‘How macroeconomic instability, cash flow constraint hobble businesses’

Renowned economist, Bismarck Rewane, insisted that most small businesses shut down due to cash flow constraints and macroeconomic instability.

Stating that small businesses are the engine of industrial growth in any economy, he said there are many opportunities small businesses could leverage to optimise returns.

Giving statistics on the number of businesses that have failed in their first five years of operation due to cash flow constraints, Rewane said Nigeria has the highest at about 85 per cent, while on the global rate 45 per cent and 60 per cent in emerging markets.

He spoke during a webinar, hosted by Sparkle Bank, on the current national economic landscape and its impact on small businesses, which aims to equip business owners with guidance on navigating the current challenging macroeconomic environment.

Differentiating between cash flow management and cashflow projections, Rewane said cash flow is the actual movement of money in and out of a business within a specific period. Cashflow projection helps companies plan and ensure sufficient cash is available for future needs.

According to him, a business can be profitable but still experience cashflow challenges.

To address cashflow challenges to evade business collapse, he said, businesses must not keep unnecessary inventories, leverage technology, maintain strong credit relationships with banks and change business models, among others.

Rewane said macroeconomic stability would improve from 2025 to 2026 as recent reforms begin to pay off, which could lead to sustainable and accelerated recovery in consumption and investment.

With the Central Bank of Nigeria (CBN) raising interest rates to over a 40-year high, Rewane said the monetary tightening puts enormous strain on small businesses, stressing that interest rate hike could be a two-edged sword.

According to him, it can lead to increased borrowing costs, decline in turnover, reduced business expansion and loan default, leading to corporate mortality.

The economist hinted at a coping strategy for small businesses to fight high inflation, stating that businesses must regularly review prices, diversify revenue streams, reduce expenses, manage working capital, and explore financing options.

He said Nigeria’s economic landscape was changing as the size of the economy has halved in dollar terms in the past decade due to currency weakness and tepid growth.

Given an economic size of $568 billion in 2014 with Nigeria being Africa’s largest economy, he said, it has dropped to $252 billion in 2024 as Africa’s fourth largest economy due to tepid growth, exchange rate devaluation and multi-decade-high inflation.

He said the country would require infrastructure development, technology inclusion, growth of service economy, food security, agriculture value chain upgrade as well as skill development to grow the economy to $1 trillion in 2030.

Giving instances of why real consumption has declined from 2014 to 2023, the economist said this was due to falling consumer income and, a loss in the purchasing power of the naira, which implies a decrease in turnover for businesses.

Speaking on ‘Keeping your cash flowing: Simple tips for business owners’, an entrepreneur and founder of the Dew Centre, Omon Anenih, said while founders are great at coming up with business ideas, many are not intentional about cash flow.

She said managing cash flows was crucial for daily operations growth and business stability, adding that cash flow is the lifeblood of any business.