ASSESSING THE OPINION OF SME OWNERS ON THE NEGATIVE EFFECT OF HIGH INFLATION RATE ON THE PERFORMANCE OF SMALL SCALE BUSINESSES IN NIGERIA (EVIDENCE FROM PRESIDENT TINUBU) 

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Many economists, central bankers, policy makers, and credit administrators agree that a key objective of microeconomic policies in both developed and developing economies is to achieve significant economic growth while also controlling or minimising inflationary pressures (Casper, 2017). The reason for this is that numerous nations are facing significant inflation rates, which impede the efficient operation of a market economy (Chester, 2019). On an individual level, inflation disproportionately affects individuals with fixed income and benefits borrowers while disadvantaging creditors. Inflation, as defined by Boyle (2024), is the progressive erosion of buying power, manifested as a general increase in prices for goods and services over a period of time.

Nigeria has been facing a persistent issue of inflation for a some while. High interest rates deter investors and lead to a depreciation of the currency, resulting in increased costs and challenges in importing essential materials (CBN, 2022). According to numerous economists, central bankers, politicians, and credit administrators, the main objectives of microeconomic policy are to achieve economic growth and maintain price stability (Bresser-Pereira, 2019). The implementation of incremental pricing poses challenges in effectively managing market economies in numerous emerging nations (Wang, 2017). Minimal inflation favours debtors at the detriment of lenders and poses challenges for individuals with fixed incomes.

Small and medium-sized enterprises (SMEs) are the main drivers of economic growth and development in any given economy. The majority of economies, particularly those that are emerging, rely on corporations as they are the primary source of employment and contribute to the overall expansion of the global economy (World Bank, 2022). They play a crucial role in the structure and operations of global economic development (Manasseh et al., 2019) and are receiving increasing recognition as the catalysts for economic growth and development, particularly in impoverished countries. According to the World Bank's report in 2022, small and medium-sized firms (SMEs) in emerging economies make up 90% of all businesses worldwide, contribute 40% to the global gross domestic product (GDP), and provide employment for over 50% of the workforce.

Small and medium-sized enterprises (SMEs) are the largest portion of businesses in Nigeria, generating more than 70% of employment opportunities and contributing over 45% to the country's Gross Domestic Product (GDP). The SMEDAN/NBS MSME Survey (2017) (PwC, 2020) reveals that SMEs contribute to over 80% of Nigeria's employment and account for 49.78% of its GDP. According to Ekpenyong (2023), small and medium-sized enterprises (SMEs) employ 70% of the country's labour force, regardless of crude oil extraction. The progress of every economy is contingent upon the success of small and medium-sized enterprises (SMEs). It stimulates industrialization, modernization, rural-urban growth, and the creation of profitable jobs, leading to a rise in per capita income, fostering fair income distribution, and enhancing the well-being and quality of life of inhabitants. Governments and organisations at both national and international levels are becoming more concerned about promoting the survival of small and medium-sized enterprises (SMEs) in order to ensure economic growth and development.

Financial factors such as hyperinflation, deflation, elevated interest rates, and increasing currency rates have a significant influence on the performance of small and medium-sized enterprises (SMEs). SMEs face constraints in meeting investment, funding, and transaction demands due to their limited financial capacity and restricted access to equity or debt financing (Watambwa & Shilongo, 2021). The elevated interest rates in Nigeria have additionally impeded the expansion of small and medium-sized enterprises (SMEs), resulting in increased costs of manufacturing. Nnenna et al. (2020) observed that Nigerian SMEs have been adversely affected by inadequate government budget execution and insufficient evaluation of raw materials. Regrettably, there is a scarcity of knowledge regarding the impact of macroeconomic issues on Nigeria's industrial sector.

 Current research on the impact of inflation on the performance of small and medium-sized enterprises (SMEs) has not yet reached a consensus regarding the nature and magnitude of these effects. Ogundele et al. (2020) argue that inflation does not have a substantial impact on the performance of small and medium-sized enterprises (SMEs). In contrast, Orogbu et al. (2017) reached the opposite conclusion. Inflation has many impacts on small and medium-sized enterprises (SMEs). Inflationary pressures might result in elevated pricing, so augmenting the expenditure on raw materials, diminishing profit margins, and escalating operating expenses (Ekpenyong, 2019). Moreover, inflation has the potential to diminish the purchasing power of consumers, leading to reduced sales and revenue for firms. Small and medium-sized enterprises (SMEs), due to their restricted financial resources and limited credit accessibility, are especially susceptible to these difficulties. Gaining insight into the perception of inflation's impact on small and medium-sized enterprise (SME) owners is crucial for developing efficient economic strategies. Therefore, the necessity for doing this investigation arises.

1.2 Statement of the Problem

Small and Medium Enterprises (SMEs) are crucial to Nigeria's economy, serving as the foundation for job generation, innovation, and economic diversification (Adigun, 2022). Nevertheless, these businesses are more vulnerable to macroeconomic difficulties, particularly when faced with high inflation rates (Oyewole, 2019). During President Bola Tinubu's tenure, inflation has persisted as a substantial issue, exerting a negative impact on the overall economic stability and prosperity of the country.

