Business risks in Nigeria is one of the highly neglected business topics that prospective Nigerian entrepreneurs hardly talk about.
Prospective entrepreneurs find it logical to talk more about opportunities, prospects and profitability in their business proposal, most hardly consider the risk of doing business in Nigeria.
Every business faces risks that may threaten its survival. The risks become more intense if you are venturing into a new business.
The people whom you will ask to support your business with funds will like to see that you can face reality and deal with uncertainties.
It’s always wise to deal with the concerns that will come into people’s minds whenever they want to invest their hard-earned money on any business opportunities
As a Nigerian entrepreneur, it’s imperative you understand the business risks in Nigeria because they most often directly relate to factors that will drive your business’s failure or success.
This blog is written to help you understand the critical business risks in Nigeria and how to harness them to achieve business success.
Table of Contents
Why Talk About Business Risks in Nigeria?
Why do you want to put bad ideas and fears in people’s minds?
But here’s the bitter truth, when you consider the risk of doing business in Nigeria and critically analyse these business challenges in your business plan or in the proposal, it shows your business acumen and the fact that you appreciate that business has never been without risks.
On the other hand, if you pretend that your business is never without risks or it’s risk-free, neither investors nor your potential business partners will take you seriously.
They will assume that you’re either naive or untrustworthy and may likely withhold their investment. As such, there’s a need to acknowledge these potential business risks and state means of mitigating them.
Common Business Risks in Nigeria
The following highlights the common business risks small business owners typically face while doing business in Nigeria.
1. Market Risk:
The largest risk that most new business owners encounter is low sales or having sales fall short of their expectations.
This comes into play most times because it’s very difficult to have an accurate forecast of overall demand and growth potential until you enter the market.
You have to factor in the market risk in your business planning with tactics and contingency plan you will use to counter them whenever they occur in your business pursuits.
2. Competitive Risk:
You would hardly find a business without competition, most businesses have competition. Greater competitive forces than expected could lead to sales fall below forecast.
It’s said “never underestimate the vindictiveness of a competitor”. Don’t overlook the effects of strong competition, rather puzzle out ways to withstand these effects and fight back against competition attacks.
3. Operational Risk:
Example of operational risks include operating costs turn out to be 20% higher than forecast, unexpected breakdown in the production process, losing the main supplier, effects of inflation and natural disasters, etc.
Operational expenses have a magical way of growing greater than expectations, always have a contingency plan ready to address operational risks.
4. Financial Risk:
Financial risk entails the difficulty that business owners pass through when they want to obtain required financing.
Availability and timing of finances play a paramount role in the survival or otherwise of a new business.
It is a difficult task to raise funds or secure additional financing on favourable terms if you fail to reach key milestone or achieve profitability on time.
You need to be sure that your business gets enough cash flow to survive long enough before you reach profitability.
5. Currency Risk:
Currency risk arises from fluctuations in exchange rates. In Nigeria, the Naira’s volatility impact businesses adversely, especially those involved in international trade.
One good way to hedge against currency risks by exploring financial instruments like forward contracts and staying updated on economic indicators that may influence exchange rates.
6. Economic Risk:
Nigeria’s economy, though largest in Africa, it’s very volatile and susceptible to fluctuations in oil prices and global economic trends.
Examples of economic risks include the fear of economy going into recession, the risk that financial systems may come up with adverse economic policies such as the last currency swap we experienced in Nigeria.
You can mitigate economic risks by diversifying your business, maintaining a robust financial strategy, and closely monitoring market conditions to adapt swiftly to changes.
7. Security Risk:
Security challenges in certain regions can pose a threat to business survival. In fact, I have been personally affected with security risk (fear of bandit attacks) and that’s what made me to stop my foodstuff distribution business in 2009.
Do your best to mitigate security risks by implementing comprehensive security measures, including physical security, cybersecurity, and obtaining local insights to navigate potential risks effectively.
8. Infrastructure Risk:
Inconsistent power supply and inadequate infrastructure hinder many business operations in Nigeria.
The best way to mitigate these challenges is by investing in alternative power sources, utilizing technology to overcome infrastructure limitations, and collaborating with local partners to navigate logistical obstacles.
9. Cycle and Trend Risk:
Some businesses have the peculiar characteristic of having cycles of growth and decline resulting from various factors such as change in taste, trends and technology.
These businesses experience ups and downs. To mitigate this risk, you need to know beforehand whether your business is adequately capitalized to even out slow times.
10. Talent Acquisition and Retention Risk:
Finding and retaining skilled talent can be a challenge. Getting the right hands to manage your business operations is becoming a difficult chore most especially in the wake of japa syndrome in our dear country, Nigeria.
It is much more difficult to get tech experts these days as these people prefer to export their knowledge in exchange for hard currency.
You can mitigate human resource risks by investing in employee development programs, creating an inclusive workplace culture, and offering competitive compensation packages to attract and retain top talent.
The list above is not exhaustive, there are a number of other business risks in Nigeria that might be applicable to your business.
The prudent thing to do is to acknowledge them and state means of overcoming then.
Do this and you’ll gain confidence and support of your investors and partners.
How to Deal With Common Business Risks in Nigeria?
There are several ways of dealing with business risks. I will list here some examples of how to mitigate some of the common business risks in Nigeria listed above.
- Market risk can be subdued by hiring an experienced marketing executive, carrying out extensive market research, developing an effective advertising and marketing plan, and product testing in a serious of iterations.
- You can use product repositioning or new product development to fight back fierce competition.
- You can mitigate operational risk by having alternative sources of supply or reducing the operating costs by slowing down the hiring of support personnel and equipment leasing to overcome breakdown in the production process.
- You seek alternative finances such as franchise or partnerships as a contingency to financial risk or look for strategies to slow your business burn rate.
On a final note, business is never without risk. Risk is one of the factors that makes running a business exciting and adventurous.
Once you identify risk of doing business in Nigeria, your next task is to make it known to your investors or prospective partners but keep your focus on what you would do to avoid the occurrence of those risks and how you prepare to deal with them in case of eventualities.
You can demonstrate that the probability that these risks would happen is very small, show how the effects of these risks would not hamper your business pursuits seriously and explain how you would respond to adverse circumstances.
To successfully navigate business risks in Nigeria, it requires a proactive thinking and strategic action.
Once you understand the unique challenges presented by the Nigerian business environment and you seek to implement effective risk mitigation strategies, your business will thrive in this dynamic market with minimized potential business risks.
Stay informed, adapt to change, and proactively address risks to ensure the long-term success of your business in Nigeria.