Nigeria’s micro, small, and medium enterprises are facing one of the most difficult operating environments in recent years, with a new report published today revealing that many small businesses now spend more than 40 per cent of their profits on electricity generation alone, while the sector continues to receive less than one per cent of total banking credit despite a financing gap estimated at N48 trillion.
Business leaders have issued fresh warnings that the combined weight of high energy costs, expensive credit, multiple taxes, and policy inconsistency is pushing businesses into survival mode rather than growth.
Read also: ProvidusUnity Bank begins operations, creating a stronger platform for SME and retail banking
Energy as the most punishing cost
ASBON National President Dr. Femi Egbesola identified energy as the single biggest cost driver for Nigerian small businesses today. Persistent increases in fuel prices, rising electricity tariffs, and surging cooking gas costs have significantly raised production costs across the board, with the burden falling hardest on nano and micro enterprises that have no buffers to absorb these shocks.
The scale of the energy cost problem is stark. A business spending 40 per cent of its profits on generator fuel has less than 60 per cent of its earnings available for everything else — wages, raw materials, rent, inventory, and loan repayments included. At that ratio, expansion is not a realistic conversation.
When energy takes 40 per cent of profit, what is left is not a business building toward growth. It is a business calculating how long it can survive before the numbers stop working.
Egbesola also flagged the impact of unreliable grid power on productivity, noting that the inconsistency of electricity supply forces businesses to run generators continuously rather than using them as backup, compounding both the cost and the operational risk.
Read also: Wema Bank, EIB Global seal €50m deal to fund Nigerian SMEs focusing on women and youth
Credit that most businesses cannot afford
Access to formal finance has simultaneously become more difficult rather than easier. Commercial lending rates for Nigerian SMEs now range between 32 and 35 per cent annually — figures that CPPE Director-General Dr. Muda Yusuf described as making bank loans commercially unviable for most small businesses. Over 51 per cent of Nigerian SMEs have already opted out of formal borrowing entirely, choosing informal and often more expensive alternatives rather than servicing debt at those rates.
Despite the completion of banking sector recapitalisation that injected N4.65 trillion into the system, the sector continues to receive less than one per cent of total banking credit. The financing gap of N48 trillion reflects the distance between what the sector needs and what the formal financial system is currently willing to deploy into it.
A banking system that has just completed its largest capitalisation exercise in history and still directs less than one per cent of credit to the sector employing 90 per cent of the workforce is not suffering from a capital shortage. It is suffering from a structural aversion to SME lending that stronger balance sheets alone will not fix.
Read also: PalmPay calls for reliable infrastructure, embedded finance to deepen SME financial inclusion
What needs to change
Egbesola urged the government to prioritise affordable electricity, simplify customs procedures, improve foreign exchange access, and establish permanent intervention funds offering single-digit interest loans to small businesses. Yusuf echoed those positions, describing the SME outlook as highly fragile and calling for concessionary credit windows, reduced regulatory fees, and a more consistent policy environment.
Both analysts stressed that without targeted intervention on energy and credit access simultaneously, a growing number of viable Nigerian businesses will continue to shrink rather than scale — an outcome with direct consequences for the employment and economic activity the sector provides.
