• Tuesday, July 23, 2024
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79% of businesses make less than N250,000 profit monthly – Report

79% of businesses make less than N250,000 profit monthly – Report

Businesses in Nigeria’s informal sector are grappling with the country’s economic conditions as 79.4 percent post less than N250,000 as profit per month, according to the latest informal sector report.

The report by Moniepoint, one of Nigeria’s fintech companies revealed that about 90 percent of businesses make less than N500,000 monthly profit while a staggering 1.3 percent make a profit of over 2.5 million.

“On the higher end of the spectrum, only about 1.3 percent of businesses in Nigeria’s informal economy have monthly profits of over N2.5 million,” the report stated.

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As profit drops, businesses will have to contend with prioritising sustenance rather than recruiting more people and this explains the reasons behind the widespread unemployment rate in the country.

In Nigeria, small and medium enterprises (SMEs) account for 96 percent of businesses and 84 percent of employment, Moniepoint had earlier stated in a report.

The fintech company spoke to over two million businesses that signed up on its platform between 2019 and 2024 and excluded data from the thousands of agents scattered over the country to arrive at the report.

A further probe of the report shows that 51.6 percent of those in the informal sector began the business due to unemployment but rising inflation and high lending rate may dampen their efforts towards financial stability.

This is as business activity in Nigeria dropped to the lowest in seven months in June 2024 on the back of an uptick in inflationary trends and reduced demands, Stanbic IBTC Bank Purchasing Managers’ Index (PMI) report showed.

“June data signalled a broad stagnation of the Nigerian private sector as subdued demand and intense price pressures led to slowdowns in growth of output and new orders. In turn, employment rose only fractionally,” the report said.

President Bola Tinubu had announced an end to the costly fuel subsidy and liberalised the foreign exchange last year May to stoke investors’ interest in the economy but the policies have worsened inflation, currently at a near three-decade high.

In May 2024, Nigeria’s headline inflation rose for the 17th straight time to 33.95 percent up from 33.69 percent in the previous month.

The rising inflationary pressures have weakened the purchasing power of consumers and declined business patronage, resulting in a low profit.

The report further revealed that eight out of 10 businesses have been open for less than five years with only 13 percent living more than 11 years.

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“Only 18.3 percent, or less than 2 out of 10 business owners in the informal sector, have been in business for more than five years. Less than 20 percent of businesses were over five years old, indicating the challenge of keeping businesses running for over five years,” the report said.

However, the report stated that retail and general trade (38.4 percent) together with food and drinks (15.2 percent) account for over half of the value of Nigeria’s informal economy.

This indicates that Nigerians patronise ‘daily necessities’ as food more than electronics, fashion and even beauty and personal care.

According to the National Bureau of Statistics, SMEs contribute about 48 percent to Nigeria’s GDP, making them a critical driver of economic growth and development yet fraught by overburdened taxes and have less access to credit facilities, the report indicated.

“Even though, individually, they look very small, when you lump all of them together as a collective, they’re actually a huge part of the economy in total.

There is no way the economy will thrive without actually taking care of these informal businesses” said Tobi Amira, Moniepoint’s senior vice president on loans.