“Before now, it was difficult for MSMEs to get loans from banks and survive. With the recent hike in the interest rate, the situation will only worsen,” said Femi Egbesola, national president of the Association of Small Business Owners of Nigeria.
“Things are getting harder for small business operators in the country without an end in sight,” Egbesola said.
He said more businesses would shut down their operations amid the fresh cost-of-doing-business crisis in the country, coupled with the credit crunch and high borrowing costs.
Egbesola’s statement is evident in the most recent report by the National Bureau of Statistics and the Small and Medium Enterprises Development Agency of Nigeria. It said the number of MSME operators in the country declined by 4.3 percent to 39.7 million in 2020 from 41.5 million in 2017 – an indication that 1.9 million businesses have closed shop.
The MSMEs’ contribution to GDP for the period also declined from 50 percent in 2017 to 46.3 percent in 2020. Experts say there will be a further drop in the number of MSMEs when the figure for 2022 is released.
They said many businesses cannot easily access finance to expand, adding that with the continued increase in interest rates, the cost of doing business for MSMEs would continue to rise, with early-stage businesses and start-ups worst hit.
Many tech start-ups are seeking offshore funds, grants, and equity to pump cash into their businesses.
“The increase in the two monetary parameters, MPR and CRR, portend worrisome negative consequences for the manufacturing sector,” Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria (MAN), said in a recent statement.
Speaking on the implication of the latest rate hike to 15.5 percent, Ajayi-Kadir said it would increase borrowing costs for businesses beyond the extant double-digit rate, which disincentivises new investments.
He added that it would lead to increased factor costs, which feed into high product prices, thus making the country’s manufacturing unproductive.
In the first half of 2021, the average interest rate charged to Nigerian manufacturers stood at 24 percent, which increased by two percentage points compared to the same period in 2020, according to data from the MAN 2021 half-year review.
The private sector is already competing for funds in the banks with federal and state governments, some of which are borrowing to pay salaries.
“The new interest rate regime as a result of the interest rate hike is a disincentive for business operators in the country,” Adams Adebayo, a professor and chairman of the Lagos chapter of the Nigerian Association of Small and Medium Enterprises, said in response to questions.
“Finance and liquidity is the engine of any business, and if we cannot easily access cheap loans, then how can we survive and compete?”
