In the last two years, growing inflation has caused over 67% of Micro, Small, and Medium-Sized Enterprises (MSMEs) in Nigeria to face decreased demand, according to a recent PwC Nigeria analysis.
The study, “Building Resilience: Strategies for MSME Success in a Changing Landscape,” polled 567 MSMEs in 29 states and 13 different sectors in Nigeria. It investigated the financial environment, financing, operations, and macroeconomic circumstances of MSMEs in Nigeria.
“MSMEs are critical contributors to economic growth; nonetheless, they face a tough macroeconomic environment. The survey results show that a considerable majority (67 percent) of MSMEs have witnessed decreased demand in the last two years,” according to the report.
About 38% of respondents cited the high cost of goods as a primary reason for the fall, while 36% pointed out that customers’ poor purchasing capacity is another factor.
Furthermore, 12% of respondents observed that customers were moving to substitute goods, and 10% ascribed the drop to shifting consumer inclinations.
The research stated that “these challenges are compounded by macroeconomic headwinds such as slow economic growth, depreciating currencies, and inflationary pressures.”
According to the National Bureau of Statistics, the inflation rate in the most populous country in Africa surged to a new high in June 2024, hitting 34.19 percent, mostly due to increased food expenses.
Although monthly rates of inflation had been declining since February, this trend unexpectedly turned around in June, rising by 0.17 percent to 2.31 percent against expert projections.
Despite this, the Central Bank of Nigeria projects that inflation will decrease from 28.92 percent in December 2023 to 21.4 percent by the end of 2024, falling between 19.84 and 25.35 percent. This puts additional rate hikes on the table.
However, the pass-through effect of rising global oil prices on domestic energy costs and pressures associated with exchange rates may mean that MSMEs continue to experience persistent inflationary pressure.
The PwC report’s authors stated that “this is likely to increase the cost of inputs for MSMEs, which will, in turn, raise the prices of final goods and services, further impacting demand.”
Between 2017 and 2020, there was a decrease in the number of MSMEs in Nigeria that were registered, according to the Small and Medium Development Agency of Nigeria (SMEDAN).
The NBS/SMEDAN MSME 2021 survey report states that MSMEs accounted for 96.9% of enterprises, 87.9% of employment, and 6.21 percent of exports, contributing 46.32 percent to GDP.
It stated, “MSMEs are an essential component of Nigeria’s economic success due to their enormous contribution.”
Their GDP contribution decreased by 3.5 percent, while their employment contribution increased by a similar 3.5 percent. The International Labour Organisation (ILO) revealed in 2022 that MSMEs account for 48% of Nigeria’s GDP.
According to Sam Abu, country senior partner at PwC Nigeria, “despite these challenges, Nigerian MSMEs have demonstrated remarkable adaptability in navigating a complex business environment characterized by challenging macro economy and government policies, highlighting their potential to drive economic growth.”
He continued by saying that the study highlights the vitality of the MSME sector and the pressing need for fiscal and monetary policies that will enable them to make greater contributions to the economic development of Nigeria.
