Exploring the Reasons Why 54% of Nigerian Businesses Stay Unregistered

The State of Business Formalization in Nigeria

A recent survey unveiled an insightful perspective on the landscape of Nigerian businesses, revealing that 54% operate without formal registration. This statistic starkly highlights the persistent challenge of informality, which has deep roots in Nigeria’s entrepreneurial ecosystem despite a modest recovery in business formalization. The 2025 State of Entrepreneurship Survey, conducted by FATE Foundation, found that the percentage of registered businesses increased from 42% in 2024 to 46% in 2025, suggesting a gradual return of confidence in regulatory processes.

Understanding the Informality Dilemma

Even with this slight improvement, it's evident that more than half of Nigerian enterprises still navigate the complexities of unregistered operation. This encapsulates a broader societal issue—many entrepreneurs continue to rely on informal businesses due to several systemic barriers. High registration costs, limited access to necessary information, and a general mistrust of public institutions inhibit many from formalizing their operations.

Trends in Business Registration Over Time

Over the past five years, the trend in business registration has fluctuated significantly. The share of unregistered businesses rose from 44% in 2021 to a peak of 58% in 2024 before slightly declining to 54% in 2025. This volatility underscores ongoing challenges within the entrepreneurial landscape, where many potential businesses face barriers that discourage them from aligning with formal regulations.

Technological Advances and Registration

Interestingly, the introduction of digital registration platforms by the Corporate Affairs Commission (CAC) has provided some hope for business owners. These platforms are potentially reshaping perceptions of the regulatory process, with analysts noting that the marginal recovery in registration rates could be linked to easier access to formalization. Digital solutions are becoming increasingly important as they help streamline processes that once seemed daunting to prospective business owners.

Factors Impacting New Businesses

The age of a business fundamentally influences its registration status. For example, businesses less than one year old recorded a significant 68.2% unregistered rate in 2025—an improvement from the previous year’s 82%. Similarly, for businesses under five years old, 63% remain unregistered. These trends suggest that while newer firms may be slowly adapting to the idea of formalization, structural barriers still require attention.

Building Trust Within the Business Community

The survey also revealed a shift in how businesses approach formal registration. There’s an increasing affordable diversifying of registration services utilized by entrepreneurs. In 2025, registrations with the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) rose from 19.1% to 24.7%, and applications with trade groups increased as well, reflecting a changing dynamic among business owners. Many prefer semi-formal structures built on community validation and trust networks, suggesting that social connections may play a pivotal role in business decisions.

Conclusion: Time for Action

As this survey indicates, while Nigeria sees a rise in formally registered businesses, the majority still operate informally. Structural challenges continue to hinder the registration process for many, particularly among smaller enterprises. Small business owners, aspiring entrepreneurs, and stakeholders should engage in discussions surrounding reform to lower costs and bolster accessibility to registration processes. Understanding the implications of these statistics can empower individuals to advocate for changes that foster a more inclusive and supportive entrepreneurial environment.

If you’re interested in learning more about supporting your local business community or want insights on formalizing your own venture, consider joining networking opportunities or local workshops aimed at enhancing business awareness and registration strategies.