In 2024, Nigerian small and medium enterprises (SMEs) faced significant economic challenges. High inflation, a weakened naira, and rising costs of transportation and energy severely impacted businesses, with the small businesses being most affected. The tightening of monetary policies by the Central Bank of Nigeria (CBN) further constrained liquidity, leading to high borrowing costs that eroded profitability.
PwC’s MSME Survey 2024 revealed that 67 percent of small businesses witnessed a decrease in demand for their products or services, majorly due to the harsh economic situation that led to an uncontrolled surge in retail prices and reduced purchasing power of the citizens.
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However, with promising signs of economic stabilisation in 2025, SMEs must not only aim for survival but also strive for sustainability and growth. Here are five key factors that will influence SMEs’ success in 2025:
Access to finance
The funding gap for Nigerian small businesses remains a critical challenge, with PwC’s MSME Survey 2024 reporting that the MSME sub-sector requires up to $32.2 billion to close its funding gap. The restrictive monetary policies implemented by the CBN in 2024 further exacerbated the funding challenge of small businesses, as the monetary policy rate soared to as high as 27.5 percent and the cash reserve ratio for commercial banks was put at 50 percent as of the end of 2024.
These policies created major disruption in the financial sector as banks’ capacity to lend was negatively impacted. Due to reduced capacity of banks to lend, SMEs were forced to rely on alternative sources of capital, such as non-bank financial institutions, fintech companies, and state-licensed money lenders, albeit at significantly higher interest rates.
To thrive in 2025, SMEs must adopt innovative approaches to raising required capital for their businesses, such as:
Crowdfunding: Businesses should consider raising capital in small amounts from multiple independent investors, offering guaranteed periodic returns. This is a proven method of raising capital, particularly at the early stage of businesses.
Supplier credit: SMEs can negotiate extended payment terms with their suppliers. Supplier credit is a source of interest-free, short-term working capital financing for businesses.
Operating leases: Businesses should consider acquiring equipment or machinery without necessarily making any capital expenditure. Operating leases will allow businesses to make payments for assets in installments while they enjoy the full benefits of such assets.
Strategic partnerships: SMEs should collaborate more with one another in order to share resources and costs. Strategic collaboration and alliances can lead to improved liquidity and profitability for small businesses.
Asset sales or leasebacks: SMEs should consider selling idle assets in their businesses in order to raise capital for their operations. On the other hand, assets that are active can be leased back to create additional liquidity while such assets are still in use by the business.
The federal government’s planned launch of a national credit guarantee company is a welcome development. By de-risking credit for small businesses, this initiative will encourage financial institutions to increase lending to SMEs. However, its implementation must be monitored closely to ensure targeted sectors like agriculture, technology, and manufacturing benefit adequately from the scheme.
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Digital transformation
In the fast-paced digital economy, digitisation is no longer optional for small businesses. SMEs that embrace digital transformation can improve efficiency, competitiveness, and scalability. Key areas of digitisation for SMEs in 2025 should include:
Automation: SMEs should streamline repetitive tasks such as payroll, inventory management, and invoicing through SaaS platforms.
Operational efficiency: Businesses should consider using digital tools for communication, collaboration, and workflow management to improve turnaround times and reduce paperwork.
E-commerce: Retail businesses should start considering how they can expand customer reach by leveraging existing e-commerce platforms to sell more products online.
Cloud-based solutions: Adopting cloud-based applications such as cloud storage, CRM software, email marketing tools, and accounting systems to improve record-keeping and decision-making is the best approach for SMEs to manage cost and cash flow.
Artificial Intelligence (AI): SMEs should deliberately leverage AI to improve operations, enhance customer experiences, and support decision-making. Digital transformation provides significant advantages, such as reduced operational costs, expanded market reach, enhanced customer experiences, and greater resilience. As technology continues to evolve, SMEs that invest in digitisation in 2025 will be better positioned to adapt to new tools and trends, ensuring long-term sustainability.
“By de-risking credit for small businesses, this initiative will encourage financial institutions to increase lending to SMEs.”
