Operators of Small and Medium Enterprises in Nigeria are expressing growing concerns about the feasibility of expanding their businesses due to a challenging economic climate.
The foreign exchange crisis, which has heavily impacted import-dependent industries, is one of the key obstacles to growth.
While Nigeria’s Gross Domestic Product showed a moderate increase of 3.19% in Q2 2024, up from 2.51% in the same period last year, the economy remains vulnerable to inflationary pressures.
Inflation has risen sharply to 32.7%, exacerbated by the devaluation of the naira and high borrowing costs, creating a more difficult environment for SMEs.
With these challenges, the vast majority of Nigerian businesses, which make up more than 80% of the labour force, are struggling to grow and expand, putting their future prospects at risk.
These SMEs, crucial for employment and economic activity, now face a grim outlook, unable to achieve their expansion goals amidst soaring costs and an unpredictable economic landscape.
According to the National Bureau of Statistics, inflation in Nigeria has surged to 32.7%, a development that, when combined with the devaluation of the naira and high borrowing costs, has left small businesses struggling to expand.
Commenting, The National Vice President of the National Association of Small-Scale Industrialists, Segun Kuti-George, said, “The economic situation is currently hostile to businesses because the cost of input is going up every day,” Kuti-George said. “A lot of businesses are closing shop. The first thing we should be looking at is survival.”
He emphasized that businesses can survive and even potentially expand by embracing innovation and diversification.
In the face of current economic challenges, he stressed that adaptability and creative strategies are key to overcoming difficulties and seizing new opportunities for growth.
Kuti-George said, “For any business to continue to exist and expand under the current situation, it has to be innovative,” citing Samsung’s evolution from tomato farming to electronics manufacturing as an example of successful diversification.
Kuti-George pointed out that industries with significant expansion potential include agriculture, agro-processing, and technology.
For instance, a beverage producer might diversify into water production, using existing resources to minimise additional costs. “You just look for products that won’t require so much investment for you to be able to produce,” he explained.
Kuti-George also recommended that businesses consider exporting, especially under the African Continental Free Trade Area (AfCFTA), as Africa offers substantial growth opportunities.
Meanwhile, the Director of the Nigerian Association of Small and Medium Enterprises, Eke Ubiji noted that forex volatility is a major barrier to expansion, especially for businesses that rely heavily on imports.
“Only businesses that forex does not disrupt so much are more likely to expand,” Ubiji said.
He added that companies that source raw materials locally and produce goods with strong local demand are in the best position to succeed.
Ubiji pointed to the success of Nigeria’s homegrown automobile manufacturer, Innoson, as an example. Innoson has thrived by catering to government agencies and local consumers, offering an affordable alternative to imported vehicles that would otherwise be costly due to exchange rate fluctuations and import duties.
The NASME director noted, “Because Innoson produces his vehicles locally, they are moving in the market. By the way, a lot of government agencies and companies are buying from Innoson.”
In her remarks, CEO of Made-in-Africa Brand Ambassador, Flora Mbeledeogu, stressed the need for businesses to understand their target markets and conduct detailed feasibility studies before expanding.
“You don’t just hear, ‘Oh, it’ll be nice to have my product in Ghana,’ and just rush off,” Mbeledeogu said, stressing the need for in-depth market research to identify competition and fit.
She encouraged small businesses to study others in their industries and learn from their expansion strategies into new markets.
By leveraging these insights, they can apply successful approaches to enter those markets and fuel their own growth.
