Skyrocketing inflation threatens to crush Nigerian businesses but ARINZE NWAFOR articulates how business owners, especially SMEs, can be resilient and expand their operations
High inflation is on every businessperson’s tongue from Mararaba Market in Nasarawa State to Balogun Market in Lagos State. This phenomenon pervades the Nigerian daily life, as the headline inflation rate of 34.6 per cent has implications for families and businesses seeking to understand how to adapt.
The PUNCH has reported extensively on how rising costs of goods, fluctuating exchange rates, and eroded consumer purchasing power have created an environment where many businesses struggle to stay afloat, let alone expand.
However, business is an organism that needs to grow regardless of the setback. The Director-General of the Lagos Chamber of Commerce and Industry, Dr. Chinyere Almona, observed that businesses face cost-of-production challenges and regulatory hurdles while noting some survival tactics businesses have adopted to get by.
“They (businesses) survive through cost-cutting measures like staff reduction, a hybrid work model to save on energy costs, adopting virtual meetings to replace in-person events, and sourcing raw materials locally to avoid the troubles of sourcing foreign exchange to import.
“However, even in challenges, there could always be opportunities within the system that risk-takers can explore to expand into new businesses that are projected to be profitable,” Almona remarked.
As the LCCI Director-General rightly points out, inflation presents challenges but creates opportunities for innovation and adaptation. Entrepreneurs who pivot quickly and implement strategic growth plans can turn adversity into a competitive advantage. Let us explore case studies of triumph over inflation and learn how businesses can thrive in these times.
Examples from across the world
Argentina’s resilient SMEs
Argentina has faced hyperinflation for decades, with its annual inflation rate reaching a 34-year high at 211.4 per cent at the close of 2023. Businesses had it tough. Yet, some small and medium enterprises have found ways to adapt and grow. One example is a Buenos Aires-based restaurateur, Narda Lepes, who shifted her focus to locally sourced ingredients to reduce reliance on imported goods. Her business survived and became a staple in the community as she highlighted local flavours and created a unique dining experience.
Turkey’s export-orientated SMEs
In Turkey, where inflation surged past 50 per cent in recent years, small manufacturers turned to exports as a growth strategy. Companies like Teksan, a manufacturer of power generation systems, including diesel and gas-powered generators, expanded into Middle Eastern and African markets. By pricing their goods in foreign currencies and leveraging trade agreements, they mitigated the impact of the depreciating Turkish lira while accessing untapped demand abroad.
Zimbabwe’s entrepreneurial innovators
Zimbabwe’s prolonged hyperinflation led many small businesses to adopt barter trade or use stable foreign currencies like the US dollar. One standout story is that of Fresh in a Box, an online grocery delivery startup founded in 2018 by Kudakwashe Musasiwa and Rufaro Dhliwayo, who delivered fresh farm produce directly to customers’ homes. The business bypassed traditional brick-and-mortar models by leveraging digital platforms, reducing overhead, and enabling greater agility in response to price volatility.
India’s digital transformation
Companies in India increasingly adopt digital systems as a shield against inflation. Small businesses like Bombay Trooper, a lifestyle clothing brand established in 2013, embraced e-commerce early to scale beyond their local markets. The company thrived by using platforms like Amazon and the Indian e-commerce platform Flipkart to reach a broader customer base, avoiding the cost burden of physical store expansions.
Businesses to watch for
To expand successfully in the Nigerian market, focus your energy and resources on more viable sectors to get the best out of your efforts.
The LCCI Director-General, Almona, suggests: “I will advise businesses to focus on growth sectors of the economy. Looking at the Gross Domestic Product figures of the last three quarters, some sectors have remained top growth contributors, most consistently contributing to the GDP. They include agriculture, information and communication technology, trade, crude petroleum and gas, and real estate.
“Businesses can look at opportunities in agriculture, specifically in crop production, poultry, and fisheries. While food inflation is a major driver of headline inflation today, the unmatched demand for and constrained supply of poultry and livestock are the top drivers of food inflation. A huge gap exists between supplied poultry and livestock and what is demanded. More productive activity is needed to meet the current demand.
