These are definitely not the best of times to do business in Nigeria. Small, medium, and even multinationals are groaning. The heavyweights of energy costs, insecurity, the not-too-business-friendly government reforms, and other factors, seem to be conspiring to make life miserable for operators of such businesses.
Interestingly, some businesses, which had been hoping against hope in the past few years, and adopting different strategies to stay afloat of the nation’s stormy economic waters, are seeing the recent hike in the price of petroleum products as the last straw that may break the camel’s back.
The Nigeria National Petroleum Company Limited (NNPCL), the sole importer of this very important product, Premium Motor Spirit (PMS), also known as petrol, had, on Tuesday, September 3, this year, announced a fresh hike from N568 per litre to N855, after months of scarcity, quite unprecedented in the history of the nation’s Oil and Gas sector.
But, while there had been efforts to justify and rationalize similar hikes in the past, the universal condemnation that heralded the recent one, many argued, depicts the policy as ill-conceived, and perhaps not well thought-through.
This will kill manufacturing, small businesses, result in job losses – MAN
For instance, in a prompt reaction to the development, the Manufacturers’ Association of Nigeria (MAN), through its Director General, Segun Ajayi-Kadir, noted that it has become inevitable for the price of the commodity to go up, due to different factors, including increase in crude oil prices, cost of importing the product into Nigeria, and the low value of the nation’s currency. The association, however, believed that the impact of the recent hike might be too grave for the country’s economy.
Some of such implications, it argued, are an increase in the cost of transportation, which would, in turn, affect the prices of goods and services.
“As the cost of petrol rises, consumers will spend more on transportation and energy, leaving them with less disposable income,” the association stated.
For MAN, a decrease in purchasing power of the average Nigerian consumer is bad news for its members, and others in small businesses, since that could lead to reduced demand for non-essential goods and services, affecting businesses across various sectors.
“One is naturally worried about the impact on the already lacklustre performance of the manufacturing sector. In particular, there is no doubt that it will add to production input and logistics costs. These will lead to higher prices and in the face of dwindling disposable income of the average Nigerian.
“A further deep in consumer demand will see manufacturers’ unplanned inventory rising and reduction in capacity utilization.
“Manufacturing performance would be negatively impacted. Businesses may need to adjust their pricing strategies, which could lead to reduced profit margins if consumer demand weakens,” it stated.
MAN also believed that the Small and medium-sized enterprises (SMEs), which often operate on thin margins, maybe worst hit as the increased costs could force some to scale down operations or even shut down if they are unable to pass on the additional costs to consumers.
Impact on businesses will be severe – LCCI
The Lagos Chamber of Commerce and Industry (LCCI), through its Director General, Dr. Chinyere Almona, echoes the same sentiments. The LCCI sees the official price of petrol now at N855, as ‘a clear indication that the shortfall between the landing cost and the former price level of N568 charged by NNPCL has been reduced’.
It however believed removing it completely, and subjecting Nigerians to a significant fuel price hike comes with significant challenges.
For instance, a steep price hike, as being currently seen, it argued, would likely trigger widespread price increases, potentially reverse the recent ease in inflation, seen in July, and lead to another surge in inflation rates.
“The impact on businesses will be severe, with fuel prices affecting supply and logistics, power generation, transportation, and factory operations. The cost of doing business will skyrocket; prices of goods will rise, and some firms may shut down due to low demand in the face of weakening consumer purchasing power. Of course, this will be followed by job losses,” it added.
Nigerian consumer should be prepared to pay more – Finance expert
A finance expert, public affairs analyst and Chief Executive Officer, Wealthgate Advisors, Mr. Adebiyi Adesuyi, is also of the strong opinion that the implications may be grave for businesses and the economy.
According to him, costs of production would, expectedly, go up, leading to a rise in the prices of goods and services.
“The cost of production will move up because most businesses rely on generators to power their operations. Even those who render services, such as tailors, vulcanisers, electricians and others will hike prices. For instance, my vulcaniser was saying to fix a tyre for SUVs now would cost about N2,500, instead of N1,500; and N2,000, instead of N1,000 for cars due to fuel price hike. What this means is that every additional cost, induced by the fuel price hike is being passed to me, the consumer. So technically, the Nigerian consumer should be prepared to pay more.
“But the question is: how many consumers can afford that, when the income has not changed? Nominally, the income may be said to have changed, but when we talk of real income, it has gone downwards,” he stated.
The Wealthgate Advisors’ boss also expressed concerns that some businesses may have to call it a day, with their owners looking for other means of livelihood.
“And when such things happen, what it means is that the economy suffers, since there will be job losses; and government revenue will, at the same time, dwindle, since those businesses are no longer in a position to pay tax,” he stated.
