In this article, we will list the challenges of doing business in Lagos and discuss them in detail, so if you are interested in starting a business in Lagos read on and learn from the experiences of our Lagos-based team members who are business owners in Lagos. Let’s get to it.
Lagos is a city full of life with booming commercial activities and a high purchasing power due to its huge population. The constant surge in demand for goods and services provides various business activities, creating business opportunities for entrepreneurs to fill in those needs.
But before we get deeper, if you need business ideas to start in Lagos, or want to know all it takes to start a business in Lagos we shared insights about them all in our previous articles.
Why Discuss These Difficulties Of Doing Business In Lagos?
This post is inspired by the experiences of some of our team members who are renowned business owners in Lagos, they have practical knowledge and know the challenges of doing business in Lagos. The post guides people interested in establishing or investing in Lagos-based businesses.
What Are The Challenges Of Doing Business In Lagos?
The challenges of doing business in Lagos could be a massive list, but let us start with the top pressing ones that make most business almost impossible in the state, These challenges directly affect numerous companies in the state, and this could be the reason why most business in the city fails.
1. Funding
Funding is a significant challenge for businesses in Lagos. Accessing loans or investments can be tough, especially for small businesses. Banks and investors often require substantial collateral, which many businesses may not have. High interest rates also make borrowing expensive, leading to increased costs for businesses.
Inadequate funds make businesses struggle to grow and maintain operations. They can’t afford to buy new equipment, hire more staff, or expand their product lines. This limits their ability to compete and attract customers. Additionally, cash flow issues arise, making it hard to pay bills on time or manage day-to-day expenses.
Start-ups face particular difficulty as they usually have limited financial history to show potential investors or lenders. This lack of trust makes it hard to secure the necessary funds to get their business off the ground.
Many businesses in Lagos rely on personal savings or informal loans, which can be risky and insufficient. The unavailability of proper funding makes businesses in Lagos find it hard to innovate and stay competitive in the market. The struggle for adequate funding creates a cycle of limited growth and potential failure, posing a constant challenge for many entrepreneurs in Lagos.
2. Inadequate Infrastructure
Poor infrastructure is another challenge of doing business in Lagos, some of these include:
- Unreliable electricity supply: The electricity supply in Lagos is so unpredictable, that many neighborhoods in Lagos barely get a power supply for days, businesses in these areas have to source their electricity themselves through generators or solar which are expensive to manage compared to the public power, this incurs so much expenses to businesses in those areas making it difficult to cope and remain in business for a longer time.
- Security: security is a concern in Lagos as the number of security personnel to a person is low, making businesses resolve to their security which has a higher business risk compared to the government-provided security personnel. These businesses are faced with issues of thefts and bugles that affect their bottom line.
- Bad Road and Terrible Traffic: Businesses in Lagos all need a form of logistics to function effectively, Lagos has a lot of bad roads that make it difficult for trailers and trucks to ply on for the delivery of goods, these bad roads and heavy usage directly leads to traffic in the city which affects business deliverability.
3. Unfriendly Government Policies
Government policies are another factor that challenges doing business in Lagos. The government wakes up with unconsidered decisions that affect companies and individuals in the state. There are a lot of such policies in Lagos state that make it unbearable for businesses to cope and continue operating in the city, an example is a seamless international online payment.
In Lagos today you can’t receive payment through PayPal, It is impossible to shop for items from online stores like Amazon, Aliexpress, and eBay, etc, and pay directly from your bank account, you can’t pay for software online and pay for services online directly from your bank account at your comfort the way other countries does.
The government has made it so unbearable that you have to go to the black market to source for dollars which is twice the price of official rates the banks in Lagos are supposed to transact with. When you source the dollar from the Local bureau de change you then take it to the bank to deposit in your account before you can transact online, people in other parts of the world can’t understand this hassle until you do business in Lagos and Nigeria as a whole, despite that the banks in Lagos will deduct your money for various unreasonable charges and leave you frustrated. Doing business in Lagos is challenging, especially for small and medium businesses
4. Inflation
Inflation makes it tough for businesses in Lagos. When prices for goods and services rise, companies face higher costs. For instance, the cost of raw materials, transportation, and wages can go up, making it expensive to produce and deliver products.
Customers also feel the pinch of inflation, as their purchasing power decreases. With higher living costs, people have less money to spend on goods and services, which can reduce sales for businesses. This drop in demand can hurt profits and make it harder for businesses to grow.