Government policies and economic stability
The success of SMEs in 2025 will depend heavily on the macroeconomic environment and government interventions. The federal government has promised to reduce inflation to approximately 15 percent and stabilise the Naira through increased oil production and targeted economic measures. Key policy areas that the governments can focus on in order to influence growth in the SME sector in 2025 include:
Foreign exchange stability: Stabilising the exchange rate to ensure affordable import costs for raw materials and equipment. An unstable exchange rate will allow businesses to make realistic plans and projections.
Tax incentives: More aggressive tax reliefs, holidays, and exemptions for small businesses in key sectors will encourage SMEs and also reduce their operational costs.
Infrastructure development: Investing in energy, transportation, and internet infrastructure to lower production costs and improve market access will go a long way in empowering SMEs in Nigeria.
Ease of doing business: The government should simplify regulations and minimise bureaucratic obstacles to create a more supportive environment for SMEs.
Monetary policies: The government should implement monetary policies that will stabilise prices and the cost of production. They should be mindful of how their monetary policies impact the SME sector.
A stable and supportive policy environment can significantly improve SME performance and sustainability in 2025. Government should be intentional about promoting policies that will give small business breathing space within the economy in 2025.
Read also: Here are funding options for Nigerian startups and MSMEs in 2025
Capacity building
A skilled workforce is critical for SME success. In 2025, small businesses must invest in capacity building and upskilling of their employees in order to remain competitive. Areas where SMEs should focus to improve on capacity include:
Digital literacy: Business leaders should train their employees to use digital tools and platforms effectively. In an age of digitisation, it is unsavoury for any employee to be digitally deficient.
Financial management: Founders should enhance their knowledge of financial planning, budgeting, and risk management. This will help them take informed strategic decisions pertaining to their businesses.
Customer service: Customer service skills are important in today’s business world. SMEs must take actions to improve employees’ soft skills to deliver exceptional customer experiences.
Entrepreneurship training: Business owners should equip themselves with the skills needed to innovate, adapt, and scale their businesses.
As SMEs navigate an increasingly competitive and dynamic global market, enhancing employee capabilities and resources becomes essential to achieving sustainable growth and resilience.
Government agencies and private organisations should collaborate to provide affordable training programs for SMEs. Access to continuous learning opportunities will help businesses adapt to changing market demands and technological advancements.
Resilience and sustainability practices
The lessons from 2024 highlight the need for SMEs to build resilience and adopt sustainable business practices. As SMEs navigate increasingly competitive and dynamic global and local markets, enhancing their capabilities and resources becomes essential to achieving sustainable growth and resilience. To build a resilient and sustainable business in 2025, SMEs should consider the following:
Diversification: SMEs should reduce their dependency on a single revenue stream by exploring new markets and product lines. Diversification is a major strategy to remain profitable despite rising operating costs.
Enterprise risk management: SMEs should have in place contingency plans to address market risks, operational risks, economic disruptions, supply chain issues, or policy changes that may have a negative effect on the business if they crystallise.
Effective organisational structure: The way a business organises its people, processes, and decision-making authority can significantly influence its ability to respond to challenges, adapt to changes, and maintain continuity during disruptions. SMEs should put some level of structure and processes in their businesses.
Energy efficiency: Energy cost has become a major driver of operating cost for SMEs as of today. Powering generators with diesel or petrol has become rather unwise for small businesses. SMEs should invest in renewable energy sources and energy-saving technologies to mitigate high energy costs.
Read also: How tax reforms will benefit SMEs, Nigerians
Sustainable practices: SMEs can benefit by aligning with global sustainability goals, such as reducing waste, adopting eco-friendly production methods, and implementing a circular economy model.
Resilient and sustainable SMEs will not only survive economic challenges but also attract environmentally conscious consumers and investors. Irrespective of economic challenges, resilient businesses stand a much better chance of achieving going concern than their contemporaries.
Adeyiga is the founder and chief executive officer of CreditPRO Business Support Services Ltd.
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