Why start-ups in Nigeria die early – Ecobank chief

Ade Ayeyemi, group chief executive officer of Ecobank, says Nigerian start-ups have a short-life span because they spend over 50 percent of their capital on providing basic infrastructure such as power and water, rather than on the business itself.
In an exclusive interview with BusinessDay on the sidelines of the 23rd Nigerian Economic Summit in Abuja, Ayeyemi advocated for credit guarantee by government to small businesses.
“A start-up in our environment has a high probability of failure. And part of that failure is not only due to the person but also due to the circumstances in the environment. If you don’t have power; if there is no water and you need $5,000 to set up a salon today, you spend more than half of that money on generator, diesel and water.
“If you are in Accra, you spend all your $5,000 on renting in the right places, having a good environment and buying the right clippers to attract your clients,” he stated.
Ecobank CEO cited the inability of large companies and government to pay small and medium scale enterprises (SMEs) on time for their services as another reason why most start-ups in Nigeria are not viable.
He said credit guarantees will encourage banks to lend funds to SMEs.
“The companies need money. So, part of the risk is for government to take part of the risk-out and to say, ‘We will guarantee’. Therefore, the only thing you are left with is liquidity. And then I become indifferent with whether I put the money in treasury bills or an SME. Once you get the banks to that state, then you will see the SMEs get money,” he disclosed, while warning against frivolous spending by entrepreneurs.
“I also do not want the SMEs to think that once there is a guarantee by the government, then they can take the money and go and marry second wives. They need to be able to pay back because it is when they pay back that the money will be available for others.
“So, my credit guarantee scheme as a suggestion allows us to start. But the government should also ensure that SMEs do not take the money and run away,” he explained.
He expressed regrets that the Nigerian society celebrates people who borrow money from banks without paying, yet spend it extravagantly.
“We celebrate people that borrow money from banks and don’t pay. And some of them are very senior members of the society. You ask, why are we not lending? And I ask, why are those big men not paying? And at weekends, they go to Owambe parties. And they have money to distribute to people. But they don’t pay. If they don’t pay, they are reducing the abilities of the banks to be able to fulfil their lending role in society,” he stated.
This, he said, explains why banks would rather invest in treasury bills than give credits to individuals, which may later result in non-performing loans.

OWEDE AGBAJILEKE, Abuja