Nigerian small businesses face inflationary hurdles

Small businesses constitute the backbone of Nigeria’s economy, serving as its lifeblood. With a vast majority of the population engaged in this sector, they contribute significantly to the nation’s gross domestic product (GDP). According to recent data from the National Bureau of Statistics (NBS), small businesses represent 96 percent of all businesses in Nigeria and employ 84 percent of the population.

Despite their pivotal role, the sector faces daunting challenges, particularly from inflationary pressures. Inflation rates have surged for the third consecutive month since December 2022, rising from 21.91 percent in February to 22.04 percent in March 2023. This inflation disproportionately affects lower-income groups, who constitute a significant customer base for small businesses, leading to reduced patronage.

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Consequently, small business owners find themselves in a quandary, compelled to either increase prices to sustain operations or resort to loans to stay afloat. However, the upward spiral of prices exacerbates the financial strain on customers, driving many into poverty and further dampening demand for goods and services provided by these businesses.

Moreover, fixed-income earners, whose salaries have remained stagnant since the minimum wage hike in 2019, bear the brunt of this economic turbulence. Calls for wage increases from groups like the Nigeria Labour Congress (NLC) and Trade Union Congress of Nigeria (TUC) have yet to yield results, amplifying the financial stress faced by workers.

The confluence of inflation and currency exchange fluctuations intensifies the plight of small businesses, pushing many to the brink of collapse. Owners lament operating at losses, while others grapple with the challenge of accessing affordable finance amidst high-interest rates and stringent collateral requirements. Additionally, inadequate infrastructure and fierce market competition compound their woes, hindering growth and market expansion.

In response to these adversities, small business owners are adopting various strategies to survive the storm. Some, like Olabode Ayobami, a bread vendor in Lagos, reluctantly absorb losses to retain customers, while others, like Olamide Sanni, adjust pricing strategies and budgeting to mitigate inflationary impacts. Consultants, such as Alo Balogun, advocate for strategic delegation, employee engagement, and cost reduction measures as essential survival tactics for small businesses navigating turbulent economic waters.

As inflation continues to loom large over Nigeria’s small business landscape, proactive measures and innovative strategies are imperative for their resilience and long-term sustainability.