Opinion
Building Financial Sustainability Through Generational Wealth In Nigeria
By Chioma Ugo
The role of financial sustainability in building a thriving economy cannot be overstated. As the world continues to grapple with global challenges that impact businesses, financial sustainability remains a cornerstone of economic stability. It not only underpins national economic growth but also shapes socio-economic realities and lays the foundation for future generations to prosper.
Take Southeastern Nigeria, for instance—a region renowned for its enterprising spirit. Despite its immense economic potential, with an estimated collective economy of over N22 trillion, home to West Africa’s largest market, and the highest density of entrepreneurs per square meter, this entrepreneurial energy has yet to translate into widespread, enduring generational wealth.
Why is this the case? The answer lies in a combination of cultural practices, financial apprehensions, and systemic gaps that undermine generational financial sustainability. This raises a critical question: how can Southeastern Nigeria harness its celebrated entrepreneurial spirit and align it with long-term strategic sustainability to create a thriving and resilient economy? By examining these challenges, we can uncover opportunities for transformation and sustainable growth.
Capital Raising: Expanding Beyond the Familiar
It is estimated that 50% of all Nigerian businesses are family-owned. Coincidentally, businesses in the Southeast tend to be more family- and community-oriented. Because of this, family and close networks are seen as a more viable funding source for business owners than formal banks and financial institutions. This reliance on familiar sources is often due to a desire for sole ownership and minimum accountability.
While this approach has obvious benefits, it also has disadvantages that may not be immediately apparent. If the capital provided by a family is limited, scaling becomes challenging. Even when this is not the case, the business is still at risk because there are too few stakeholders, many of whom often do the bidding of the company during challenging times.
Using Onitsha as a case in point, the metropolitan city is known for its bustling economic activities. For the many success stories you may have heard, there are countless businesses that have failed due to solely relying on internal resources. The lack of infrastructure and insufficient space for imports and exports quickly exhaust personal resources.
To grow and thrive in business, financial literacy and a diverse capital acquisition strategy are crucial. Businesses should explore both debt and equity capital from sources beyond family and close networks. Venture capital, loans, and government grants are all viable options. Though it may seem risky and intrusive, in the long run, exploring alternative opportunities can be beneficial, particularly as it pertains to building a financially sustainable business.
Career Alignment with Business Needs
There are many wealthy entrepreneurs in the region; however, there are significant challenges in transitioning wealth from one generation to the next. It is common practice for entrepreneurs to steer their children, who are often the intended successors, towards “professional courses.” While these courses may have social prestige, they may not align with the immediate and impending skills needed to manage and grow the business. This creates a gap in the essential leadership and operational skills required for business continuity.
The absence of these skills often results in key-man risk, where the wealth in the family significantly depletes once the founder retires or dies. Successors may either not be interested in their family business, preferring to build a career aligned with their qualifications, or lack the professional skills, experience, and day-to-day knowledge to manage the nuances of their own business.
An estimated 90% of wealthy Nigerian families lose their wealth by the second generation. At scale, this issue has a major impact on the economy, leading to a loss of employment opportunities, exacerbating poverty, increasing crime, reducing economic output, capital drain from the local economy, and an increased dependence on external economies.
This disruption often leads to a decrease in tax revenues, limiting the government’s ability to invest in public infrastructure and services. Widespread job losses not only increase unemployment rates but also reduce consumer spending, creating a feedback loop that further weakens the local economy.
A ripple effect of this is also human capital migration, as skilled workers and entrepreneurs pursue opportunities elsewhere, further depleting the region’s productive capacity and contributing to a steady outflow of capital.
Southeastern Nigeria has one of the highest migration rates in the country, with many relocating to urban cities across Nigeria and abroad in pursuit of better economic opportunities.
Addressing these unique challenges requires a combination of education, business support, and policy intervention where possible.
The Role of Government: Creating an Enabling Environment
Government programs can play a significant role in supporting these businesses. Providing tax breaks and/or deductions where entrepreneurs show a commitment to building generational and sustainable businesses by implementing formal succession plans and/or reinvesting profits not only incentivizes the entrepreneurs but also mitigates state capital drain and reduced economic output. Compounded over time, this increases government revenue.
Incubation programs for family-owned businesses can also assist in equipping successors with the education they need to thrive, grow, and continue contributing to their communities and the economy at large. A structured approach where businesses are rewarded for adopting financially sustainable practices can foster a thriving business ecosystem that positively impacts the economy at scale.
Conclusion: Building a Resilient Business Ecosystem
Achieving and maintaining financial sustainability in Nigeria’s economy requires a collaborative and forward-thinking approach. Business owners must cultivate a culture that emphasizes scalability, long-term financial stability, and the creation of generational wealth.
To achieve this, entrepreneurs should take actionable steps such as developing formal succession plans, investing in both practical and theoretical training for their successors, and building partnerships with key economic stakeholders.
By addressing the cultural, financial, and structural challenges that hinder progress, Nigerian businesses can unlock opportunities for sustainable growth and contribute to a thriving, resilient economy. At the same time, these efforts will pave the way for the creation of generational wealth, securing a prosperous future.
Ultimately, a sustainable business environment is not just a driver of economic growth —it is the bedrock of a successful and flourishing society.
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