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Sunday, 20 December 2015

Factors Affecting The Cost Of Setting Up A Business In Nigeria

Doing Business in Nigeria is not easy and it may even get harder considering recent events, the devaluation of the nations currency, the gradual drop in crude oil price which is greatly affecting the nations economy, and the incoherent policy of the present administration towards the development of SME's in the country, this article will try to explain the factors that influence the start-up capitals of small businesses in Nigeria.

1.National Economy: Businesses operating within a Nation will be affected by the nations economy, if inflation is high in the nation then the cost of doing business in that country will increase because with high inflation comes an increase in the cost of raw materials that is needed by small businesses. just like other developing Nations Nigeria inflation rate is high rising from 6.8% in January to 8.7% in October 2015. This mean that SME owners will have to pay more for raw materials in order to keep their business going. When running business in a country where there is rising inflation business owners are faced with the uncomfortable dilemma of either increasing the cost of their product and services or accepting a reduction in profit and interest from sales.

2.Lack of Infrastructure: The lack of good roads, electricity, water, communication, internet facility and other basic infrastructure. Every business needs at least one or all of this infrastructures to function properly so in a situation where this is not readily available in the country or at your business location you may have to expand your business start-up capital to make provisions for this basic infrastructures, take for example if you were not planning on buying a generator set before you may need to make arrangement for that when planning to set up your business in Nigeria because of the very poor electricity distribution in the country. If you are setting up a business that is reliant on constant supply of water you may have to make private provisions for that too, and of course if your business will need the use of internet connection then you will have to make private plans for that while calculating your start-up capital.

3.The legal factors: The laws of Nigeria affects all businesses within Nigeria, and this includes the laws guiding taxation, payment of necessary bills and the law guiding the registration of companies as executed by the Nigerian Corporate Affairs Commission (CAC) the Agency in charge of the registration of companies in Nigeria. you cannot do business comfortably or successfully in Nigeria without first obeying the rules and principles of the country. for one to have his or her business legally registered in Nigeria one would have to register with the corporate affairs commission (CAC), the cost of registering businesses is fixed by CAC and it ranges from 5000+NGN, depending on the type of business you are planning to register.

4.Value of the Naira: Nigeria being mainly importation dependent most of the materials that may be needed for starting a business in the country may have to be sourced from abroad and when buying from abroad the value of your local currency matters a lot, if your currency is of low value you may have to pay more for products that you buy from abroad. so as the Nigerian Naira is depreciating the cost of doing import based businesses in Nigeria is also increasing.

5.Cost of Renting Office spaces and shops: When you go to big Nigerian cities like Abuja, Lagos, PHacourt, Calabar, Kaduna you will find out that the cost of renting just a few feets of business space is very expensive, take for example at Ademola Crescent Wuse II Abuja you will be very lucky to get a lock up shop space for anything less that 500,000 naira. so as big cities develop the cost doing business in them also increases.
Your start up cost can be affected by many factors most especially by the ones highlighted here.