Key highlights
- The economists said there is a need for SMEs to adopt a cost management posture in order to navigate rising hikes in the interest rate and rising inflation.
- Higher energy prices continue to impact the operational costs and continued awkward pressure on capex and operating expenses.
- Nigerians cannot take much more of this economic hardship as goods and services are becoming more expensive on daily basis.
Some economic experts have called on the operators of Small and Medium Enterprises (SMEs) in Nigeria to adopt a cost management posture in their operations to help them remain afloat amid the sustained interest rate hike and rising inflation environment.
The experts were reacting to the increase in the official interest from 17.5% in January to 18% by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN).
Need for cost measures, investment and innovative marketing
Chinwe Egwim, the Chief Economist at Coronation Merchant Bank, told Arise TV that the situation calls for the SMEs to adopt a cost management posture in order to navigate the hike in the interest rate and rising inflation.
Egwim also advised SMEs to consider seeking investment opportunities that can generate additional income for their operations adding that the operators in the sector should imbibe innovative marketing.
- “From an SME perspective, I would say that in a high inflation environment, innovative marketing where products are taken into consideration for different customers under a portfolio remains important given that consumption patterns continue to point towards decisions around competing priorities and that is not surprising because purchasing power is receiving a lot of pressure right now,” she said.
What the rate hike means to ordinary Nigeria
Reacting to what the increase in the interest rate and inflation mean to average Nigerians, Joshua Odebisi, the Senior Research Analyst at Rand Merchant Bank, said that unfortunately, the average Nigerians are extremely resilient because of all the economic shocks, they have been through in such a short period of time.
- Odebisi who noted that Nigerians will continue to persevere and persist said: “But I think that we cannot take much more of this economic hardship, I think goods and services are becoming more expensive on daily basis. It is not sustainable and we need a new direction.”
Fuel subsidy removal
On the proposed fuel removal by the incoming administration, Egwim said: “We do expect fuel subsidy removal but from our vantage point view, we believe that it will be phased out as opposed to other ones and with regards to our inflation outlook; we do expect inflation to moderate, not really on the back of the PMS removable but also on positive base effects, so we expect inflation to moderate, but it will still remain high at the double-digit level.
“Consumer pockets will remain squeezed and demand patterns are likely to be significantly different from what we saw in 2022. So right now our inflation forecast is about 18.3% for the end of the year.”
Odebisi said that from a practical perspective, if the government decided to phase it out, it could create a situation where there will be artificial scarcity, simply due to the fact that the marketers will expect that the price will go up.
- “There will be artificial scarcity because if they hold on to the subsidized fuel that they already have if the price goes up later, they will sell. So phasing out would create its own challenges while removing the subsidy at once obviously would create a pretty big shock on the economy. So it’s just a matter of picking your poison,” he said.
What you should know
In a consistent tightening policy measure to tame inflation in Nigeria, the MPC of the Central Bank of Nigeria (CBN) Tuesday increased the official interest rate by 50 basis points.
With the new increase in the monetary policy rate, the CBN has capped the official interest rate at 18% from 17.5% in January 2023.
The MPC committee voted to raise the MPR by 50 basis points to 18% and retain the asymmetric corridor at +100 and -500 basis points around the MPR.
The CBN said the aim was to keep the inflation rate under control, citing the gains of the previously high rate as the reason for its new action.
CBN Governor, Godwin Emefiele, who made the disclosure at the media briefing to mark the end of this month’s MPC meeting, said although inflation has remained on the increase, the tightening measure has continued to reduce the rate of the price increase.
The MPR has been on the rise since April 2022, when it was 11.50%.
The rate impacts lending and inflation rates, and when increased, consequently affects the upward movement of prices of goods and services.
