The Plight of Nigerian SMEs: Navigating the Forex Labyrinth
Nigeria’s Small and Medium Enterprises (SMEs), the engine room of its economy, find themselves grappling with a formidable challenge: the nation’s volatile foreign exchange market and a weakening naira. This predicament poses a significant threat to their survival and, consequently, to the overall stability of the Nigerian economy. SMEs, which contribute nearly half of the nation’s Gross Domestic Product (GDP), are particularly vulnerable to fluctuations in the naira’s value, especially those reliant on imported raw materials, machinery, and finished goods. The Central Bank of Nigeria’s (CBN) 2023 unification of the forex market, coupled with persistent dollar shortages, has intensified the pressures faced by these businesses. The naira’s sharp decline against the US dollar in early 2025 further exacerbated the situation, driving up import costs and squeezing profit margins.
The devaluation of the naira has a cascading effect on SMEs. Higher import costs translate directly into increased prices for consumers, dampening demand and further impacting sales. This puts immense strain on SMEs’ profitability, forcing many to cut production, reduce staff, or even close their doors. The Lagos Chamber of Commerce and Industry reported a stark reality: a significant majority of SMEs witnessed profit margins shrink by over 20% in 2024, primarily due to escalating forex costs. This erosion of profitability not only jeopardizes the sustainability of individual businesses but also threatens the broader economy, given the crucial role SMEs play in job creation and economic growth.
Experts across various sectors have voiced their concerns and offered potential solutions. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, stressed the urgency of government intervention. He advocates for stabilizing the forex market and supporting SMEs through subsidies and targeted reforms. Yusuf warned that inaction could lead to mass layoffs, increased poverty, and a setback to Nigeria’s economic diversification goals. The current forex crisis has put SMEs in survival mode, forcing them to make difficult decisions that could have long-term negative consequences.
The challenges faced by SMEs extend beyond simply accessing forex. The parallel market, often the only recourse for many businesses unable to obtain forex through official channels, imposes even higher rates. This pushes up costs further and exacerbates the strain on their already thin margins. The National Bureau of Statistics (NBS) reported a significant year-on-year increase in import costs, underscoring the heavy burden on businesses. Manufacturers, particularly those reliant on imported raw materials, are forced to consider local alternatives, which often compromise quality or struggle to meet demand. This substitution effect can negatively impact the quality of finished goods, further affecting competitiveness and potentially eroding consumer trust.
Various stakeholders have proposed strategies to mitigate the forex crisis and support struggling SMEs. Experts emphasize the need for government intervention to prioritize forex allocation to businesses, particularly those involved in importing essential goods. This targeted approach could stimulate economic growth and enable businesses to thrive. Addressing the root causes of Nigeria’s forex challenges, including over-reliance on oil revenue, weak non-oil export performance, and policy inconsistencies, is also crucial for long-term stability. Targeted measures such as increasing forex supply for SMEs, providing tax incentives for local production, and improving access to credit facilities could offer much-needed relief.
The narratives of individual business owners offer a poignant glimpse into the daily struggles faced by SMEs. Idris Ogundele, a Lagos-based electronics importer, shared the stark reality of his situation, having to drastically cut import orders due to the exorbitant cost of forex. Even when he manages to secure forex at high rates, the resulting price increases make his goods unaffordable for many customers, leading to declining sales. This vicious cycle of rising costs, reduced demand, and declining sales threatens the viability of businesses like Ogundele’s and underscores the urgent need for effective solutions. The current forex crisis not only jeopardizes the survival of countless SMEs but also poses a serious threat to Nigeria’s economic stability and its long-term growth prospects. Addressing this challenge requires a multifaceted approach involving government intervention, policy reforms, and targeted support for the backbone of the Nigerian economy: its SMEs.