Almona pointed to the high level of activity in the ICT sector due to the digital transformation driving industries and services today, noting, “Expansion is very possible in this (ICT) sector. With job losses reaching new records, some people have left their jobs to start a trading business involving importation, buying, and selling.”
The LCCI DG told The PUNCH other areas for business expansion include the movement of goods globally, especially through e-commerce and energy, adding, “We call on the government to create an environment through policies that make export and import seamless.
“There are also opportunities for expansion in the energy sector, (including with) the new compressed natural gas redeployment and renewable energy (solar panels, inverters, batteries). The government should target attracting manufacturers to establish their factories in Nigeria. That will create jobs and provide opportunities for skills transfer.”
Practical tips for Nigerian SMEs to expand
Focus on operational efficiency
When you audit your operations thoroughly, you will identify cost-saving opportunities. It pays to be tight with your bookkeeping in high inflation times. Streamline inventory management, renegotiate supplier contracts, and adopt lean practices to minimise waste. For instance, transitioning to just-in-time inventory systems can reduce holding costs and improve cash flow.
Leverage technology
Technology levels the playing field for small businesses. Use digital tools to optimise operations and customer engagement. Get Opay for point-of-sale systems or Square. Also, QuickBooks, the invoicing tool, makes for good financial management and can save time and reduce overhead. Social media platforms like Instagram and TikTok are useful for marketing, even WhatsApp. Check out the developments in artificial intelligence and find a tool to help you work better.
Explore new markets
Expanding into new geographical or demographic markets can diversify revenue streams and mitigate risks. Start with thorough market research to identify underserved areas or consumer segments. For example, rural communities often have less competition but growing demand for essential goods and services. Partnering with logistics companies or using e-commerce platforms can help bridge the gap in distribution.
The Chief Executive Officer of Made-in-Africa Brand Ambassador, Flora Mbeledeogu, offers some advice: “Expansion is not something you just do because someone else is expanding. You need to understand your target audience and do research and feasibility studies of the new markets you’re expanding into.
“You don’t just hear, ‘Oh, it’ll be nice to have my product in Ghana,’ and just rush off to Ghana without doing research, without getting a market intelligence report to find out what product should fit into the Ghanaian market or what product can fit into the Tanzanian market.
“After understanding the market, learn who your competition is. Who are the people doing it there and succeeding at it? What business? Because every business has competition.”
Diversify
Diversify your product or service offerings to create additional revenue streams. For example, a bakery could add delivery services or partner with event planners to cater to corporate functions. The more diversified your income, the less vulnerable you are to market fluctuations.
Collaborate and partner
Collaboration can unlock resources and expertise you may not possess. Consider forming joint ventures with other small businesses or partnering with larger organisations to access new markets.
Mbeledeogu recommends adopting a “franchise option.” She explains collaboration further, saying, “Small and medium enterprises collaborate with other organisations and work hand-in-hand. For instance, even in my company, MABA, where we have over 1,000 small-scale manufacturers, one of the key things we do is leverage our presence in 30 African countries.
“We leverage that to say, if you want to expand, it’s easier for you if you’re in an association or community that fosters this kind of growth.”
Hedge against currency risks
Inflation in Nigeria is often tied to currency volatility. To manage this, consider pricing your goods in foreign currencies if your customers or suppliers are international. Explore financial instruments like forward contracts or set up domiciliary accounts to hedge against further naira depreciation. Seeking financial advice on these strategies can provide long-term stability.
Train staff and retain them
Your team is your greatest asset, and you need them as much as they need you. Provide training opportunities that enhance their skills and productivity and watch them contribute more to your business growth.
Leverage government and private sector support
Take advantage of available grants, loans, and training programmes organised by the government and private sector initiatives. The Nigerian government and organisations like the Tony Elumelu Foundation often provide funding and mentorship for small businesses. Knowing how to access these resources can make the difference between stagnation and growth.
It’s time to get to work
You can expand your business regardless of the country’s fix, but you must approach growth with resilience and creativity.
