Nigerian SMEs Are Not Failing. They Are Being Failed.

Cosmos Daniel came home from Lagos with N200,000 from his mother, five years of accumulated knowledge, and a plan. In 2016, he opened Cosmotech Limited, an ICT institute in his hometown built for young people who had nowhere else to go to learn skills that could earn them a living. Ten years later, he is still standing. But he will tell you, without hesitation, that surviving in Nigeria’s small business environment is not a function of brilliance or hard work. It is, more often than not, a matter of endurance and luck in roughly equal measure.

His story is not unusual. It is the story of hundreds of thousands of small business owners across this country grinding inside a system that was not built with them in mind, and it is a story that the numbers have been telling for years without anyone in Abuja appearing to listen.

According to the joint NBS and SMEDAN MSME survey report, MSMEs contributed 46.32 percent to Nigeria’s GDP, accounted for 96.9 percent of all businesses in the country, and supported 87.9 percent of employment. Pause with those numbers. Nearly every job that a young Nigerian is counting on to feed their family, pay their rent, or send a child to school is connected, in some way, to a small business. The backbone of this economy is not oil. It is not the banking sector. It is not government contracts. It is Cosmos Daniel and millions of people like him, running shops, institutes, farms, repair centres, and market stalls in conditions that would break most businesses in countries with functioning infrastructure.

More than 95 percent of SMEs fail within their first five years of operation, with almost 50 percent failing in the first year alone, according to research compiled from SMEDAN and NBS findings; electricity accounts for the highest cost to operations, followed by rent and the cost of capital. The pattern is documented. The causes are documented. The solutions are known. What is missing is the political will to implement them before another generation of small businesses dies in the attempt.
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Ask any small business owner in Nigeria what keeps them awake at night, and within thirty seconds, the conversation turns to interest rates. For Cosmos Daniel, these are not abstract policy numbers. They are monthly calculations that determine whether he can pay staff or expand his ICT centre.

“You can be paying almost 23 to 30 percent interest rate,” he told The Gazette News, “while other people in China, the US, Japan, they are on single digit. Nigeria, we are on double digit. There is no business that is going to survive double digit interest.”

He is not wrong. Commercial banks in Nigeria charged business lending rates of 32 to 36 percent in the recent period, though rates are expected to decline as banks shift focus toward real sector financing following the CBN’s February 2026 rate cut. The Central Bank cut its benchmark Monetary Policy Rate to 26.5 percent in February 2026, with the CBN Governor citing ongoing disinflation and sustained exchange rate stability as the basis for the decision, and economists welcoming the cut as a step toward improving lending to small-scale businesses and industrialists.

The cut is welcome. It is also, for the small business owner trying to bridge a cash flow gap this week, largely theoretical. The transmission from benchmark rate to commercial lending rate is slow, incomplete, and filtered through banks that still prefer the safety of government securities to the risk of lending to a shop in Makurdi or an ICT centre in a mid-sized northern city.

Government has created intervention mechanisms, and Cosmos Daniel has tried to use them. He eventually accessed a loan through NIRSAL Microfinance Bank, the CBN-backed institution whose AGSMEIS scheme provides loans at 9 percent per annum, a significant relief from commercial bank rates. But even 9 percent, he says, is not enough.

“It should not exceed one to five percent,” he said. “Even the nine is okay compared to commercial banks, but it should not supposed to be that.”

He has a point. Japan’s benchmark rate for small business lending has historically stayed between zero and one percent. The United States Small Business Administration operates at 5 to 10 percent. Nigerian SMEs are competing in a global economy while carrying interest rate burdens their international counterparts do not know.

The structural irony is damning. Over a decade, just 6.6 percent of a ₦10 trillion CBN intervention programme reached smaller businesses, with the vast majority of funds absorbed by larger, better-connected entities that could navigate the documentation and eligibility requirements that exclude most informal sector operators. The money exists in the system. It simply does not reach the people it was designed for.

Less than 5 percent of SMEs have been able to access adequate finance for working capital and business growth, according to NBS data, even as the sector generates nearly half of the country’s GDP and employs the overwhelming majority of its workforce. That gap between what the sector contributes and what it receives is not a market failure. It is a policy failure with a human face, and the face belongs to people like Cosmos Daniel.
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The credit problem does not operate in isolation. It sits inside a compounding crisis of infrastructure failure that adds cost to every aspect of running a small business in Nigeria, every single day.

When fuel subsidy was removed in May 2023, the effect on Cosmotech Limited was immediate and personal.

“Before, I used to buy 1,000 naira fuel. Five liters. I can run it for like three days,” Daniel told The Gazette News. “But now 5,000 naira, I cannot even run it.”

That single sentence captures the compounding arithmetic of policy decisions on operating costs. When fuel quintuples in price, generators run shorter, electricity bills climb, logistics become expensive, and the cost of everything from raw materials to delivery follows. For an ICT institute in a mid-sized city where students are already economically stretched, raising school fees to absorb rising costs is not always possible.

A 2025 evaluation of the economic impact of frequent power outages on Nigeria’s national grid, using 400 Nigerian SMEs, found that most respondents cited electricity unreliability as the primary barrier to growth; SMEs experienced a 35 percent decline in productivity and a 25 percent increase in operational costs, with many founders now treating generators as essential insurance, draining capital that could otherwise fund inventory or marketing.

