; this implies an average Startup failure rate of 60 per cent in Nigeria. Six in ten Nigerian startups (60 per cent) fail within the first one to five years of commencing business operations.”
NCC’s Role In Tackling Challenges In MSMEs Sector
The roles of the telecommunications industry in supporting digital entrepreneurship and businesses in Nigeria include facilitation of broadband penetration; ensuring the availability and accessibility of telecommunications services; institution strong cybersecurity measures to protect telecoms consumers; creating awareness on the use and adoption of digital technologies; proactive regulation of the telecommunications industry and support Initiatives for digital entrepreneurship and businesses in Nigeria.
To ensure implementation of these roles, the federal government has rolled out funding, special interventions, and strategic support, the study disclosed, adding that, “Some notable funding and special interventions for digital entrepreneurship and businesses in Nigeria include the facilitation of broadband penetration by NCC which is pivotal for universal availability and access to telecommunications services in Nigeria needed for socioeconomic growth and development and the Universal Service Provision Fund (USPF) which was established by the Federal Government of Nigeria (in 2003 and started operations in 2006) to facilitate the achievement of national policy goals for universal access and universal service to Information and Communication Technologies (ICTs) in rural, un-served and under-served areas in Nigeria, among others.
“NCC has also committed over N500 million to Nigerian tertiary institutions in research grants for various telecoms-based research innovations with a vision of commercializing viable prototypes once developed. In 2020, NCC committed to the construction of Digital Industrial Parks across the six (6) geopolitical zones. These digital parks would boost digital skills acquisition among youths, promote innovations, provide jobs for the teaming Nigerian youth, and ultimately support the overall digital transformation agenda of the federal government.”
The study, however, recommended that the telecoms sector should encourage the funding of digital startups and innovation-based research programs as part of corporate social responsibility (CSR); ensure continuous broadband penetration and provision of telephony services to rural areas; provide incentives and special packages for MSMEs such as ICT interventions, partnership offers, etc.
Subsidise the cost of ICT and telecoms services in rural areas; ensure the early transition to new and emerging technologies such as AI, Blockchain, IoT, etc; facilitate digital literacy initiatives such as training and capacity development programs for consumers, business owners, and start-ups; promote innovation and technology adoption among digital start-ups through; competition programs like hackathons, code camps, etc and encourage the adoption of indigenous technologies, products, and services in the ICT and telecoms sector and ensure continuous protection of the Nigerian cyberspace.
