LAGOS, 7 August 2024 – PwC has released its 2024 Micro, Small, and Medium Enterprises (MSMEs) Survey, providing insights into the trends, challenges, and strategies essential for small businesses in Nigeria to build resilience to succeed in a dynamic landscape.
A statement from the firm noted that the PwC MSME Survey 2024, titled ‘Building resilience: Strategies for MSME success in a changing landscape,’ included 567 MSMEs across 13 sectors and 29 states. The report provides an in-depth analysis of their operations, macroeconomic conditions, financing, digitalisation, and regulatory and fiscal environment.
Over 50% of MSMEs reported falling sales due to high prices and low consumer spending power
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%) of MSMEs have experienced declining demand over the past two years.
When asked about the reasons for this decline, 38% of respondents pointed to the high cost of their products, while 36% cited the low purchasing power of consumers. Additionally, 12% noted that consumers were switching to alternative products, and 10% attributed the decline to changing consumer preferences.
These challenges are compounded by macroeconomic headwinds such as inflationary pressures, currency depreciation, and slow economic growth. Headline inflation in December 2023 was reported at 28.92%, driven by increased food prices, Naira devaluation, high import bills, and rising energy and logistics costs. Inflation is projected to decline marginally to 21% in 2024, but MSMEs may continue to face sustained inflationary pressure due to the pass-through effect of rising international oil prices (forecasted to average $93.24/b in 2024) 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.
Commenting, Sam Abu, Country Senior Partner, PwC Nigeria, said:
“MSMEs continue to contribute significantly to the global economy, creating jobs, generating income, and fostering skills development. These contributions make the sector pivotal to Nigeria’s growth, especially now given our country’s current challenges. However, the sector’s full potential remains untapped due to persistent challenges that hinder its ability to lift people out of poverty and drive the economy forward. Despite these challenges, Nigerian MSMEs have demonstrated remarkable adaptability in navigating a complex business environment characterised by challenging macroeconomy and government policies, highlighting their potential to drive economic growth. Our research underscores the dynamism of the MSME sector, emphasising the urgent need for supportive monetary and fiscal policies to empower them to significantly increase their contributions to Nigeria's economic development.”
MSMEs growth potential stunted by funding gaps, power outages, and overtaxation
The business owners surveyed reported that the top factors hindering their growth include inadequate access to finance, poor electricity, multiple taxes and levies, inadequate skilled labour, insecurity, and government policies.
Funding is a critical enabler of the growth and development of small and medium enterprises, with 35% of the businesses surveyed citing inadequate access to finance as their number one challenge.
Infrastructure challenges, particularly electricity, account for the biggest costs to the daily operations of MSMEs. Unreliable power supply is a major challenge for 21% of businesses. Nigeria’s power sector faces numerous issues, including deteriorating plant capacities, poor maintenance, inadequate gas supply, limited distribution networks, and the commercial viability of DisCos operations.
These challenges have had an adverse impact on the business environment, contributing to significant economic costs for MSMEs and the broader economy. Other structural challenges include multiple taxation (12%), inadequate skilled labour (11%), and insecurity (10%).
Abisola Atitebi, Partner, and Head, MSME Help Desk, PwC Nigeria, noted:
“MSMEs are a key driver of Nigeria’s economy, and their success is crucial for overall economic growth. The PwC MSME Survey 2024 highlights the sector’s resilience despite facing significant challenges such as macroeconomic headwinds, limited financing, and the urgent need for digital transformation.”
MSMEs face $32.2 billion financing gap
Nigerian MSMEs require an estimated $32.2 billion (₦13 trillion) in financing. Micro and small enterprises, particularly in agriculture and retail, need loans under $20,000. However, limited private sector lending, poor infrastructure, and lack of documentation hinder access to credit. While digital finance is emerging, innovation is crucial to bridge the gap and serve MSMEs effectively.
The way forward
To navigate the challenging macroeconomic environment, MSMEs must embrace digital transformation, including adopting digital solutions for financial transactions and regulatory compliance to enhance operational flexibility and efficiency. Additionally, MSMEs should expand their market reach through digital marketing, e-commerce platforms, and online marketplaces to attract new customers.
Strategic pricing and value proposition adjustments are crucial to maintain customer loyalty. MSMEs advocating for supportive policies and enhancing financial management are essential steps. Investing in skills development and fostering community engagement will further strengthen the sector's resilience.
Abisola Atitebi, Partner, and Head, MSME Help Desk, PwC Nigeria, concludes:
“To contribute meaningfully to Nigeria’s economy, MSMEs must embrace digital innovation and operate in a supportive business environment. Addressing the estimated $32.2 billion financing gap requires government reforms, MSMEs advocacy, financial literacy programmes, and partnerships with investors. Focusing on these areas will empower MSMEs to achieve sustainable growth. Our goal is to empower MSMEs, policymakers, and financiers with the knowledge needed to foster resilience and drive sustainable growth in this dynamic business landscape.”