Delmar, Davidson, and Gartner (2023) state that scholars employ several metrics, including assets, market share, physical output, and earnings, to evaluate business performance. SMEs can only grow into larger organisations by having a strong desire to expand their business. The expansion is inextricably linked to the creation of work possibilities (Davidsson, Achtenhagen & Naldi, 2020). Firm growth can be classified into two primary forms: organic growth, which involves expanding by increasing the entire customer base, output per customer, and new sales; and inorganic growth, which involves expansion through mergers, acquisitions, or takeovers. The primary goal of a company is to maximise revenues for its owners or stakeholders while maintaining corporate social responsibility. High inflation rates can adversely impact small and medium-sized enterprises (SMEs) in various ways, such as escalating expenses for raw materials, diminishing purchasing power of consumers, elevated lending rates, and overall economic unpredictability (Ekpenyong, 2019). These problems can result in reduced profitability, limited cash flows, and sometimes even the liquidation of businesses.

Furthermore, while there has been study conducted on the correlation between inflation and the growth of small and medium-sized enterprises (SMEs), none of these studies have specifically examined the perspectives and opinions of SME owners. This study is conducted based on the existing research gap. This study seeks to analyses the perspectives of small and medium-sized enterprise (SME) owners in order to offer significant insights that can assist policymakers in formulating ways to mitigate the adverse impacts of high inflation on small-scale firms in Nigeria.

Objectives of the study

The primary objective of this study is to critically assess opinion of SME owners on the negative effect of high inflation rate on the performance of small scale businesses in nigeria (evidence from President Tinubu). Specific objectives of this study are to:

To determine the extent inflation affects the operation of SMEs under President Tinubu administration

To evaluate the perception of SME owners regarding the impact of high inflation on their business performance

To identify the challenges faced by SMEs due to inflation under the Tinubu administration.

To provide solutions based on the findings to support the growth and sustainability of SMEs in Nigeria.

1.4 Research Questions

The following research questions which are in line with the objectives of this study will be answered in this study:

What is the extent inflation affects the operation of SMEs under President Tinubu administration?

What are the perception of SME owners regarding the impact of high inflation on their business performance?

What are the challenges faced by SMEs due to inflation under the Tinubu administration?

What are the solutions based on the findings to support the growth and sustainability of SMEs in Nigeria?

1.5 Research Hypotheses

To determine the effectiveness of this study, the following research null hypotheses will be formulated to guide the study and it will be tested at 0.05% levels of significance.:

Ho: The extent inflation affects the operation of SMEs under President Tinubu administration is low.

Ha: The extent inflation affects the operation of SMEs under President Tinubu administration is high.

1.6 Significance of the study

The significance of assessing the opinion of SME (Small and Medium Enterprises) owners on the negative effects of high inflation rates on the performance of their businesses during President Tinubu's administration encompasses several critical dimensions. The study will serve as a baseline for guiding policy-making, enhancing business resilience, fostering economic growth, and promoting inclusive development in Nigeria. The insights gained contribute to evidence-based decision-making and advocacy efforts aimed at creating a supportive environment for SMEs amidst economic challenges.

Policy makers will also benefit from the study. Understanding SME owners' perspectives on inflation's impact helps in formulating targeted economic policies. It provides insights into how inflation affects their costs, pricing strategies, profitability, and overall business sustainability. This knowledge is crucial for designing policies that support SME resilience and growth amidst economic challenges. Evaluating SME owners' perceptions provides feedback on the effectiveness of existing policies in mitigating inflationary impacts. It identifies gaps and areas needing policy adjustment or new interventions to better support SMEs in adverse economic conditions

 Ultimately, upcoming scholars will utilise it as a thorough examination of the current body of scholarly works. Consequently, other students with an interest in studying this subject will have the opportunity to utilise this work as dependable material that can be comprehensively evaluated. 

1.7 Scope of the study

Broadly, this study focus is to critically assess opinion of SME owners on the negative effect of high inflation rate on the performance of small scale businesses in nigeria (evidence from President Tinubu). Specifically, this study seeks to determine the extent of inflation on rural dwellers under President Tinubu administration and evaluate the perception of SME owners regarding the impact of high inflation on their business performance. Further, this study will focus on identifying challenges faced by SMEs due to inflation under the Tinubu administration and it also seeks to provide solutions based on the findings to support the growth and sustainability of SMEs in Nigeria.

1.8 Limitations of the study

Like in any human attempt, the researchers encountered several small limits during the investigation. The primary constraint was the scarcity of comprehensive literature on the topic, as there is a paucity of data for assessing the opinion of SME owners on the negative effect of high inflation rate on the performance of small scale businesses in Nigeria (evidence from President Tinubu). Therefore, a substantial investment of time and effort was required to find the suitable materials, books, or information and collect data. 

Moreover, this study is limited by its limited sample size and restricted geographical reach, namely concentrating just on Nigeria. Hence, the findings of this study cannot be extrapolated, thereby necessitating additional investigation. 

Furthermore, the researcher's limitations were predominantly attributable to budgetary restraints, as they are a student and lack a means of financial support. The research location's high transportation costs, impacted by current inflation in Nigeria, made it difficult to afford transportation fees.

In addition, the researcher encountered a time limitation as a result of the necessity to do this research while simultaneously meeting the responsibilities of attending lectures and engaging in other educational pursuits.

1.9 Definition of terms

Inflation: Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.

Standard of living: Standard of living is the quality quantities of goods and services available to the total number of people living in a geographical area at a particular time for some time.