The recent removal of petrol subsidy, which caused the prices of Premium Motor Spirit to balloon, has worsened the plight of struggling small businesses, writes HENRY FALAIYE
When the speculation of planned electricity tariffs filtered in, Nigerians vowed to resist it. They argued that it was insensitive to hike electricity tariffs when they were still grappling with the aftermath of the removal of the petrol subsidy on May 29, which sent petrol prices up from N185 per litre to N500 per litre.
The increase in petrol prices has had a significant impact on Micro, Small, and Medium Enterprises, as these businesses heavily rely on it to operate effectively.
According to the Manufacturers Association of Nigeria, energy costs consist of over 30 per cent of businesses in the country. The increase in petrol prices has further worsened the difficulties faced by struggling MSMEs, who are already burdened by numerous challenges related to their operating conditions.
Although MSMEs are the highest employers of labour in the country and a major driver of the economy, the challenging business environment makes many of them fold up before their fifth anniversary.
According to a joint report by the Small and Medium Enterprises Development Agency of Nigeria and the National Bureau of Statistics, there were 39,654,385 MSMEs in Nigeria as of December 2020, representing a 4.5 per cent decrease from 2017. While Lagos State had the highest number of enterprises across all categories, Katsina, Rivers, and Kaduna stood out among other states.
Micro enterprises accounted for 38,413,420 of MSMEs, while small and medium enterprises comprised 1,240,965, contributing 46.31 per cent to the country’s Gross Domestic Product and constituting 96.7 per cent of all businesses.
However, a recent report by SMEDAN highlighted that the number of MSMEs dropped by approximately 2 million between 2017 and 2021, largely due to the impact of COVID-19 and other challenges faced by small businesses nationwide.
A confectionery artisan, Tayo Alimi, whose business is in Ikotun District, Lagos State, lamented that high energy costs in the country had been affecting his operating costs.
He told The PUNCH, “Things are difficult due to the present economic situation. I cannot adequately afford to run my diesel generator to power the bakery. At the beginning of the year, I was buying diesel at N220 per litre, but now the same litre of diesel is selling for N800, which is almost four times higher.”
According to him, he sleeps most of the time in the factory with a few workers, so whenever there is a public power supply, he would utilise it to work in order to cut costs.
“I cannot afford to use diesel with the present cost otherwise my business will pack up in no time. Also, all my profit is spent on diesel and other running costs which are affecting the sustainability of the business. I hope the government will improve on the bad state of the economy because the market environment is not favourable at all,” he noted.
Similarly, a supermarket owner situated at Isolo, Lagos, Bola Adekola, decried the exorbitant bills Disco was giving her monthly and described it as alarming.
“Due to the astronomic increase, I had to apply for a prepaid meter instead of estimated bills, which are huge. However, I am still yet to receive the metre. I have expended a lot on estimated billings, which is in turn eating deep into my profit.”
“I used to have a 15-member staff because of demand but a couple of months ago, I had to cut down on the number of staff to seven. Currently, sales have been dwindling because I cut down a few staff, and it has been a challenge,” a chef and baker, Kofoworola Bello, complained.
Bello bemoaned the rise in prices of flour and other baking materials due to the high inflation rate in the country.
“We find it difficult to stay afloat, because of the increased prices of goods. We had to increase the prices of our products. This has affected demand; bread that goes for N500 now sells for N1,000. It did not happen overnight; it was a gradual increase.
“Sometimes, I try not to compromise on quality, but I am considering shutting down the business. What is the essence if I can barely pay the members of staff? I am finding it difficult to sustain the bakery. What is the essence of running a business if you keep running at a loss? I am hoping that things will get better. But if the economic situation gets worse till the end of the year, I will have no choice but to shut down the bakery,” she said.
Experts believe some government regulations and policies are contributing factors to the difficulties small business owners are experiencing.
Many entrepreneurs have stated the challenges they faced trying to obtain certificates, licenses, registrations, and other permits from government agencies.
They also have expressed their grievances regarding multiple taxes and levies from government agencies specifically aimed at micro, small, and medium-sized business owners.
They called on the government to simplify registration processes and create a favourable macroeconomic environment to support the growth of small businesses.
Meanwhile, the Chief Executive Officer of the Centre for Promotion of Private Enterprise, Muda Yusuf, said that MSMEs create a lot of employment.
He said, “In terms of job creation, the MSMEs segment creates more jobs than other segments of enterprises because there are many. They can do that because with very little capital, they can set up a business and before you know what is happening, they employ a few people. And because they are many when you aggregate the number of jobs they have created, it comes to a lot and that is one critical thing that they do.
“Also, they make the economy more inclusive. You cannot compare the SMEs space with the oil and gas or aviation sector, because so many people are involved.”
According to an Associate Professor of Economics at Pan Atlantic University, Olalekan Aworinde, MSMEs are very important because they particularly contribute to employment in any economy.
He said, “They are the major drivers of growth in any economy because there are many. And they can employ as many people as possible, thereby, improving the standard of living of the people.”
He advised the government to create an enabling environment for the MSMEs to thrive.
He noted the improvement of the power supply would significantly impact MSMEs’ growth.
“Once there is a stable generation of power, it means that the cost of production will be very low. Asides from the infrastructures that the government should build, the government should assist in granting the businesses loans.”
Aworinde recommended that the government provide concessions to Micro, Small, and Medium Enterprises, specifically for those that require forex.
According to him, the government should establish a dedicated forex channel for MSMEs seeking to import raw materials and machinery.
He added, “With the introduction of that window it will also assist them, and they will be able to do well and when they do well, they will move up and employ more people.”
The President of the Stakeholders Blockchain Technology Association of Nigeria, Senator Ihenyen, said small and medium enterprises were engines of growth and development in any nation.
He said, “Today, SMEs represent about 90 per cent of businesses and more than 50 per cent of employment globally. In Nigeria, MSMEs contribute over 46 per cent of the National GDP. Also, particularly in a developing country such as Nigeria, about seven out of every 10 jobs are provided by SMEs, thus contributing significantly to the GDP. So, it is vital that the Nigerian prioritise policies that support SMEs.
He added, “For many years, MSMEs have been facing hydra-headed challenges, which have affected their capacity and ability to contribute more to the National GDP.
“Yet the biggest challenge is lack of access to finance, other big challenges include lack of infrastructure (transportation, power, security), hostile policies, high tax rates, high electricity tariff, and high-interest rates. Others are lack of entrepreneurship and vocational training and lack of access to information.”
According to the Director of International and Public Sector Relations, Lagos Chamber of Commerce and Industry, Temitope Akintunde, MSMEs are the bedrock of any economy.
“Countries like India, China, and other countries, where they have a large population, have been able to sustain their economic growth by having a very strong MSME base. Looking at our SMEs in Nigeria, there are a lot of challenges already from the issues of energy cost to run a business. The amount you pay for diesel or petrol is very high.”
She claimed the country’s forex crisis was also hampering the growth of MSMEs.
“For SMEs, the wide disparity between the foreign exchange at the official market and the parallel market is also not very good. There is also instability in the forex regime. The amount you meet the dollar today is not the same amount that you are likely to meet in the next two to three months,” she said.
The growth of MSMEs that are import dependent that rely on forex has been adversely affected by the forex volatility, Akintunde argues.
“If the government can solve these issues, they would be able to thrive, and a chunk of issues would be resolved. The resultant effect of this is that small business owners will be able to feed their family and seamlessly pay salaries,” she noted.
She urged the government to review some of its policies because of their negative impact on small businesses.