Entrepreneurship and MSMEs Challenges in Developing Countries

Written by

Abubakar Mohammed Sani

Advisor to the former COAS and Managing Director, Sprezzatura Publishing Ltd

In modern times, the private sector has an enormous impact on economic growth, innovation, and employment. In both developing and developed countries, Micro, Small, and Medium-Sized Enterprises (MSMEs) and entrepreneurship constitute most of the formal jobs, and this reality is even dominant in developing countries where, because the economy is not as rich as the developed countries, the citizens have to evolve creative means of solving their own challenges.

The ability of entrepreneurs to create jobs and the climate in which it can flourish are two important variables in the expansion of the private sector. More than ever, developing countries like Nigeria and other African countries need to take the role of the entrepreneurs as a discourse of national relevance. This is so because most developing countries are consumerist economies, hence there are no jobs for people because there are not many factories that are involved in production. Entrepreneurship is a key driver of economic growth and development, particularly in developing countries where small and medium-sized enterprises (SMEs) play a significant role in creating jobs and driving economic and social innovations.

Entrepreneurship is the process of creating or starting a new business venture in order to make a profit by identifying a need in the market and creating a product or service to fulfil it. In developing countries like Nigeria, entrepreneurship and the development of small and medium-sized enterprises (SMEs) can play a critical role in economic growth and job creation. Beyond the conventional definition of entrepreneurship, the term in today’s society can be referred to as being concerned with societal transformation and creating an innovative approach that alter the status quo in terms of creating new opportunities.

However, in a developing country like Nigeria, there are several challenges that confront entrepreneurs and SMEs. Let’s have a look at some of the main challenges and consider probable solutions for them:

Access to Finance

Most SMEs begin with access to finances to execute the entrepreneurship ideas. Accessing the funds becomes difficult because it is extremely challenging to get loans from traditional banking institutions as most of them require collateral and a substantial credit history. It is interesting to note that as the banks are profit oriented, they need people, who are seeking funds, to obey their policies. The motive of such banks is to have loaners invest in their operations. Also, the lack of a well-developed financial infrastructure in many developing countries can make it difficult for SMEs to access alternative forms of financing, such as venture capital or crowdfunding.

Lack of Infrastructures

Nigeria and other developing countries often lack the infrastructure needed to support business growth, such as reliable electricity, efficient transportation systems, and modern communication networks. Taking poor electricity supply and bad roads as a case study, one will identify the enormous impact they have on SMEs. In developed countries where electricity supply is regular, they do not run into the sort of challenge faced by Nigerians. Many businesses in Nigeria open from morning till evening and need constant power supply to be effective but because the ministry of power cannot supply five hours steady electricity, the start-up companies need to heavily rely on generators which require fuel and diesel. The cost of supplying power to the business becomes a major issue as the expense of availing these necessities take a huge toll on the businesses. Also, poor roads have a direct impact on effective movement of goods within the country. Due to the challenges with the obstacle of terrible roads, movement of goods and service are affected. This also creates issues of service delivery in various business sectors.

Poor Internet Connectivity and Digital Advancement

One major problem facing Nigeria and other developing countries is that there is backwardness in technological advancement. As the world keeps advancing deeper into the digital age, entrepreneurs have started to reply on digital platforms for brand awareness, marketing as well as trade. However, due to the developing nations’ poor internet connectivity, economic growth has been stalled and job creation hampered. Several entrepreneurs need the internet to transact money and respond to their clients or partners, and in most cases where the connectivity is poor, some deals are usually cancelled including the ones made at an international level or with partners from foreign countries.

Lack of Formal Education and Training

The importance of education in any society cannot be over emphasised. Many entrepreneurs and SMEs in developing countries lack the education and training needed to successfully start and run a business. This can make it difficult for them to understand market trends, identify opportunities, and develop effective business strategies.

Intense Competition Due to Small Market and Opportunities

Given the already-existing small businesses in these developing countries, competitions are intense and make it difficult for newcomers to break in to the market. This also true because there are no big companies or firms to employ people; so graduates and non-graduates alike are all struggling to find their place or hold same in the entrepreneurship world.

Political Unpredictability and Undefined Government Policies

Unpredictable policy changes and lack of governance can make it difficult for entrepreneurs to make long-term business decisions and plans. In most developing countries, weak blueprints for development or policy continuity; hence the system changes as it pleases the individuals without consideration of different small businesses in the country.

Lack of Access to International Market

Another major challenge facing SMEs in developing countries is a lack of access to international markets. Many SMEs in developing countries are unable to export their products due to a lack of knowledge about international markets, or lack of resources or support to navigate the complex regulations and logistics involved in exporting.

