Inflation generally refers to a rapid increase in the general price of goods and services in the country over a certain period of time. Inflation in Nigeria has doubled since 2016 reaching 17.33% in 2021. The current COVID-19 pandemic has contributed immensely to the recent spike, as oil prices plunged thereby leading to reduced profits in export. These reduced exports have been met with increasing imports over the months leading to a kind of inflation known as imported inflation.
Imported inflation is a kind of inflation induced by heavy dependence on imported products. When there are more imports than exports into the country, it simply means that the forex reserve is being depleted more quickly than it is being replenished; leading to a rise in the price of the dollar against the naira. The implication of this is that more Naira needs to be exchanged for the same quantity of products.
Micro, Small, and Medium Enterprises (MSMEs) are at forefront of these kinds of exchanges due to the heavy import duties they pay. Unfortunately, they are also at the receiving end of its negative impact because when prices rise, their expense cost increases thereby eroding profits.
As a result, Nigerian businesses have been left with no option other than to pass down the increases in marginal costs of production to their consumers in form of price hikes on durable and non-durable consumer goods. When prices rise, the purchasing power of naira reduces.
The best way to cut down on this kind of inflation is to reduce excessive consumption of imported goods and look out for locally produced items that can be produced at a less exorbitant cost. However, MSMEs are also facing a number of problems like financing, technological deficiencies, marketing issues, increasing domestic and global competition… especially financing. In order to overcome these issues and compete with large and global enterprises, MSMEs need to adopt innovative approaches in their operations.
In Nigeria, small businesses are the drivers of economic growth and financial development contributing over 50% of the total GDP. (PwC’s MSME survey 2020) Yet, obtaining business funding is a major problem they face. Access to credit facilities is essential to the growth and development of small and medium enterprises in newly emerging markets and developing countries. According to the National Bureau of Statistics (NBS), 55% to 68% of MSMEs are either not served or not adequately served by financial institutions. Barely 5% of SMEs have been able to get funding to meet their day-to-day obligations, much less, expansion.
Innovative microfinance banks in Nigeria can help mitigate funding challenges for MSMEs. One model example is Advans La Fayette Microfinance Bank, a financial partner for businesses, armed with the resources and products to offer affordable business loans of up to 75m Naira for MSMEs who require adequate capital to restructure their business processes and beat the inflationary effect of imports within Nigeria and its neighbouring countries. The Advans Group is a leading international microfinance group, currently serving clients in 9 countries, and shareholders such as the IFC (World Bank), KfW, Advans SA.
At Advans, efforts are driven towards financial inclusion, ensuring that no matter where you are and what you do, you have access to financial services. Working together with MSMEs to fight the ailing impact of inflation, and providing adequate financing needed to fund their business operations, thereby creating a win-win situation for the suppliers and final consumers.
Together, we can make our economy better.