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•Nigeria’s small business owners struggling to remain in business
By Merit Ibe
The Micro, Small and Medium Enterprises (MSMEs) in the country are presently struggling to make profit and remain in business, with the cost of operations skyrocketing.
Business owners are worried about the continued fall of the naira, rise in the cost of energy, foreign exchange scarcity, increasing cost of importing raw materials, insecurity and other challenges of infrastructure deficiency confronting the economy.
With all these challenges, which have continued to increase the cost of doing business in the country, many small businesses are now seeking different survival strategies to enable them remain in business.
Consequently, the rising costs have led to job losses across the country.
Rising inflationary pressures in recent months have also weakened the purchasing power of cash-strapped consumers.
These mounting hurdles have forced many small businesses to scale down while some have closed shop, worsening the country’s unemployment situation. Small and medium enterprises form the backbone of Nigeria’s economy, contributing to employment generation, economic diversification and poverty reduction.
They often operate on tight budgets and are highly sensitive to changes in the cost of doing business, as such should command a significant amount of attention and resources from government.
But it is painful that some of the policies made by the government are affecting these small businesses the most and invariably limiting SMEs’ contribution to the gross domestic product (GDP).
Recently, the removal of fuel subsidy for example, worsened the operational costs for SMEs, impacting their ability to remain in business. One of the most obvious effects of the fuel subsidy removal and price hike is the rise in transportation costs.
SMEs heavily rely on transportation services to move goods and services, both for procurement and distribution.
With increased fuel prices, transportation costs have surged, resulting in higher expenses for businesses.
This burden is often transferred to the consumers through increased prices of goods and services, further affecting their purchasing power.
Additionally, many SMEs rely on generating sets to sustain their operations due to the unreliable power supply in the country. The increase in fuel prices directly affects the cost of running these generating sets, leading to higher overheads for businesses.
For SMEs already struggling to meet operational costs, any financial strain can be detrimental to their survival and growth.
About 10 percent of the 40 million MSMEs in the country have shut down since the subsidy removal, according to Abdulrasid Yarima, president and chairman of the governing council of the Nigerian Association of Small and Medium Enterprises (NASME).
“It’s been very tough for our members as we are managing to survive. Some of them are closing shops while others are looking for new business opportunities,” he said.
He said most businesses use petrol power generators and that other alternatives like gas or diesel are expensive.
“The high cost of diesel made factory owners switch to petrol machines and the cost of converting to gas is expensive for generators.”
For Segun Kuti-George, the vice president, South West of the Nigerian Association of Small Scale Industrialists (NASSI), many businesses have closed their factories to search for other means of livelihood.
“Some are operating on a skeletal basis, downsizing their staff or producing 30 to 40 per cent of their capacities, which is not sustainable. Inflation is increasing day by day and disposal income of consumers is being eroded.”
He advised that the government should provide credits with better or low interest rates, some form of grants for those in the micro sector of the economy, tax reliefs or holidays to support entrepreneurs and keep the cost of registering a business stable, not increasing it.
“We also want them to create business hubs to reduce the cost of doing business.”
Kuti-George said businesses cannot project their profits or investments due to the instability in the economy. “This is scaring away investors who are major players in the market.”
Energy is a key element of the production process. Nigeria’s inability to supply and distribute sufficient electricity has left businesses at the mercy of generating sets that consume diesel and petrol.”
He decried high unemployment rate, which he said may lead to increase in crime unless something is done urgently. In its quarterly state of the economy conference, the Lagos Chamber of Commerce and Industry (LCCI) said with the removal of fuel subsidy, the chamber expects the government to roll out appropriate cushioning or palliative policies and measures.
According to the chamber, the government must take cognisance of the socio-economic implications of fuel subsidy removal, especially with unemployment at an unwholesome rate of about 40 per cent.
The LCCI president also said the cost of logistics had gone up due to the poor state of roads and the lack of connectivity amongst farms, factories and markets.
To reduce the shocks from disruptions to supply chains for raw materials, the chamber recommended that the Central Bank of Nigeria (CBN) should ensure that targeted concessionary credit to the private sector is sustained for MSMEs, while it embarks on monetary tightening to tame inflation.
The Director General of the Chamber, Chinyere Almona, said apart from eroding purchasing power, high inflation has also led to inventory stockpiles.
“If left unchecked, the high inflation may further constrain production, lead to a steeper rise in poverty figures, frustrate economic growth and lead to higher unemployment and non-competitive exports, especially in the sub-region,” she said.
The Manufacturers Association of Nigeria (MAN) report recently revealed that the manufacturing sector production’s value dropped by 9.3 percent to N6.67 trillion in 2022 as against N7.39 trillion recorded in 2021. This means that despite cutting output, manufacturers sold less goods last year.
“Production was also negatively affected by limited purchases by households.” When consumers cannot buy or don’t have the purchasing power the retailers can’t sell, so also the distributors, which will invariably affect the producers. It’s a chain thing with a ripple effect, leading to inventory stockpiles.
The Director General of MAN, Segun Ajayi-Kadir, applauded the patriotism and resilience that Nigerian business owners possess, noting that most businesses have embarked on strategic measures to minimise the impact of the inclement operating environment on their activities such as cost cutting, products selection and prioritisation, increased resort to self-energy generation and energy mix to complement the inadequate electricity supply from the national grid and dis-saving retained earnings to support the current crippling condition.
He opined that it is crucially important for the government to have a shift towards a better exchange rate management and moderate the rising energy cost via better management of refined petroleum products imported into the country. These among other measures would no doubt help to reduce the current high inflation, which is fast eating-up the working capitals of businesses.
The Director General of Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Olawale Fasanya, said businesses have continued to show resilience and a high level of optimism in spite of the economic downturn.
He appealed to the government and ecosystem players to take a more intentional approach to support small businesses in these difficult times, particularly since businesses produce ripple benefits that trigger employment generation, poverty reduction and wealth creation.