Nigeria’s installed generation capacity stands at about 13,000 megawatts, yet peak delivery to the grid in 2025 rarely exceeded 5,500 megawatts, with average daily supply closer to 4,000 megawatts, roughly what a single large global city consumes off-peak; the gap reflects overlapping failures in gas supply, transmission, plant availability, and chronic grid instability.

A small business owner in Nigeria effectively runs two businesses simultaneously. One is their actual enterprise, whether it is an ICT centre, a food business, a tailoring shop, or a small manufacturing unit. The other is an informal power utility operation, maintaining a generator, budgeting for fuel, managing the weeks when fuel costs make the generator unaffordable, and absorbing the losses when the machine breaks down. That hidden second enterprise has no revenue. It has only costs.

The Centre for the Promotion of Private Enterprise warned on March 15, 2026 that surging energy costs are threatening SME sustainability, calling on the government to accelerate power sector reforms and improve access to affordable financing to enable small businesses to invest in energy-efficient technologies, while noting that stable power supply remains the most sustainable solution to Nigeria’s high energy cost environment.

Policy instability is the third layer of the wound. The subsidy removal changed Daniel’s cost structure overnight. New tax policies shift compliance requirements without consultation. Exchange rate volatility makes the cost of any imported input unpredictable from month to month.

“One thing I know as a business owner,” he said, “is that continuity in policies matters. This policy today, that policy tomorrow; you cannot hold on.”

A joint SMEDAN and NBS survey documented inconsistency in government policies as one of the top challenges confronting the MSME sector, alongside access to finance and poor infrastructure. That finding exists in a published government report. It has not led to any structural change in how policymakers consult with small business owners before rolling out reforms that upend their operations.

Daniel’s advice to fellow entrepreneurs reflects a resigned pragmatism that no business school teaches. “When you are making your plan,” he said, “you have to make short-term plans, and then long-term; so that you have somewhere to fall back.” That is not entrepreneurship. That is survival with extra steps.
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If he had ten minutes in front of Nigeria’s economic policymakers, Cosmos Daniel would not waste them. He has three requests, and they come out in quick succession.

First, he wants the ongoing tax reform to actually deliver relief to small businesses, not just generate policy papers and press releases. “They have been talking about the tax issue,” he said, “but we are not yet seeing the effect on the ground.” The Nigeria Tax Act 2025 introduced new provisions, including a 20 percent rental deduction for small businesses earning below N25 million annually. For SMEs that are genuinely informal, that do not have formal accounts, and that operate in the spaces that official policy cannot quite see, those provisions remain inaccessible by design.

Second, he wants the processes for accessing government loan facilities to be genuinely simplified, not just promised to be simplified. The {{GNA_PROTECT_0}} NIRSAL, and similar institutions exist on paper. Accessing them in practice requires formal CAC registration, sector alignment documentation, viable and independently verified business plans, and in some cases compulsory entrepreneurship training before a single naira is disbursed. For a business owner already managing cash flow, staff, clients, and power outages simultaneously, that paper trail is not minor friction. It is an exclusionary barrier dressed up as a process.

Third, he wants lending rates to fall to single digits that actually reflect the cost of running a small, productive business. “Why can’t we do that?” he asked, pointing to Japan’s near-zero SME lending environment. “Everybody needs help to grow their business at some point. That is why SMEs are dying within the first five years.”

The total number of MSMEs in Nigeria decreased from approximately 41 million in 2017 to 39.7 million in 2021, with the business formation rate declining from 32 percent in 2022 to 24 percent in 2023, indicating a challenging economic environment that is discouraging new enterprise formation at exactly the moment when the economy needs more of it.

That contraction is not an accident. It is the predictable outcome of a system that taxes small businesses while giving them unreliable electricity, prices credit out of their reach, shifts policy without consulting them, and then invites them to apply for government intervention funds through processes designed for enterprises ten times their size.

There is a graduate somewhere in Plateau State who trained at an ICT centre like Cosmotech and now has skills that could earn them a living. There is a market woman in Kano whose supplier is a small manufacturing outfit that cannot secure a working capital loan at a survivable rate. There is a mechanic in Enugu whose parts dealer is struggling to import components because the naira keeps moving and the credit is unavailable. They are all connected to this story, even if none of them have ever heard Cosmos Daniel’s name.

The businesses dying before five years are dying because of the constant change in policies. They are dying because of interest rates that no small enterprise can absorb. They are dying because the power goes off and the fuel to run the generator has quintupled in price and the bank wants 30 percent for the privilege of borrowing money to keep the lights on.

Cosmos Daniel built what he built on N200,000 from his mother and five years of accumulated knowledge. A decade later, he is still in business. That is remarkable. That he has to be remarkable just to remain in operation is the indictment.

“Our voices are not being heard,” he said. “They are supposed to be.”

Until the people who make the decisions are required to sit in the same room as the people who live with the consequences, the answer Abuja gives to the SME sector will remain the same one it has been giving for years. Not the answer in the policy documents. The answer in the numbers.