Key Takeaways
- The Federal Government’s policies and actions exposed MSMEs to numerous challenges and few opportunities in 2023.
- Increasing cost of capital and inflation remain major challenges for MSMEs.
- 2024 promises an improved landscape for MSMEs with slower inflation predicted.
- MSMEs should embrace inexpensive capital, skills and access to information for leverage through institutions like LSETF.
2023 had NMSMEs in Nigeria meander through torrents of events and policies that posed a significant operational threat to businesses across multiple sectors. One of these was the Naira redesign policy introduced in the fourth quarter of 2022, with its full implementation evident in Q1 2023. While the policy prompted increased adoption of electronic transfer, the cash-based sub-sectors of the economy were worst-hit as the nation’s economy slowed in subsequent quarters, from 3.52% in Q4 2022 to 2.31% in Q1 2023 and 2.51% in Q2 2023 respectively.
Amidst gradual recovery from the Naira redesign policy, MSMEs were also exposed to the petroleum subsidy removal in the second quarter of 2023, leading to a surge in pump price by over 200% between September 2022 and September 2023 from an average of 192 Naira to 626 Naira respectively. Few days after the premium motor spirit’s subsidy elimination, the banker of banks, the Central Bank of Nigeria (CBN) announced the unification of the exchange rate windows, leaving the exchange rate to be determined by market forces. These two policy actions, although projected to have significant benefits in the long run, further posed numerous challenges to both businesses and consumers, as operating costs rose amidst the dwindling purchasing power of consumers. The inflation figure worsened, standing at 27.3% in October 2023 from 21.09% and 16% in the same period in 2022 and 2021 respectively.
Reacting to the inflationary trend, the CBN has consistently raised the Monetary Policy Rate by over 700 basis points from 11.5% in January 2022 to 18.75% as of Q4 2023. This squeezed access to finance by businesses from commercial banks amidst the rising cost of doing business. The increasing cost of capital is continually transferred to consumers as price increases maintain an upturn.
Another major highlight of 2023 is the rescindment of the 43 items banned from accessing forex in the official market by the CBN. The introduction of the ban led to increased demand for forex in the parallel market, thus creating round-tripping opportunities as the premium between the official and parallel market rates widened. This suspension has, however, increased the demand in the official window amidst limited forex supply.
Stemming from the introduction of the Nigeria Startup Act in 2022, the Federal Government launched the Startup Support and Engagement Portal in the pursuit of unlocking the innovation potentials of startups in Nigeria. The other major highlight is the commencement of application for the presidential grants and loans for MSMEs in Nigeria to tackle the fallout from the fuel subsidy removal.
2024: Outlook and Predictions
Ahead of the new year, it is important that MSMEs prepare for some salient events and policy outcomes that will affect them amidst the projection of 3.1 percent growth in the real GDP in 2024. Based on the actions and efforts from the Federal and State Governments, the following are the expectations for 2024:
- Continued policy tightening by the CBN: The Governor of the CBN, in a recent speech, hinted at the possibility of further monetary policy tightening for the next two quarters. As a result, businesses with plans to access credit from commercial banks should explore less expensive credit offerings for their businesses. Depending on the scale, grant and loan opportunities should be explored through Government agencies such as LSETF and other interventions such as the presidential grants and loans scheme amongst others.
- Improved level of economic activities: 2023 was an election year, which shifted the focus of governance and slowed public expenditure considerably. It is expected that the implementation of new budget in an election-free year will help the economy regain its momentum in 2024.
- Rollout of government interventions and the upward review of the minimum wage are expected to take effect in 2024, strengthening the purchasing power of numerous consumers and supporting the inputs of businesses.
- While the inflationary trend is expected to persist, the growth or otherwise will be dependent on two key factors – petrol pump price and foreign exchange supply. Overall, the International Monetary Fund projected an inflation figure of 23 percent for 2024, down from 25 percent in 2023.
Concluding Thoughts
2023 exposed MSMEs to a wide range of issues that threatened their sustainability, while also creating few windows of opportunities. However, while some factors that impacted businesses this year are expected to persist in 2024, businesses need to equip themselves with the right skills and access to information to leverage the opportunities that 2024 promises.
Lagos State Employment Trust Fund remains in the business of providing access to job and wealth creation opportunities for businesses and individuals in Lagos State. You can follow LSETF across all social media platforms (Instagram, X (Twitter), Facebook, YouTube and LinkedIn) and sign up four our weekly newsletter to stay informed about our opportunities.
