The Anatomy of the Profit Squeeze
The data reveals a stark disconnect between top-line revenue and bottom-line sustainability. While 65% of informal businesses reported a nominal increase in revenue over the past year, only 47% managed to convert that growth into actual profit. The primary culprit is an aggressive escalation in the cost of doing business, which 79% of surveyed entrepreneurs identified as a significant burden. This "profit squeeze" is driven by a convergence of factors: hyper-inflation, a depreciating naira, and surging costs for transportation, logistics, and supply chain procurement.
The report highlights that the median daily profit for these businesses falls within the ₦10,000 to ₦20,000 range. When broken down further, 70% of the informal sector earns less than ₦50,000 ($33.89) in daily profit, and 44% earn less than ₦20,000. These figures suggest that a significant portion of the Nigerian workforce is engaged in subsistence entrepreneurship, where the primary objective is daily survival rather than capital accumulation or business expansion.
Gender Disparities in Economic Resilience
The struggle for profitability is not uniform across the demographic spectrum. Women-owned SMEs in Nigeria face more pronounced challenges, with 41% reporting daily profits below ₦10,000, compared to 34% for their male counterparts. Conversely, the upper tier of the informal economy—those earning above ₦50,000 in daily profit—is dominated by men, who account for 16% of this bracket, while only 10% of women-owned businesses achieve the same level of profitability. These statistics highlight the structural barriers, including unequal access to credit, mentorship, and business networks, that continue to hinder women entrepreneurs in Nigeria.
A Chronology of Economic Instability (2023–2025)
The current plight of the informal sector is deeply rooted in the macroeconomic shifts initiated in mid-2023. A brief timeline illustrates the rapid deterioration of the business environment:
- June 2023: The Central Bank of Nigeria (CBN) moved to unify the foreign exchange windows and loosen restrictions, a move intended to stabilize the market but one that triggered an immediate, sharp devaluation of the naira.
- Late 2023: The removal of fuel subsidies resulted in a massive surge in pump prices, leading to a direct increase in transport and distribution costs for SMEs.
- Throughout 2024: The naira experienced a period of extreme volatility, losing approximately 70% of its value against the US dollar. By November 2024, inflation reached a 28-year high, severely eroding the purchasing power of the average consumer.
- Early 2025: Current data indicates that the cost of imported raw materials and finished goods has become prohibitive for small-scale retailers and manufacturers, leading to a contraction in savings rates—dropping from 92.4% in previous years to 74% today.
Nurudeen Abubakar Zauro, Secretary/Head of the PreCEFI Secretariat and Technical Advisor to the President on Economic and Financial Inclusion, noted that the exchange rate plummeted from approximately 460 NGN/USD in June 2023 to 1,600 NGN/USD by mid-2025. "This forced price hikes on imported commodities, reduced purchasing power, increased costs and bottlenecks in supply chain networks, logistics and transport, thereby causing many SMEs to become bankrupt and diminishing the contribution of the informal economy to the country’s Gross Domestic Product," Zauro explained.
The Shrinking Safety Net
The resilience of these businesses is measured by their ability to withstand shocks, yet the data shows that 42% of Nigerian businesses could survive for only one month or less if their income were to stop tomorrow. This lack of a "savings buffer" is particularly concerning in a high-interest-rate environment. With traditional bank loans becoming increasingly expensive and difficult to obtain, many entrepreneurs have turned to informal cooperatives and digital banks to manage their liquidity.
However, the appetite for formal borrowing has waned significantly. Instead, business owners are prioritizing their own internal savings to fund expansions or manage emergencies. Moniepoint’s report notes that 41% of these savings are directed toward business growth, while 24% are earmarked for the replenishment of goods. This reliance on self-funding limits the speed at which these businesses can scale, keeping them trapped in a perpetual state of micro-operations.
Implications for National Policy
The findings of the 2025 Informal Economy Report have sparked a debate on the necessity of a policy rethink. For years, the Nigerian government has attempted various interventionist programs, but experts argue that these efforts have been too fragmented to produce systemic change.
Foyinsolami Akinjayeju, CEO of Enhancing Financial Inclusion & Advancement, argues that moving beyond "survivalist" enterprise requires a more coordinated strategy. "Government policies must shift from fragmented interventions to coordinated, systemic measures to unlock growth and inclusion for informal businesses," Akinjayeju stated.
Similarly, Chinyere Almona, Director-General of the Lagos Chamber of Commerce and Industry (LCCI), emphasizes that the path to scalability lies in capacity building. "If informal businesses are to evolve into growth-oriented employers, policies must deliberately target their transition from survivalist enterprises to scalable ventures," Almona said. She advocates for the integration of structured training programs within local chambers of commerce and trade associations, focusing on essential skills such as digital bookkeeping, inventory management, and the adoption of digital payment tools.
Analytical Outlook: The Path Forward
The economic reality for Nigeria’s MSMEs is a paradox: they are the engine of the economy, yet they are running on fumes. The transition from survival to growth is not merely a matter of individual business acumen but a reflection of the broader macroeconomic stability.
To break this cycle, the following strategic areas require attention:
- Supply Chain Localization: Reducing the reliance on imported inputs by fostering local manufacturing clusters could insulate SMEs from currency-induced price shocks.
- Digital Integration: Continued support for digital payment infrastructures, which provide the data trails necessary for businesses to build credit profiles, is essential for unlocking access to formal finance.
- Targeted Policy Support: Financial inclusion programs must be gender-sensitive, ensuring that women-owned businesses have equitable access to the capital and training required to move into higher-profit brackets.
Ultimately, the Moniepoint report serves as a diagnostic tool for the Nigerian government. Without intentional efforts to lower the cost of doing business and provide a stable currency environment, the informal sector will remain a survival mechanism rather than a catalyst for national development. The "survival score" of the Nigerian SME sector is currently low, and the window to pivot toward a more scalable, growth-oriented model is narrowing as inflation and high operational costs continue to dominate the landscape. The future of Nigeria’s economic diversification depends heavily on the successful formalization and maturation of these small-scale enterprises.
