FX instability threatens SMEs’ survival

The persistent volatility of Nigeria’s foreign exchange market is inflicting severe hardships on small and medium-sized enterprises that rely heavily on imported raw materials.

The rapid depreciation of the naira has escalated import costs, eroded profit margins, and disrupted business operations across the sector.

In recent months, the naira has experienced substantial fluctuations due to declining oil prices, inflation, and forex market dynamics.

The Central Bank of Nigeria has implemented various measures to stabilise the currency, including forex restrictions and multiple exchange rates, but these efforts have yielded mixed results.

Meanwhile, this instability makes financial planning and budgeting more difficult for businesses, as it becomes challenging to forecast costs and revenues accurately.

The manufacturing sector has borne the brunt of the crisis. According to the Manufacturers Association of Nigeria, the Central Bank of Nigeria’s failure to honour $2.4bn in forex forward contracts has resulted in staggering forex-related transaction losses exceeding N1.5tn.

It noted that this severe blow has pushed many small and medium-sized enterprises out of operation, deepening unemployment and fuelling broader economic instability.

Speaking with The PUNCH, Mr Chinedu Okeke, who runs an electronics store in Ajao Estate, Lagos, said, “The forex situation is a nightmare. I used to import directly from China, but now the exchange rate changes so quickly that I cannot even plan. What I budgeted for last month is useless this month. Every shipment costs more, yet customers are spending less.”

He explained that many electronics depend on the dollar for pricing, even when bought locally.

According to Okeke, distributors are adjusting their prices daily, and we small retailers are left struggling to keep up.

“I have had to cut down on stock because I just can’t afford to import like before. If things don’t stabilise soon, businesses like mine will start shutting down; it is already happening to some of my neighbours in the same business,” he stated.

Also speaking, Mrs Sunbo Adetifela, who runs a small-scale import and retail business in FESTAC, said, “This forex instability is killing my business. Each time I try to restock, the dollar rate has gone up. A container I brought in recently, I paid N1,500 per dollar.

She explained that she is spending more for the same quantity of goods. I am spending almost twice as much now just to bring in the same goods, but I can’t increase my prices that fast because customers simply can’t afford it.

“We are caught in the middle with high costs, low sales, and no clear support from the government. If this continues, many of us won’t survive the year,” Adetifela lamented.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, says uncertainty is one of the biggest threats to business growth in Nigeria.

“One of the worst things that businesses detest is uncertainty because they need some level of certainty to be able to plan what they are doing with your investment, your invoicing, and your contract terms, all of which require some level of certainty in the business environment,” Yusuf said.

He warned that without policy consistency, businesses cannot plan effectively, which undermines growth, job creation, and investor confidence.

“No investor wants to commit resources in an environment where the rules keep changing. Predictability is the bedrock of business confidence,” he added.

Also, the Director-General of the Manufacturers Association of Nigeria, Mr Segun Ajayi-Kadir, raised an alarm over the impact of the non-payment of FX forwards on the industrial sector.

“The non-payment of FX forwards has severely crippled affected companies, pushing many towards bankruptcy,” Ajayi-Kadir said.

He noted that manufacturers who entered forward contracts are now facing huge losses due to unmet obligations, leading to cash flow crises, production disruptions, and job cuts.

“If this continues, more manufacturing firms may be forced to shut down,” he warned.

On his part, the National Vice Chairman of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George, has strongly attributed the sharp drop in the importation of industrial supplies to the ongoing forex crisis.

“Manufacturers and business owners are facing immense difficulty accessing the forex needed to import essential raw materials and machinery. This shortage is crippling operations, with many forced to scale down drastically or shut down production altogether,” Kuti-George stated.

However, experts have noted that many SMEs struggle to switch to local sourcing due to limited resources and a lack of viable alternatives, leaving them exposed to forex volatility.