SMEs bleed as business climate worsens

The Central Bank of Nigeria’s tight monetary policies aimed at taming rising inflation have mounted more pressure on the Small and Medium Scale Enterprises, resulting in low patronage as consumers grapple with waning purchasing power. In this report, DEBORAH DAN-AWOH looks at the long-term effects on business owners

Fatima Edwards, an Oyo-based small and medium-scale enterprise operator has been in business for about 12 years. For a larger part of this period, her business was booming. However, things took a turn for Fatima in recent months, as soaring prices have narrowed her profit margin.

She claimed the accelerating inflation has made restocking are inventory difficult. “The price surge has been so aggressive to the extent that sales realised from a given stock, including profit made, are insufficient to purchase the same quantity of stock,” she complained.

The businesswoman, who deals in foodstuff, provisions and other home items, told our correspondent that to stay in business, she has had to improvise and scale down on certain parameters. “Now I only buy goods that I know are of extreme importance to my customers. Due to the high cost of food items such as garri, rice, crayfish and noodles, most of my customers buy on a credit basis,” she lamented.

“I do not usually sell goods on a credit basis but I understand that wages are not increasing, so the purchasing power of my customers is dropping.”

He explained that business has been frustrating recently as prices keep surging. “Sometimes I get frustrated but I encourage myself that I can always stay ahead of the curve by staying updated on market prices,” Edwards declared.

She noted that she used to operate a wholesale provision business which was fully funded from her personal account, but the business folded up because of accelerating inflation which made it unprofitable.

Edwards is not the only SME operator that has been adversely affected by inflationary pressure. Segun Owoeye, a phone accessories and gadget devices retailer said the high Inflation rate has hit his business badly. According to him, the volatility in the country’s foreign exchange market has worsened business. “I have to check the current dollar rate before giving customers the price of any item,” he noted.

Owoeye explained that customers have been complaining bitterly about the surge in prices. He would have to explain the dollar situation in the country to them.

According to a 2020 survey by PricewaterhouseCoopers, the foremost economic issue affecting businesses is the pressure to reduce prices, which was attributed to rising inflation and low demand for products and services.

The report partly read, “The economic recovery in Nigeria has been tepid. Despite positive economic growth in the last three years, Nigeria’s GDP trajectory still falls short of the projections set in the Economic Recovery and Growth Plan (ERGP) of 4.5 per cent and 7 per cent for 2019 and 2020 respectively.

“Nigeria’s economy needs to be growing at an average rate of at least 5 to 7 per cent to boost productivity and sustainable growth for businesses. Meanwhile, challenges such as high costs of borrowing and decline in disposable incomes, as well as weak consumer demand continue to dampen performance.”

In 2022, the IMF and World Bank Group had projected that the country’s economy would grow by at least over 3 per cent, but it had underperformed, growing 2.25 per cent in Q 3. This slow economic growth which was highlighted in the PwC report has made businesses, particularly small-scale enterprises struggle with low patronage and price fluctuations.

Inflation accelerated to a 17-year high of 21.47 per cent in November, rising for 10 straight months, meaning that business owners such as Edwards and Owoeye have had to deal with incessant price surges.

The unabating inflation has made the future of SMEs in the country bleak. This may further worsen the economy and throw many out of jobs. Small businesses remain the livewire of the country’s economy.

The World Bank had warned incessantly about the long-term impact of surging inflation on the economy and the poor.

Experts speak

Chairman Nigerian Association of Small and Medium Enterprises, Lagos State Chapter, Dr Adams Adebayo, stated that Nigerian MSMEs were battling to stay afloat as operating costs continue to surge.

“In the history of Nigeria, the MSMEs have never been so badly affected like this with the rate of inflation rising to 21.47 per cent, which is considered to be at the peak level since September 2005, when the rate stood at 24.32 per cent.

“Monitoring closely the recently posted report of the National Bureau of Statistics (NBS), from January to October 2022 has been a persistent and consecutively monthly increase of the inflation rate. Although across the globe, countries are faced with rising energy and food costs, largely driven by the Russia-Ukraine war,” he stated.

Adebayo noted that the worsening insecurity in Nigeria and climate change have combined to reduce food production with a consequential rise in the prices of commodities.

“The recent increase in the energy cost by Discos, soaring prices of diesel and the scarcity of PMS in the last six weeks has worsened and weakened the purchasing power of the consumers and the firms’ production costs have gone up, hitting the roof beyond what an average entrepreneur could stand and accommodate.

“Most of our members have been overstretched to beyond the break-even point and completely broken off.”

He wondered how local businesses could cope with poor sales turnover, unhealthy rivalry and stiff competition from the Asian Tiger.

Adebayo pointed out that the recent policies of the CBN on currency redesign and withdrawal limits exacerbated the challenges confronting small businesses, especially POS operators.

The Deputy President of the Lagos Chamber of Commerce and Industry, Dr Gabriel Idahosa, added that the rising inflation reflected the trend of current realities of the sharp decline in the value of the country’s currency, the decline in food production and the rising costs of critical industrial inputs including diesel.

“The closure of SMEs that are unable to operate profitably continues to escalate. SMEs generally do not have the capacity to adjust to the rapid volatility induced by the current inflation. Only those who are very agile can survive the current trend,” he maintained.

The immediate past Chairman of the Lagos branch of the Nigeria Association of Small-Scale Industrialists, Segun Kuti-George, stated that the rise in inflation in November would further strain the financial turnover of SMEs as purchasing power waned.

“The prices of goods and services have skyrocketed. The National Bureau of Statistics has said inflation is 21.47 per cent but we know that NBS’s actual inflation rate is higher than that.

“What it means is that goods and services are getting out of the reach of the people, particularly as there is no corresponding increase in income. It means that more money will be chasing fewer goods.

“So, people will be constrained to spending money on what we refer to as necessaries to the detriment of luxury goods. What that also means is that manufacturers of luxury goods will experience a drop in their sales and, we know, when there is a drop in sales there is a drop in profit.

“And it may also mean that businesses will be forced to either lay off staff or shut down. There must be a way by which we either contain this or cushion the effect in the lives of the populace,” he remarked.

Kuti argued that SMEs in Nigeria were going through hard times, adding that if the economic situation is not properly addressed, it would lead to higher unemployment, crime and poverty.

“SMEs are really having a tough time, and only the very strong and formidable can withstand this trend. Unless it is averted, a lot of factories will shut down or lay off staff. And that will also mean an increase in crime,” he enunciated.