Helping Nigerian Businesses Overcome Risks and Uncertainties: Facilitators’ “Compass in a Toolbox” to Powering Business Resilience

The blog is authored by John Rachkara, Deputy Chief of Party, Rural Resilience Activity.

Uncertainties arise from various sources, such as natural disasters, economic downturns, political instability, technological disruptions, and pandemics. Nigeria is grappling with regional insecurity challenges, such as farmer-herder clashes, kidnapping, and banditry. These disruptions make it difficult for businesses to operate. Although Nigeria is Africa’s largest market for almost any product or service, adequate investments have not been made in the country’s infrastructure, which can enable growth and serve a population the size of Nigeria. This includes road networks, power, warehousing, markets, and communication infrastructure. These challenges have affected business costs and hindered the marketplace's growth. Business owners frequently lament that the regulatory environment is not always conducive to business operations. Some regulatory challenges include cumbersome registration processes, multiple taxes, and unclear (sometimes overlapping) regulatory guidelines. More recently, the country experienced the worst flooding in a decade, covering nearly every estate of the federation and adding to the pains of high inflation, fuel scarcity, and the cost of food and fertilizers. Nigeria also redesigned its currency, but the volumes of new cash released did not adequately meet the Nigerian public's demands, disrupting business activities. While some believe that the government is on its journey to implementing a demonetization policy, sufficient investment in enabling infrastructure is required for the policy to succeed. We are witnessing disruption in cash-based markets such as grains, livestock, transportation, and almost all sections of the informal economy. This poses largescale risks and uncertainties to businesses.

Managing uncertainties is a vital resilience capacity for individuals, businesses, and communities. Effective resilience strategies can help individuals and businesses to cope, adapt and thrive in rapidly changing and unpredictable environments. Recently, terms like market systems resilience became common in development vocabulary. Market systems resilience refers to the ability of a market system to withstand and recover from shocks or disruptions while continuing to function and provide goods and services to its participants. A resilient market system can adapt to changes in its environment and quickly recover from shocks such as natural disasters, economic downturns, or unexpected changes in supply or demand. Resilient market systems are characterized by diverse market actors, products, and services, as well as effective institutions and policies that support market functioning and promote stability. By enhancing market systems resilience, communities and businesses can better weather unexpected shocks and maintain long-term stability and growth. Only when businesses can manage uncertainties can they cope, adapt, and thrive in rapidly changing and unpredictable environments. And only can the markets recover quickly and continue functioning effectively in the face of shocks. Perhaps the question is, “how?” How can markets and businesses manage uncertainties and stay resilient?  

When you are close to the market, you get real insights into what these uncertainties mean for businesses. A business leader at a leading agribusiness firm in Nigeria told me recently, “We have never seen anything like this before. We have sent almost two-thirds of our staff home. My 80-year-old father has never seen anything where you use Naira to buy another Naira. We budgeted diesel at NGN250 (58 cents, and now if you are lucky to get it, you will access a very limed quantity at NGN1200 (USD2.8) per liter. Sometimes we stay for a whole week without running our generator because we can’t access fuel.” Uncertain times mean increased financial risks.Here, I focus on financial risks because they matter the most to businesses. This is not to say that businesses exist to make money solely, but without finances, there is no business. Financial risk refers to the possibility of financial losses or other negative impacts on a business due to market fluctuations, economic uncertainty, operational issues, or external events. Financial risks can significantly impact a business, potentially leading to financial distress.

I have been reflecting on what advice/counseling, as market facilitators, we can offer to businesspeople. Speaking to several business owners in the agricultural sector recently, the ongoing uncertainty amplifies financial risk. Reducing risks during periods of uncertainty can be challenging, but there are several steps that business owners can take to minimize potential negative consequences. Below are some tips:

Minimize Debt: reduce debt, pay off debtors, and don’t take new ones. Yes, there can be advantages to minimizing debt during uncertain times. Minimizing debt can reduce the financial risk a business faces. When a company has high levels of debt, it can be more vulnerable to economic downturns, market fluctuations, or unexpected events. By reducing or even paying off debt, a business can reduce its financial obligations and free up resources that can be used to support other critical areas of the company. Secondly, limited debt can also give a business more financial flexibility. With less debt, a company can better weather unexpected events or market fluctuations and strategically invest in growth opportunities.  

Decrease Customer Concentration: What does this mean? Decreasing customer concentration refers to reducing a business's reliance on a single or a few key customers. This can be achieved by diversifying the customer base and expanding the company's range of customers. When a business has a high degree of customer concentration, it becomes vulnerable to the risks associated with those customers. Only a few customers buying from the business can significantly impact its revenue and profitability. The more customers, the less risk. Some options include identifying new target markets and customers. By this, the company can explore new markets and customer segments that have the potential to generate significant sales and revenue. One can also diversify its offerings; cross-selling can attract a broader range of customers and reduce reliance on a single product or service. Decreasing customer concentration can help a business reduce its dependence on a few key customers and diversify its revenue streams, improving its financial stability and long-term sustainability. A critical friend once said, “if you have one customer and lose 1 - you lose 100% of all revenue; if you have ten customers and lose 1 - you lose 10% of revenue; if you have 100 customers and lose 1 - you lose 1% of revenue.”

