Nigerian businesses need to get creative to survive inflation and high interest rates – Olufemi Oyinsan, General Partner, TCVP

In an era of rising inflation and rising interest rates, Nigerian businesses face unprecedented challenges in maintaining profitability and preserving capital. Olufemi Oyinsan, General Partner at The Continent Venture Partners (TCVP), sheds light on how these economic pressures are changing the business landscape in Nigeria.

In this interview, Oyinsan discusses the impact of rising costs, reduced consumer purchasing power and increased difficulty in accessing credit, while offering strategic solutions to help businesses navigate this turbulent environment.

Investment and trust are key, and given what you do in your company and how you invest in African entrepreneurs, how do you think the current situation, particularly across Africa, is affecting businesses? We are in an era of high monetary policy – how do you see that policy affecting businesses in Nigeria and across the continent?

As interest rates rise, and I don’t think we’ve hit that plateau yet, it’s clear that doing business is becoming more expensive. Getting loans is harder. Most businesses, as they grow and expand, will be looking for capital – whether it’s equity from people like us or other businesses looking for loans – and that simply means that the cost of doing business is higher. As a result, profitability is falling. We’re not just seeing this in Nigeria, we’re seeing this across the continent; it’s a global issue. Interest rates are rising everywhere. So for businesses to make the same or even better returns for their investors, they have to work harder. The first hurdle is paying off the debt, and the second hurdle is getting to profitability to provide returns to those who invested. There’s definitely pressure on businesses, both domestically and across the continent.

Would you say there are enough fiscal policies to mitigate the effects of these monetary policies? Do you think there is an imbalance?

Not really. The first thing to look at is why are they raising interest rates? They’re raising interest rates because inflation is running away and they’re trying to cool it down by buying up more cash in circulation. So there’s a reason; it’s not just that they’re crazy. But inflation is still going on and we’re not seeing the desired results yet. On the fiscal side, I would say no – people are still screaming that the environment is tougher. Subsidies have been taken away and there’s less money in people’s pockets, so businesses have to be creative and smart to survive and balance things out. The cushioning effects are still a little bit further away and we’re not seeing enough of them yet.

Inflation in Nigeria is high, and protests have broken out in Kenya over the introduction of certain taxes in the Finance Bill. How do you think rising inflation, coupled with exchange rate pressures, will affect the economy and business landscape in Nigeria?

You can’t really separate the business landscape from the economy. The most obvious long-term effect of rising inflation is that purchasing power is decimated. Less money is left in people’s pockets. For businesses, large or small, it’s about how much money is left in people’s pockets, which is a function of disposable income. When inflation rises, people have to spend more on essentials like rent, food, transportation, and energy, which leaves less for discretionary spending. This has a direct impact on businesses because they rely on discretionary spending. Another aspect that people don’t focus on is that it also affects investment. When disposable income is reduced, there is less money available for investment, which stifles business growth.

The Debt Management Office (DMO) has reported that Nigeria’s debt stands at over N120 trillion, with an increase of about N24 trillion in three months, partly due to devaluation. Is there a link between the rising debt and the business environment and what are the likely implications?

The way I like to look at public debt is different. The debt to GDP ratio is often used, but debt itself is not necessarily bad – it is how the debt is used that can make it bad. The question is, what do they do with it, given all the borrowing? Nigeria needs to borrow money to fix infrastructure, create a better business environment and improve things like energy and roads. The problem is that we borrow but do not see the results. If the money was invested well, we would eventually see improvements in the cost and ease of doing business. Instead, a large part of the budget goes to servicing the debt, leaving less for necessary investments. If previous borrowing had been used effectively, we would already be out of this alive.

Last year we saw GSK exit the Nigerian market, which had a significant impact on drug prices. What do you think led to this exit and what are the wider implications for the Nigerian economy?

The exit of companies like GSK is mainly due to inflation, energy costs and currency issues. Multinational companies in Nigeria are struggling with the decline in consumer purchasing power and high costs of doing business, especially in energy and logistics. They also face difficulties in repatriating profits due to currency devaluation. This makes their operations unsustainable. When a large player like GSK exits, it affects local production and value creation. Instead of producing locally, they switch to importing products, which reduces local value creation and increases costs for consumers.

There is often a link between global geopolitical tensions and domestic economic challenges. How do you think geopolitical tensions like the Russia-Ukraine war affect Nigeria’s trade and business environment?

The Russia-Ukraine conflict has had a significant impact, particularly on food prices. Before the war, people did not realize how much of our food supplies, such as wheat, came from the region. When that supply chain was disrupted, it raised food prices worldwide. Similarly, insecurity in food-producing regions in Nigeria has disrupted local food supply chains, driving up prices. These geopolitical tensions and internal security challenges have made it harder for businesses to operate and for people to buy essential goods. The government needs to understand that security is not just a matter of law and order—it is also an economic issue.

How can Nigerian businesses overcome the challenges of borrowing money to finance their operations as interest rates rise?

Companies need to become more capital efficient. They need to cut unnecessary costs and focus on optimizing resources. For startups, the focus should shift to sustainability and profitability. The message is clear now: companies need to find a way to become profitable as quickly as possible. Debt is more expensive, so companies need to think carefully about whether debt or equity is the best option for financing their growth. It’s time to get creative and smart about how they raise and deploy capital.

Compared to the boom in 2020-2021, there has been a decline in funding for African tech startups. What do you think has changed?

A few things have changed. First, rising global interest rates have made safer investments more attractive. Investors are wondering whether it’s worth taking risks in Africa when they can get stable returns elsewhere. Political uncertainty, currency devaluation and challenges in repatriating funds have also dampened investor confidence. However, we are seeing more and more local investors getting involved, which is a positive thing for the long term.

How do you see the future of African startups and what are your recommendations for them?

African startups need to mobilize local capital because relying on foreign investors is not sustainable. We need to develop solutions tailored to Africa’s unique challenges. Local investors, such as pension funds and high-net-worth individuals, need to take more risks and invest in local startups. We also need to talk more about the successes in the ecosystem to attract more investment.

Finally, given that Nigeria is in a transitional period and there are concerns about policy inconsistency, how do you think the changing regulatory environment will impact the future of business?

Regulation is evolving, and that’s good. The role of regulators is to protect consumers and build trust in the sector, while innovators push the boundaries. There will always be tension between the two, but with more cooperation we can minimise disruption. It’s important that regulators work with innovators to ensure policies support growth without stifling innovation.