Addressing The Challenges Facing SMEs And Opportunities

The challenges noted above can be addressed in several ways and it is important to not only highlight challenges but also proffer probable solutions to them. Despite the challenges, there are plethora of opportunities for entrepreneurs and SMEs in Nigeria and other developing countries. For example, there is a growing consumer market, as well as a large pool of underemployed workers who can be trained and employed by small businesses. Additionally, the rise of technology, despite the issues of poor internet connectivity, has provided new opportunities for entrepreneurs to start and grow businesses in sectors such as e-commerce and digital media. With the right support and resources, entrepreneurs, and SMEs in developing countries can play a vital role in driving economic growth and development.

The following are the suggested solutions to the challenges outlined and opportunities that have been provided in the entrepreneurship sector.

To address the challenge of lack of capital, some programs and initiatives have been developed to provide SMEs in developing countries with access to finance. For example, microfinance institutions (MFIs) provide small loans to entrepreneurs and SMEs who lack access to traditional banking services. Although, these loans are typically provided at relatively high interest rates, but they can still be a valuable source of financing for small businesses. In addition, a number of programs have been developed to provide SMEs with access to venture capital or angel investment, such as the African Business Angel Network (ABAN) which connects investors with innovative start-ups in Africa.

In facing the issues caused by lack of infrastructure, governments and development organizations have invested in building and improving structure in developing countries. For example, the World Bank’s International Finance Corporation (IFC) has invested in a few infrastructure projects in developing countries, such as the construction of a power plant in India and the expansion of a port in Ghana. The private sector also played a role in this initiative, and some companies like, MTN and Orange provide telecoms infrastructure to many African countries.

Also, several programs and initiatives have been developed to provide education and training to entrepreneurs in developing countries. For example, the African Entrepreneurship Program (AEP) is a partnership between the U.S. Department of State and the Global Entrepreneurship Network (GEN) that provides training and mentorship to entrepreneurs in Africa. In addition, many non-profit organizations such as, Ashoka and Endeavor, provide training and mentorship programs to entrepreneurs in developing countries.

Further more, programs and initiatives have been developed to help SMEs in developing countries access international markets. For example, the U.S. Small Business Administration (SBA) provides a range of resources and support to help small businesses export their products, including counselling, training, and assistance with financing. In addition, many organizations such as the World Trade Organization (WTO) and the International Trade Center (ITC) provide resources and support to help SMEs in developing countries access international markets. They assist with the negotiation of trade agreements, provision of trade related technical assistance, and support to enhance the competitiveness of SMEs by providing them with training, market research and networking opportunities.

For instance, the ITC offers a variety of services to support SMEs in developing countries, such as trade promotion, market intelligence and export counseling. The ITC also works to improve the business environment for SMEs, such as by supporting the development of business-friendly policies and regulations. The WTO, on the other hand, provides a forum for member countries to negotiate trade agreements and resolve disputes. It also provides trade-related technical assistance and training for developing country SMEs and governments. This includes the Aid for Trade initiative, which helps developing countries to develop their trade capacity and integrate into the global trading system.

In summary, the challenges facing SMEs in developing countries are multifaceted and require a comprehensive approach to address them. Access to finance, poor infrastructure and connectivity, lack of formal education and training, and lack of access to international markets are among the main challenges that SMEs face. However, there are a range of programs and initiatives, such as microfinance, infrastructure development, trade-related technical assistance and training, which can help to address these challenges and support the growth of SMEs in developing countries.

Nigeria, being the largest economy in Africa and having a large population, there are many small and medium-sized enterprises (SMEs) operating in the country. The sectors with the highest concentration of SMEs include retail, wholesale trade, and services, but there are also many SMEs operating in agriculture, construction, and manufacturing.

In Nigeria, the informal sector plays a vital role in the economy. A majority of the businesses in the country are small-scale and informal businesses like small-scale farmers, artisans, and street vendors, which contribute significantly to the country’s GDP. The Nigerian government has been trying to address some of these challenges through different initiatives and policy measures, such as increasing access to finance, providing training and education opportunities, and building infrastructure. The Central Bank of Nigeria has also introduced several policy measures aimed at increasing access to finance for SMEs, such as the Micro, Small and Medium Enterprises Development Fund.

It is imperative to outline some of the successful SMEs in Europe and the developing countries. Such an outline shows the progress that some of the SMEs are making in the developing countries and an example of such outlets in Europe is an instance of the growth of SMEs all over the world.

Abubakar Mohammed Sani

Advisor to the former COAS and Managing Director, Sprezzatura Publishing Ltd

Abubakar Mohammed Sani is the former senior special assistant to the Chief of Army Staff (COAS). He specializes in conflict resolution, development issues and is also an entrepreneur. Sani is currently pursuing his Doctoral in Business Administration with Westford Uni Online. English, Global Diplomacy, Metaphysics and Political studies are some of his other areas of interest.