About 67 percent of Micro, Small, and Medium Enterprises (MSMEs) in Nigeria, have experienced declining demand over the past two years due to rising inflation, according to a new report by PwC Nigeria.
The survey report titled ‘Building resilience: Strategies for MSME success in a changing landscape’, surveyed 567 MSMEs across 13 sectors and 29 states in Nigeria. It explored the operations, macroeconomic conditions, financing, and fiscal environment of MSMEs in Nigeria.
“MSMEs are vital contributors to economic growth; however, they are operating in a challenging macroeconomic environment. The findings from the survey reveal that a significant majority (67 percent) of MSMEs have experienced declining demand over the past two years,” the report said.
It said about 38 percent of respondents said the high cost of products is a major cause of the decline and 36 percent highlighted that the low purchasing power of consumers is another cause.
Additionally, 12 percent noted that consumers were switching to alternative products, and 10 percent attributed the decline to changing consumer preferences.
“These challenges are compounded by macroeconomic headwinds such as inflationary pressures, currency depreciation, and slow economic growth,” the report noted.
The inflation rate in Africa’s most populous nation soared to a record high in June 2024 reaching 34.19 percent, primarily driven by rising food costs, according to the National Bureau of Statistics.
While monthly inflation rates had been slowing down since February, this trend reversed in June by 0.17 percent to 2.31 percent, defying expert predictions.
Read also: At 34.19%, Nigeria’s inflation rate highest among African peers
Despite this, the Central Bank of Nigeria expects inflation to ease to 21.4 percent by the end of 2024 within a range of 19.84 and 25.35 percent, from 28.92 percent in December 2023 putting a further rate hike in focus.
However, MSMEs may continue to face sustained inflationary pressure due to the pass-through effect of rising international oil prices on domestic energy costs and exchange rate pressures.
“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,” authors of the PwC report said.
The Small and Medium Development Agency of Nigeria (SMEDAN) reported a decline in the number of registered MSMEs in Nigeria between 2017 and 2020.
According to the NBS/SMEDAN MSME 2021 survey report, MSMEs contributed 46.32 percent to GDP, accounting for 6.21 percent of exports, 96.9 percent of businesses, and 87.9 percent of employment.
“The immense contribution of MSMEs makes them a critical part of Nigeria’s economic fortune,” it said.
Although their contribution to GDP was reduced by 3.5 percent, there was a corresponding 3.5 percent increase in their contribution to employment. In 2022, The International Labour Organisation (ILO) disclosed that MSMEs contribute 48 percent to Nigeria’s GDP.
“Despite these challenges, Nigerian MSMEs have demonstrated remarkable adaptability in navigating a complex business environment characterised by challenging macro economy and government policies, highlighting their potential to drive economic growth,” Sam Abu, country senior partner at PwC Nigeria, said.
He added that the research underscores the dynamism of the MSME sector, emphasising the urgent need for supportive monetary and fiscal policies to empower them to increase their contributions to Nigeria’s economic development.
