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Nigeria: Rising inflation/energy prices force small businesses to close

By Ruth Olurounbi
Posted on Wednesday, 30 September 2020 00:15

Outbreak of coronavirus disease (COVID-19) in Lagos
A trader gestures in his stall at a food market after President Buhari called for a lockdown, in Lagos, Nigeria March 30, 2020. REUTERS/Temilade Adelaja

Nigeria's mounting inflation in parallel with growing costs of energy are driving small and medium businesses away; at a time when the whole economy is suffering from the impact of the pandemic.

Omowumi Ikuerowo was in the middle of expanding her existing food service business when energy prices were hiked. This, in addition to inflation largely driven by “legacy structural factors such as the inadequate state of critical infrastructure and broad-based security challenges across the country,” is forcing business owners to close shops on increased overhead costs, including Ikuerowo.

Nigeria’s food industry is estimated to worth more than N1tn, according to 2016 data from the Association of Fast Food and Confectioners of Nigerian (AFFCON), which said the sector is mostly driven by small and medium enterprises, as well as multinational food companies.

Jump in prices mixed with the pandemic

At a time when the nation is reeling from the effects of the coronavirus pandemic which negatively impacted government and business revenues, as well as individuals’ personal incomes, the Nigerian government gave the nod for a 100% increase in electricity tariff that sees Nigerians paying N62.33 from 30.23 per kilowatt unit of energy per hour (kwh).

This was followed by petroleum price hikes after the government suspended fuel subsidy payments, after more than 13 years of campaigns against the subsidy payments.

READ MORE Nigeria should brace for ‘its worst recession in four decades’

“I can’t keep selling at the old price as prices of raw materials increased on a weekly basis if not daily,” Ikuerowo tells The Africa Report. “Local open market increased prices but we were not getting value for it. For example, a paint bucket [a form of measurement] of melon is supposed to give an average of 27 milk tin measurements, but we now only get about 22 milk tins at a price above the one of 27. For us to sell at the value that the brand is known for, we had to increase our prices slightly, with addition to complimentary services to encourage our customers. Even with that, we have lost about 50% of our customers. Only the ones that believe in our brand are left with us,” she says.

Headline inflation driven by a persistent increase in the food prices rose to 16% in August 2020 from 15.48% in July 2020, just as core component also rose to 10.52% in August from 10.1, a month prior. These upticks were driven by “disruptions to supply chains following restrictions to movement to curb the spread of the pandemic, adverse weather conditions, which resulted in the flooding of farmlands as well as the inflation pass-through to domestic prices following the depreciation in the exchange rate,” says Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN), who said the recent increase in energy cost is also expected to further impact the domestic price level in the short term.

READ MORE CBN’s Emefiele: ‘The Nigerian situation is a challenging one’ says analyst

Small business owners who are unable to cope with current realities are having to, or are considering, shutting down their businesses due to high inflation expectation as well as the possibility of a deep recession, says Afeez Saleh, who deals in Human Resource Consultancy in Nigeria.

“Many of our clients are having to streamline their businesses due to the current realities and future uncertainties specifically around the potential recession we have all been hearing. We know how many SMEs lost their business the last time Nigeria went into recession and the fear that something like that could happen, coupled with rising inflation and increasing overhead costs is making many of these people reconsider their options,” he said.

Government interventions

The Nigerian government earlier in September kicked-started a programme it says will support about 1.7 million Micro, Small and Medium Enterprises (MSMEs) across the country through a National MSME Survival Fund that will help small businesses cushion the  COVID-19 impact.

The N75bn fund will provide payroll support to small business owners, providing them with up to N50,000 in monthly salaries for up to 10 staff of a qualifying business, for a period of three months, according to Vice President Yemi Osinabjo. The N50,000 grant will support up to 100,000 small and medium-scale businesses, says the Vice President.

READ MORE Nigeria: What does the interest rate cut mean as the country enters recession

“The President has also approved that the federal government bears the full cost of business name registration for 250,000 new businesses nationwide. We are doing all these to support MSMEs across the country to maintain their staffing levels and keep their businesses afloat through these very challenging times,” he adds.

Bottom line

As the coronavirus impact continues to ruin economies around the world, Nigerian SMEs are struggling to survive. Although the government has rolled out a set of policies to protect small businesses in the country, more must be done through concrete efforts and interventions to help soften the hit they are taking from the pandemic, says one analyst.

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