We are in a dilemma – Small business operators
Perhaps, one does not need a soothsayer to know that the reforms by the government are not sitting pretty well with big businesses and multinationals in the country. While some of these multinationals have actually relocated to more soothing business climate, with others planning to toe that path, the drop in the Manufacturers’ CEOs’ Confidence Index (MCCI), released by MAN recently, to 51.9 percent in Q2, 2024, from 53.5 percent in Q1, 2024, bears eloquent testimony to the fact that doing business in the country requires wits, grits and brawn, besides the usual corporate strategy.
MCCI serves as a gauge to measure quarterly shifts in manufacturing activities, influenced by macroeconomic trends and government policies.
Interestingly, Sunday Tribune’s checks with some operators of small businesses also revealed that such businesses are also having their fair share of the trouble to grapple with, an eye opener to the fact that the concerns of stakeholders, regarding the impact of the new fuel hike on petty businesses may not be unfounded after all. The development is beginning to take its toll on some of their businesses, operators on the side stated.
For instance, Mr. Fatai Jimoh, a Lagos-based electrician, is already looking for other means of livelihood beside the electrical installation and repairs he has been practising for over two and a half decades. Working as an electrician, he says, can no longer, conveniently, bring food to the table.
“These are definitely not the best of times to be in this business. In the past, beside the electrical installations I do, I used to also make money from generator servicing and repairs. But all these have stopped now due to policies that have continued to impoverish Nigerians, and by extension our customers. For over three days now, I’ve not made up to N2,000. So, how does one survive in that type of situation, with a family to feed and school fees to be paid? Look, a lot of people now are primarily concerned with how to put food on their table, not about repairing any electrical fault, or servicing generators, and all these are not unconnected with the not-too-business-friendly reforms of the government, especially the incessant hikes in the price of petrol. Anyway, I’m already on the lookout for another job, and may come back to this trade, if the situation improves,” he stated.
Gbenga Ajayi, a vulcaniser, commutes between Ifo, Ogun State, where he lives and Lagos, where he ekes out a living. But, of late, things seem to be getting out of hand. Ajayi, who normally prosecuted his daily inter-state journey with N400, is now faced with the reality of having to do the same distance with more than double that amount. He now coughs up N1,000 daily to come to work since the announcement of the new price regime by the NNPC. Though, as part of his cost-saving measures, he now sleeps in the shop, but he believes that is still not sustainable. The new costs, imposed on his business by the latest increase in petrol price, would have to be passed down to the customers. But his fears are that the optics are not too good for the business. The streets are getting emptier by the day due to the hike in petrol price.
“Most private vehicle owners, our preferred clients, are leaving their vehicles at home and going in commercial vehicles. Even some of these commercial vehicles, especially motorcycles, now operate during the peak periods, a development that has negatively impacted the business,” he stated.
Ajayi, however, stated that he is ready to take the hard decision of increasing his service cost to break even and damn any negative consequences the action might have on his business.
“With the new fuel price, there is no way we can inflate tyres for cars for N300 again. The price will have to be reviewed upwards, though we all know that things are not easy. Unfortunately, there is nothing anybody can do in this situation. We just have to survive,” he stated.
But, for Adams Makinde, a tailor in Oke Odo Local Council Development Area of Lagos State, the recent hike in the price of petrol has put those in his trade in a dilemma.
He explained that while the costs of production have definitely gone up, unlike Ajayi, it is almost impossible to pass on such costs to the customers. Doing such, he explained, may result in losing the patronage of such customers.
“It is a serious issue for us. The job no longer pays. We take a job of N1,000 and you will have to buy fuel at N1,200 to power your generator, in case of power outage, to do the job. Don’t forget the generator is being serviced periodically. Also, the items we use, such as thread, which we used to buy for N400, are now N600; some that used to go for N200 in the past now sell for N700. Everything is expensive now. What is left for us at the end of the day is paltry.
“Even here, where I have my shop, we are on Band A, which means we pay over N200 per unit for electricity, and sometimes we use more than four, five units in this shop alone in a day. So the costs are huge. Ordinarily, what we should have done would have been to pass on the costs to our customers, but the dilemma we are facing now is that it is almost impossible to do that, especially when it is obvious that these customers are not seeing the services we render as a priority. Their primary concern, for now, is survival. So any attempt to pass on any additional costs to them might drive them away, and this may have significant consequences on our business, too,” he stated.
Adams would want the government to come to the aid of small businesses, by coming up with policies that would really provide them with lifelines, since a sizable number of them are on the precipice.
LCCI, on its own part, would want the government to balance fiscal responsibility with the economic impact on citizens, so as to make some of these reforms less burdensome on businesses.
Stakeholders, however, wait with baited breath to see whether the government would positively respond to some of these suggestions, and save the nation the horror of being a vast graveyard for businesses that would have put the country’s economy on the path of growth.
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