MSMEs turn to innovation, tech to power growth amid challenges

Nigeria’s small and medium-sized enterprises (SMEs) are defying the odds, leveraging innovation, technology, and a keen perception of opportunities to drive growth amidst a challenging business environment.

According to the FATE Institute’s 2025 State of Entrepreneurship in Nigeria Report, entrepreneurs are reinvesting profits to expand operations, boost productivity, and strengthen long-term competitiveness.

“Entrepreneurs continue to display optimism (0.72) and growing technological adoption (0.55), but business performance (0.46), enabling environment (0.39) and skills acquisition (0.22) remain below average, highlighting persistent structural and institutional challenges,” the report said.

The Index suggests that entrepreneurs are adapting through innovation and cautious optimism but still require stronger policy support, especially in access to finance, skills training and regulatory consistency.

The trend underscores growing business confidence and a renewed focus on sustainable expansion despite prevailing economic challenges.

Meanwhile, the report indicates that more than 55 percent of Nigerian SMEs reinvest their profits to sustain business growth. While this demonstrates resilience and a strong commitment to growth.

Using data from the 2025 State of Entrepreneurship Survey, which covered 10,882 businesses across all 36 states and the FCT, the report indicates that Kogi (0.65), Kwara (0.63) and Bauchi (0.60) emerged as the top performers, driven by improved business performance, innovation and enabling conditions.

Lagos, Jigawa and Taraba also ranked high, reflecting stronger adaptation to reforms and better access to support systems.

Moreover, the report shows that business formation improved modestly in 2025, signalling a recovery in entrepreneurial activity after two years of slowdown. About 26.7 per cent of respondents reported starting a new business, up from 24 per cent in 2024, but still below the pre-2023 average of 30 per cent.

Female entrepreneurs accounted for 44 percent of surveyed businesses in 2025. Down slightly from 48 percent in 2024 but still above pre-2023 levels. This reflects sustained but uneven gender participation in Nigeria’s enterprise landscape.

Women-led firms continued to dominate the nano and micro segments, where entry barriers and capital requirements are lower, while their representation in medium and large enterprises remains limited.

Despite financing and market access challenges (only 26.3 per cent of female entrepreneurs accessed finance from an institution), 69.2 per cent of female-led firms reported business growth, outperforming male-led firms (65.8 per cent).

This growth was driven largely by increased market opportunities, improving demand and digital adoption. Northern states such as Jigawa, Kwara and Adamawa recorded the highest female business birth rates, signalling a geographic rebalancing as women in emerging regions gain access to microcredit, digital tools and empowerment programmes.

The data point to growing inclusivity but highlight the need for sustained financial and institutional support to strengthen the contribution of female entrepreneurs to economic growth and development.

Despite financing and market access challenges (only 26.3 percent of female entrepreneurs accessed finance from an institution), 69.2 percent of female-led firms reported business growth, outperforming male entrepreneurs (65.8 percent)

However, the report indicated that entrepreneurs faced an evolving set of challenges, with access to finance remaining the most binding constraint for the fourth consecutive year, followed by poor access to markets, weak business support and policy instability.

While power supply issues dropped in ranking, 51 percent of businesses still spend the most on grid electricity, reflecting both improved availability and high energy costs.

Overall, structural challenges are shifting from infrastructure bottlenecks to institutional and market-related barriers. This calls for reforms in credit access, regulatory coherence and capacity building.

Despite these challenges, 91percent of entrepreneurs remain confident about business prospects, supported by early signs of macroeconomic stability.