A new report by Price Waterhouse Coopers has revealed that up to 67% of MSMEs in the country have seen a decline in demand for their products in the last two years.
The report is a survey of over 500 Micro Small and Medium Enterprises (MSMEs) across 13 sectors of the economy with annual sales turnover of N5 million and above.
According to the report, 38% of MSMEs who reported a decrease in demand for their products attributed it to the high cost of products while another 36% noted it was due to low purchasing power and others.
It states, “67% of surveyed MSMEs reported that there has been a decrease in the demand for their products or services. When asked the reason for the decline, 38% attributed it to the high cost of their products and 36% reported that the low purchasing power of consumers was the major reason for the decline. Furthermore, while 12% reported that the decline was due to consumers switching to alternatives, 10% attributed it to changing consumer preferences.”
Furthermore, access to financing continues to remain a problem for MSMEs with around 27% stating that high interest rate is the major barrier discouraging them from getting loans in the country.
Also, 26% of respondents in the survey stated that too many procedures were the major barriers while 16% noted that insufficient collateral.
The report noted that factors like insufficient collateral and inadequate documentation can be attributed to the informal nature of many MSMEs in Nigeria, particularly micro and small enterprises. These businesses are often seen as too costly and risky to serve.
Among the surveyed MSMEs, 33% reported needing less than N500,000 in their most recent loan, 23% received between N500,000 and N2 million ($1,182 and $4,728), and 21% obtained loans exceeding N2 million. The loan amounts indicate that most MSMEs operate on a smaller scale, with 40% of respondents stating they needed the loans primarily for working capital.
The decline in consumer demand for MSMEs is expected considering the rise in inflation in the past two years. Nigeria’s inflation has risen consistently since January 2023 reaching 34.19% as of July 2024- the highest in 28 years.
Furthermore, the removal of fuel subsidy in June 2023 coupled with the unification of the foreign exchange market which saw the Naira lose over 100% of its value resulted in the most severe cost of living crisis in a generation.
Furthermore, the rise in interest rate has negatively affected access to finance for businesses. The Central Bank of Nigeria (CBN) has consistently increased benchmark MPR since May 2022 reaching 26.75%. In 2024 alone, the apex bank has hiked interest rate by a combined 800 basis points to the current rate.