A stable economy fosters stable businesses. But lack of stability in a country’s economy can lead to a reduction in investment, spending, business growth, and an increase in unemployment. An unstable economy can be caused by several factors. In Nigeria, these factors often include fluctuating prices of commodities like oil, gas, and electricity, natural disasters like the pandemic and recent floods, or global economic shifts like recessions or wars.
Nigeria’s mono economy has famously been driven by our most valuable and perhaps most volatile commodity: oil. The price of crude oil affects the price of almost every product or service in Nigeria. While economists have warned that our dependence on could very well be our undoing, we have had some practical experience with this since 2020 when the decline in oil prices and the pandemic led to Nigeria suffering a decline in its economy, going into recession twice in five years. Furthermore, since the recent government’s decision to finally remove the fuel subsidy that has been keeping petrol prices in Nigeria low since the 1970s, we have begun experiencing how rising fuel prices can cause hyperinflation.
But that is not all. The new government has also taken the decision to float the naira. This has led to our currency depreciating, which in turn is affecting every business in Nigeria. The exchange rate plays a vital role in the Nigerian economy. Most businesses especially those in manufacturing import some raw materials. While those materials are priced in foreign currency, we have little to no choice but to purchase them in our local currency. As a result, the prices of raw materials will increase due to the depreciation of the naira and this will inevitably affect the price of the end product.
- In an unstable economy, you need concrete plans to help your business stay afloat. It is important to keep business expenditure as low as you can to still run your business without eating into your profits significantly or affecting the quality of your goods in any obvious way. When sourcing for raw materials, consider local options first where possible and always look for the best deals.
- This period of instability is not the time to do a poorly planned expansion. Without steady increases in your profit, an influx of investment, or healthy savings that will be used in an expansion, it is simply not financially sustainable to take on any large expenditures right now. Furthermore, when expanding your venture, consider that you need time for the new additions to stabilise before becoming viable parts of your business, a stability that will be hard to come by in the current economy.
- Being a small business is your greatest advantage in a slow economy. Final decisions are often made by no more than a handful of people. You can make faster decisions, pivot quickly, and adapt your workforce or goods to the new reality to ensure your business’ survival.