INFLATION, INTEREST RATES AND SME PROFITABILITY IN NIGERIA: A DECADE OF EVIDENCE

Abstract

Small and medium-sized enterprises (SMEs) are the backbone of Nigeria’s economy, contributing nearly 48% to GDP and employing over 84% of the labor force, yet their profitability remains highly vulnerable to macroeconomic instability. Between 2014 and 2024, Nigeria has witnessed persistent inflationary pressures, volatile interest rates, and recurrent economic disruptions including the 2016-2017 recession, the COVID-19 pandemic, and the 2022 inflation surge, that significantly affected the operational sustainability of SMEs. This study investigates the trends in inflation, lending interest rates, and SME profitability over this decade, using secondary data from the Central Bank of Nigeria, National Bureau of Statistics, World Bank, and IMF. Data were analyzed through descriptive and trend analysis with Microsoft Excel. Findings reveal that average inflation rose from 8.1% in 2014 to over 24% in 2023, peaking during the pandemic and again in 2022, thereby eroding SME purchasing power and profit margins. Interest rates remained consistently high, exceeding 20% for SME-targeted lending, constraining access to affordable credit. Profitability indicators, measured through SME sectoral earnings reports, declined sharply during 2017 and 2020, with partial recovery post-2021, though margins remained below pre-2015 levels. The study recommends urgent reforms in monetary policy to stabilize inflation, expansion of subsidized credit for SMEs, and fiscal measures that support productivity under volatile global and domestic shocks.