Small and medium-sized enterprises (SMEs) form the backbone of Nigeria’s economy, contributing nearly 48% of the national GDP and employing over 80% of the country’s workforce. However, recent economic policies introduced by the Nigerian government; targeted at bolstering revenue, stabilising inflation, and reforming the currency; have placed a substantial strain on these businesses. The effects are evident across tax burdens, credit access, and regulatory costs, all of which directly impact SMEs’ capacity to thrive and support economic growth.
Increased Tax Burden on SMEs
One of the most significant changes for Nigerian small and medium-sized enterprises is the increase in tax rates and stricter enforcement of compliance requirements. To boost public revenue, the government has raised the Value Added Tax (VAT) from 5% to 7.5%, increased excise duties on various goods, and implemented additional levies. These tax hikes might generate higher revenue for the government, but they translate into higher operational costs for businesses, especially smaller ones operating on tight budgets. Many SMEs, which often operate informally or on a small scale, struggle to adjust to the cost increases.

According to a report by the Nigerian Association of Small and Medium Enterprises (NASME), over 60% of SMEs surveyed in 2023 expressed difficulty in meeting new tax obligations. The cumulative tax rate for Nigerian businesses, which combines VAT, corporate income tax, and other levies, now stands at an estimated 34.8%. Sadly, this is one of the highest in West Africa. For SMEs, this makes compliance both financially draining and complex, as they lack the resources that larger companies might have to manage complex tax strategies.
Currency Volatility and Inflation Effects
In addition to higher taxes, SMEs are facing the effects of currency volatility. The Central Bank of Nigeria (CBN) recently adjusted its foreign exchange policies, allowing the Naira to float against major currencies. This move was intended to stabilize the currency and attract foreign investment. However, it resulted in the Naira depreciating sharply, with rates on the parallel market reaching as high as ₦950 to the U.S. dollar by mid-2024.

For SMEs that rely on imports, currency devaluation has made foreign-sourced raw materials significantly more expensive. The National Bureau of Statistics (NBS) reported that inflation had risen to 25.8% in September 2024, up from 20.8% in January, driven largely by higher import costs. This inflationary pressure has forced SMEs to raise prices, making their goods and services less affordable for consumers, reducing demand, and further affecting revenues.
Access to Credit and Financing Challenges
Access to affordable credit is crucial for SMEs’ growth and survival, but recent monetary policy changes have constrained this access. The CBN has raised the Monetary Policy Rate (MPR) several times in the past year, with the latest hike pushing it to 20.5% in an effort to curb inflation. The higher MPR, however, has led to increased lending rates by commercial banks, with some charging up to 35% on business loans, making borrowing expensive for SMEs.

According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), more than 75% of SMEs lack access to formal credit. Without affordable financing options, SMEs face difficulties in funding expansion, purchasing inventory, and covering operational costs. Even government-backed schemes aimed at helping SMEs access credit at reduced rates are often oversubscribed or have rigorous requirements, leaving many small businesses without the support they need.
Regulatory Compliance Costs
The cost of compliance with government regulations has also increased for Nigerian SMEs. The government has implemented stricter import restrictions to boost local production, but this has affected sectors dependent on imported goods or components. Regulatory hurdles around licensing, product certification, and environmental compliance add to the operational costs for many SMEs, especially those in manufacturing and retail.

In response to these policies, some SMEs are shifting towards local sourcing for raw materials to manage costs. However, local suppliers sometimes cannot meet the quality standards or quantity requirements, leaving SMEs with fewer viable options. Moreover, the inconsistent enforcement of regulations creates an unpredictable business environment where compliance costs can suddenly spike, making planning difficult for SME owners.
Rising Unemployment and Demand for Social Services
The recent economic policies have also led to unintended consequences for employment. As small and medium-sized enterprises struggle with increased costs, many are forced to downsize or freeze hiring to manage expenses. The NBS estimates that Nigeria’s unemployment rate could reach 37.4% by the end of 2024, up from 33.3% in 2022. The resulting job losses affect consumer spending power, leading to a cycle where reduced demand further pressures small and medium-sized enterprises, creating a challenging environment for growth.

Moreover, many SMEs that support community programs or provide social services—especially those in rural areas—have had to scale back due to rising costs. The reduced community engagement has affected local economies and slowed economic development, creating a ripple effect across regions heavily reliant on SMEs.
Government Interventions and Potential Relief
In response to these challenges, the Nigerian government has introduced several initiatives to support SMEs. For example, the CBN’s Anchor Borrowers’ Programme aims to provide targeted credit to agricultural SMEs, and the Ministry of Industry, Trade, and Investment has launched grants and subsidies for select sectors. Additionally, the Bank of Industry has extended a soft loan program to offer SMEs financing with interest rates below market averages.

However, these initiatives, while beneficial, cover only a fraction of the SMEs impacted by recent policies. A 2024 report by PwC noted that only about 15% of Nigerian SMEs benefit from government-backed programmes. The gap underscores the need for more inclusive policies that address the structural challenges SMEs face, including access to affordable financing and streamlined tax processes.
Conclusion: Toward a Sustainable Path for SMEs
The impact of Nigeria’s new economic policies on small and medium-sized enterprises cannot be overlooked. With rising taxes, inflation, currency volatility, and regulatory costs, many small businesses are at a crossroads, forced to reconsider their viability in the current economy. While government programmess provide some relief, they need to be expanded and made more accessible to ensure they benefit a larger portion of the SME sector.
If policymakers can introduce reforms that balance revenue generation with economic inclusivity, small and medium-sized enterprises might find a sustainable path forward. Until then, many will continue to operate under financial strain, affecting not only their growth but also the broader Nigerian economy.
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3 Comments
This is insightful. We do not expect a bad government to make economically friendly/viable policies. The lifespan of SMEs in Nigeria is on a thin rope. Therefore, it’s high time we rescued them.
Thank you for the piece.
I like that this organization has different writers. I enjoyed this piece. Nigeria needs to do more.
Thank you
Thank you