By Chinwendu Obienyi
On the surface, macroeconomic indicators of the Nigerian economy suggest a measure of stability returning after years of volatility.
In fact, growth projections remain positive, inflation has moderated from previous peaks, and reforms initiated by the federal government are beginning to yield measurable outcomes.
Yet, beneath this cautiously optimistic outlook lies a harsher reality for businesses; rising operating costs, constrained access to credit, and weak consumer demand are combining to squeeze growth prospects across key sectors.
The truth is while Nigeria may be growing on paper, it is simultaneously shrinking and does not in any way reflect the lived experience of its citizens, as the populace can attest to. With the current lived experience, nowhere is this contradiction more glaring than in the widening gulf between macroeconomic projections and the daily economic suffering of over 200 million people.
A growing body of evidence suggests that while the macroeconomic environment may be improving, the real economy,particularly small and medium-sized enterprises (SMEs), continues to face significant headwinds that threaten expansion, investment, and job creation.
According to the Central Bank of Nigeria (CBN), private sector slipped into contraction in April for the first time in five months, as rising costs and weakening demand dampened business activity across key sectors of the economy.
The bank revealed that headline Purchasing Managers’ Index (PMI) fell sharply to 49.4 points, down from 53.2 in March, dropping below the 50.0 threshold that separates expansion from contraction.
The decline signals a broad-based slowdown in economic activity, reflecting persistent price pressures and fragile business sentiment.
At the sectoral level, the slowdown was most pronounced in services, where the PMI dropped to 48.8 points from 52.0. The contraction was driven by reduced activity in major segments such as wholesale trade, real estate, and transportation and warehousing, alongside declines in new orders and employment.
The industrial sector also lost momentum, with its PMI falling to 49.5 points from 54.0. Businesses reported weaker production levels, softer demand for new orders, and slower supplier delivery times, signs of mounting operational strain and cooling output.
Agriculture, while still marginally in expansion territory, showed signs of easing. The sector’s PMI dipped to 50.2 points from 52.8, reflecting softer trends in farming activity, inventory accumulation, and output yields.
The data points to a challenging near-term outlook for Nigeria’s private sector. Elevated energy and food costs continue to drive inflationary pressures, eroding purchasing power and raising operating expenses for businesses.
At the same time, the CBN’s cautious monetary policy stance is expected to keep financial conditions tight, limiting access to credit and constraining expansion plans.
Nigeria’s economy is expected to expand by around 4–4.5 percent in 2026, supported largely by non-oil sectors such as services, agriculture, and technology.
These gains reflect the impact of structural reforms, including exchange rate adjustments and subsidy removal, which have helped stabilize external reserves and improve fiscal balances.
However, economic experts who had spoken to Daily Sun warn that these headline improvements mask deeper structural challenges.
According to them, growth has not yet translated into widespread business expansion or improved household welfare.
This disconnect is becoming increasingly evident in the private sector, where firms are grappling with rising costs and tightening financial conditions.
Rising costs erode business margins
One of the most immediate pressures facing businesses is the persistent rise in operating costs. Energy remains a major burden, with unreliable grid power forcing firms to rely heavily on diesel generators and alternative energy sources. Manufacturers, for example, operated at just 55–65 per cent of installed capacity in 2025 due to power shortages and high fuel costs.
Global factors are compounding domestic challenges. The recent surge in fuel prices, linked in part to geopolitical tensions, has increased transportation and logistics costs, feeding into broader inflationary pressures.
At the same time, inflation continues to erode consumer purchasing power. Although it has declined from earlier highs, headline inflation still stands at about 15.38, with food prices remaining particularly elevated. This has weakened demand across multiple sectors, making it harder for businesses to maintain sales volumes.
The result is a difficult operating environment where companies face higher input costs but limited ability to pass these costs on to consumers.
Weak demand constrains expansion
Demand-side challenges are now emerging as a central concern for businesses. According to the Nigeria Private Sector Outlook 2026, weak consumer purchasing power is making it increasingly difficult for firms to retain customers and sustain revenue growth.
This trend reflects broader socioeconomic realities. High living costs, stagnant wages, and a large informal workforce mean that many Nigerians have limited disposable income. Even as economic reforms take hold, the immediate effect on households has been a cost-of-living squeeze, reducing consumption and dampening business activity.
For many firms, especially in retail and manufacturing, this translates into slower inventory turnover, reduced profitability, and cautious expansion plans.
Credit squeeze
Perhaps the most critical constraint on private sector growth is the tightening of credit conditions. Despite a slight increase in total lending, access to finance remains limited, particularly for SMEs.
Private sector credit grew only marginally to about N75.6 trillion in early 2026, with year-on-year (y/y) growth actually declining. At the same time, high interest rates, hovering around 26–27 per cent, have made borrowing prohibitively expensive for many businesses.
This combination of high borrowing costs and cautious bank lending has created a credit squeeze that is stifling investment. Businesses are delaying expansion plans, scaling back capital expenditure, and focusing instead on survival.
Even where liquidity exists in the financial system, it is not effectively reaching the real sector. Analysts note that funds are often concentrated among large corporates or used for refinancing existing debt, rather than supporting new productive activities.
Structural bottlenecks persist
Beyond immediate cost and credit challenges, structural constraints continue to weigh on private sector performance. Infrastructure deficits, logistics inefficiencies, and insecurity remain significant barriers to productivity.
These issues increase the cost of doing business and reduce competitiveness, particularly for manufacturers and exporters. For instance, poor transport networks raise distribution costs, while insecurity disrupts supply chains and agricultural production.
Additionally, a growing talent gap is emerging as a concern. Businesses report difficulties in finding skilled workers, which affects operational efficiency and limits their ability to scale.
As companies increasingly adopt digital technologies, new risks such as cybersecurity threats are also becoming more prominent, adding another layer of complexity to business operations.
Policy trade-offs and unintended consequences
Nigeria’s current economic challenges highlight the difficult trade-offs facing policymakers. Tight monetary policy has been necessary to control inflation and stabilize the currency, but it has also contributed to high interest rates and reduced credit availability.
Similarly, subsidy removal and exchange rate reforms have improved fiscal sustainability but have led to higher energy and import costs in the short term.
While these reforms are widely seen as necessary for long-term stability, their short-term impact on businesses and households has been significant. The key challenge now is to ensure that the benefits of these policies are transmitted more effectively to the real economy.
ICT, financial services, as a glimmer of opportunity
Despite these challenges, there are areas of opportunity within Nigeria’s private sector. Digital transformation, for instance, is enabling businesses to reach new markets and improve efficiency. Sectors such as ICT and financial services continue to show strong growth potential.
According to an outlook report by Nigerian Economic Summit Group (NESG),
services such as ICT and finance, which drove a large share of growth in 2025, are expected to remain central to expansion.
The report also points to supply chain adjustments and local production as areas where firms can unlock productivity gains.
“At the firm level, businesses that invest in energy alternatives, workforce skills, and technology are positioned to capture emerging demand and improve output”, the report said.
Demographic trends also offer long-term promise. Nigeria’s large and growing population provides a substantial consumer base, while regional trade initiatives create new avenues for expansion.
Leave a comment