For Nigeria’s SMEs, operational visibility is the new capital

Small businesses are essential to the fortunes of any economy. They are even more important in Nigeria, where 97% of all businesses fit into the MSME bracket. As the country pursues its target of becoming a $1 trillion economy by 2030, the discourse around economic growth focuses primarily on macro-level factors such as the state of infrastructure, foreign direct investment, economic policies, and the role of a reliable legal framework at the expense of micro-level considerations. The area of concentration is usually on providing the economic hardware while ignoring the operating system that makes it useful. It is time to address both angles of the economic development effort simultaneously by providing small businesses with accessible tools they can deploy internally to enable growth.

Small businesses’ well-documented inability to access growth capital is a symptom, not the disease. The underlying cause is a pervasive lack of structure, without which financiers cannot accurately assess a business’s readiness for growth capital, and scaling stalls as a result. The business structure in large companies is typically shaped by specialist professionals who design and implement systems. The challenge for SMEs is that they cannot afford to have a full suite of specialised professionals on staff full-time. As a result, they often resort to engaging the services of lawyers, accountants, business analysts and the like on a sporadic basis, if at all. Ironically, without systems in place which collect information between engagements, the value of these professionals is often limited.

Unfortunately, Nigerian SMEs are chronically data-deficient. Most businesses in this category rely on manual recordkeeping. While it is possible to trace revenue and costs using bank statements, vital information about business performance remains elusive. Although most SMEs can cite their revenue, the majority cannot tell you their gross profit margin per product line. Similarly, it might be easy to account for monthly inventory expenditure, but they are unaware of the relative speed with which various product lines convert to revenue.

There are countless initiatives aimed at educating SMEs about the benefits of recording their operational activities. This is tantamount to drivers being equipped with the knowledge to pass a driving test but having no means of accessing a vehicle with which to utilise their skills. If SMEs had access to digital tools designed around their own operational realities, granular, real-time, verifiable records of their operations could be generated as a simple byproduct of managing their business digitally. Without digitisation, the consequences are stark: the lack of operational data makes it impossible for most SMEs to withstand the level of scrutiny required to access growth capital and results in their being treated as high-risk — commanding punishing interest rates on debt and unfavourable valuations on equity. Even when development finance institutions offer more accommodating terms, access is usually contingent on proving operational health (a requirement that is often unachievable).

Yet, digitalisation has transformed everyday life in Nigeria, including how commercial activity is conducted. The scale of that shift is evident in the unicorn fintechs that have emerged from surging digital transaction volumes. SMEs now use digital platforms for payments, communications, and marketing as a matter of course. Yet digital platforms are still predominantly used by SMEs as transactional tools, not as the infrastructure on which businesses can genuinely be built and scaled. Although digital platforms for managing business operations are available, they are underutilised because most solutions on the market are ill-suited to Nigerian SMEs. Complexity, rigidity and affordability are three core reasons why business operations on digital platforms remain inaccessible to SMEs. Solutions must be built from the ground up for Nigerian SMEs, not handed down as stripped-down versions of tools designed for a different context entirely.

Undoubtedly, the mass adoption of digitised business operations would be transformational for SMEs. It would address multiple issues related to accountability, transparency, operational visibility, and forecasting accuracy. Reaching a critical mass of real-time SME operational and behavioural data would be a game-changer for growing businesses and, in turn, the Nigerian economy. It would mark a shift from uncoordinated initiatives encouraging operational efficiency within SMEs to the implementation of systemic government policies, effective financial instruments, and training initiatives grounded in reality rather than unverified assumptions. Nigeria’s economic fortunes are inextricably linked to the potential of SMEs. If Nigeria has a hope of achieving the goal of becoming a $1 trillion economy by 2030, its SMEs must first become visible to themselves, financiers, and policymakers.

Doyin Abiola-Tobun is the Founder and CEO of ARK, an operations intelligence platform, and Co-Founder of Concrete Lilies Services Ltd. She is a Member of the Chartered Institute of Directors.