Inflation also creates uncertainty. Businesses may find it challenging to set prices or plan for the future because they don’t know how much costs will increase. This can lead to delays in investment and expansion plans.
Borrowing money becomes more expensive during inflation. Interest rates often rise to control inflation, making loans costlier. This can be a burden for businesses that need to borrow money for operations or growth.
Finally, inflation can erode savings. Money saved in the past loses value over time, reducing the capital available for businesses to use.
5. Human Resources
Human Resources is another business difficulty of doing business in Lagos, companies have a hard time finding highly qualified and skilled human resources, especially in fields that demand higher skills and expertise like Medicine, IT, and Technical.
Businesses invest millions of naira on setup and end with quack associates and unprofessional staff, that is why when you visit businesses like hotels hospitals, and cooperate organizations you immediately take note that the front officers aren’t qualified for the jobs, causing leaky sales pipeline and other various challenges making it challenging for the business to thrive.
In most cases, this is not the fault of the businesses for not finding the most qualified person to handle the job, so, they settle for what they get after all one has to occupy those positions for them to function effectively.
6. Unregulated Rates
Unregulated prices affect business in Lagos, different companies sell products and services at their desired prices. there are no checks and balances which ensures prices are appropriate. For example, Why will one have to buy a bottle of Coke for 2000 naira in an expensive restaurant while they can buy it for 400 naira in a local store?
These cause a lot of challenges for businesses operating on a higher cost, location, and expensive infrastructure, making them go out of business because they are unable to meet the price competitiveness.
7. Corruption
Corruption has a big impact on businesses in Lagos. When officials demand bribes, it increases the cost of doing business. Companies pay extra to get permits, licenses, or contracts. This makes it difficult for smaller companies to survive, as they often can’t afford these costs. Corruption also creates an unfair playing field, businesses that pay bribes get favorable treatment, such as winning contracts over more qualified competitors. This discourages honest businesses and reduces overall trust in the market.
Investors avoid putting money into Lagos businesses due to corruption. They fear that their investments won’t be secure or that they will have to deal with unethical practices, and this lack of investment limits business growth and innovation.
Corruption also leads to poor infrastructure and services because funds meant for roads, electricity, and other public amenities are stolen, and businesses suffer by operating in bad infrastructures that increase operational costs and reduce efficiency.
8. Currency Fluctuations
Currency fluctuation affects businesses in Lagos in various ways. When the Naira’s value changes, it affects the cost of imports and exports. Businesses that depend on imported goods face higher expenses if the Naira loses value, making foreign products more expensive leading to increased prices and lower profits.
For companies that export goods, a weaker Naira can be beneficial, as their products become cheaper and more attractive in the international market. Yet, constant changes in currency value create uncertainty, making it tough for businesses in Lagos to plan and budget effectively.
Currency instability also affects investor confidence. Foreign investors might hesitate to invest in Lagos businesses due to the risk of losing money if the Naira falls in value. This limits the funds available for companies to grow or innovate.
9. Customer Trust
Lagos is a huge city with people with various motives from different backgrounds, races, and ethnicities, who set up businesses in Lagos, some gave customers bad experiences such as selling them bad products and services, ripping them with exorbitant prices, and delivering unreliable professional pieces of advice
As a result, this has negatively affected the chances of genuine products and service providers gaining customer’s trust. This gives business owners tougher chances of converting prospects into customers.
Final Thought
Doing business in Lagos comes with numerous challenges that entrepreneurs must navigate. Funding is a significant hurdle, as accessing loans or investments is often difficult and expensive. Inadequate infrastructure, such as unreliable electricity and poor roads, adds to operational costs and logistics issues. Unfriendly government policies, like restrictions on online payments and high foreign exchange rates, further complicate business operations.
Inflation poses another obstacle, increasing costs for goods and services while reducing customers’ purchasing power. Finding skilled human resources can be tough, leading to reliance on less qualified staff. Unregulated pricing practices and corruption also create an uneven playing field, disadvantaging honest businesses and deterring investors.
Currency fluctuations affect import and export costs, adding to the uncertainty businesses face. Finally, gaining customer trust is challenging in a city where past negative experiences with some businesses have made consumers wary. Despite these difficulties, many entrepreneurs continue to thrive in Lagos, demonstrating resilience and adaptability in a demanding business environment.