Stay Informed, Seek The Right Information: Businesspeople are advised to keep up-to-date with the latest news and information. Staying informed is crucial for businesses in today's rapidly changing environment. Uncertainties will always significantly impact a business's operations, supply chain, and revenue streams. By staying current on these developments, businesses can quickly adapt to changing conditions, make informed decisions, and mitigate risks. This can help them identify new opportunities, optimize their operations, and maintain their competitive edge. Staying knowledgeable is essential for businesses to survive, cope, adapt, and thrive in today's unpredictable and constantly evolving landscape. This can help them make informed decisions and avoid potential risks.

Investment Diversification: Diversification can also help businesspeople take advantage of different market opportunities and hedge against inflation and currency risks. In the corporate world, diversifying investments is a valuable tool for investors to manage uncertainties, protect their wealth, and achieve their financial goals. In today's highly unpredictable and rapidly changing economic environment, diversification can be crucial for managing uncertainties and reducing risks for investors. Facilitators need to figure out how the same principle can apply to businesses they collaborate with.  

Build Emergency Savings: This is a critical strategy for individuals and businesses to manage uncertainties and prepare for unexpected events. In today's uncertain and rapidly changing world, building emergency savings is an innovative and responsible strategy for individuals and businesses to prepare for the unforeseen and maintain financial stability. They provide a financial cushion and help individuals and businesses weather unexpected storms without relying on credit or borrowing. Savings can also provide peace of mind and reduce stress during difficult times. The amount of emergency savings needed varies depending on individual circumstances, but a general rule of thumb is to aim for at least three to six months' worth of expenses.

Develop Contingency Plans: When Covid-19 hit, the company I worked for partnered with a transaction advisory firm to supportbusinesses in developing scenario planning. It was a costly partnership, but looking back, it was necessary. Developing contingency plans is a crucial strategy for businesses to manage uncertainties and minimize the impact of potential disruptions. Contingency planning involves identifying potential risks and developing strategies to address them, such as alternative supply chain arrangements, backup systems, or emergency response plans. By preparing for possible scenarios, businesses can reduce the impact of unforeseen events and maintain their operations in the face of disruption. Contingency planning can also help businesses identify opportunities and exploit changing market conditions. For example, a company that has a contingency plan for potential disruption to its supply chain may be able to quickly pivot to new suppliers or adapt its operations to take advantage of new opportunities. In today's rapidly changing business environment, developing contingency plans is essential for businesses to ensure long-term sustainability and success.

Be Flexible, Nimble, and Adaptable: In uncertain times, adaptability and openness to change are essential. Adaptability is crucial for individuals and businesses to navigate uncertainties and thrive in a rapidly changing environment. Adapting to new circumstances requires a willingness to learn, take risks, and embrace change. By remaining flexible and open to new ideas and opportunities, individuals and businesses can respond quickly to new challenges and capitalize on emerging trends. Adapting also involves proactively identifying potential threats and opportunities and taking steps to prepare for or take advantage of them. This may include investing in new technologies or processes, developing new skills, or building new relationships with customers or suppliers. In today's unpredictable and constantly evolving world, adaptability is essential for individuals and businesses to stay competitive, innovate, and achieve their goals.

Seek Professional Advice: Seeking advice is a valuable strategy for individuals and businesses to manage uncertainties and make informed decisions. Financial advisors, transaction advisors, or consultants can provide expertise, insights, and guidance on complex or unfamiliar issues. They can help individuals and businesses identify potential risks and opportunities, develop strategies to address them, and make informed decisions based on data and analysis. Seeking professional advice can also provide a fresh perspective and new ideas, as well as access to networks and resources that may not be available otherwise. In today's rapidly changing and complex world, seeking professional advice is an innovative and proactive approach to managing uncertainties and achieving success.

The list above is not a template but a compass in a facilitator’s toolbox. These options can help development facilitators frame the foundation for a business conversation. In my experience, speaking with business owners whom our Activity collaborates with reminds me to carry my business advisor hat everywhere I go. In today's fast-paced and constantly changing world, uncertainties are inevitable. However, there are strategies that individuals and businesses can adopt to manage uncertainties and enhance resilience. These strategies include staying informed and up to date on developments, diversifying investments, developing contingency plans, being adaptable, seeking professional advice, and building emergency savings. As market facilitators, we find ourselves as frontline business advisors and counselors. This write-up adds to the facilitators’ toolbox. The best way to apply the above points is to contextualize and present them as questions during regular conversations with businesspeople. They are not supposed to be descriptive, definitive, or prescriptive. By adopting these strategies, individuals and businesses can better prepare for and navigate uncertainties, reduce risks, and achieve their goals. While uncertainties can be challenging, they can also present opportunities for growth and innovation. By embracing change and proactively managing uncertainties, individuals and businesses can enhance their resilience and thrive in a rapidly changing marketplace.