The Central Bank of Nigeria’s tight monetary policies aimed at taming rising inflation have put more pressure on SMEs, resulting in low patronage as consumers struggle with reduced purchasing power. In this report, DEBORAH DAN-AWOH examines the long-term effects on business owners
Fatima Edwards, an SME operator in Oyo has been in the business for about 12 years. During much of this period, his business boomed. However, things have taken a turn for Fatima in recent months, with rising prices cutting into profit margins.
Accelerating inflation has made inventory difficult, he said. “The increase in prices has been so aggressive that the sales obtained from a certain share, including the profits obtained, are not sufficient to buy the same number of shares,” he complained.
The businessman who deals in food, supplies and other household items told our reporter that in order to stay in business, he has had to improvise and reduce certain parameters. “Now I only buy goods that I know are of utmost importance to my customers. Due to the high cost of food such as garra, rice, crab and noodles, most of my customers buy on credit,” he lamented.
“I don’t normally sell goods on credit, but I understand wages aren’t going up, so my customers’ purchasing power is going down.”
He explained that lately the business has been frustrated because the prices keep going up. “Sometimes I get frustrated, but I encourage myself that I can always stay ahead of the curve by knowing the market prices,” Edwards said.
He stated that he operated a wholesale supply business that was funded entirely from his personal account, but the business folded due to accelerated inflation which made it unprofitable.
Edwards is not the only SME operator affected by inflationary pressures. Segun Owoeye, a retailer of mobile phone accessories and gadgets, said the high rate of inflation has hit his business badly. According to him, the volatility of the country’s foreign exchange market has made business worse. “I have to check the current dollar rate before I give customers the price of any item,” he said.
Owoeye explained that customers are complaining bitterly about the price hike. He should explain to them the state of the country’s dollar.
According to PricewaterhouseCoopers’ 2020 survey, the biggest economic problem affecting companies is downward pressure on prices, which was attributed to rising inflation and low demand for products and services.
The report, in part, read: “Economic recovery in Nigeria has been tepid. Despite positive economic growth over the past three years, Nigeria’s GDP trajectories for 2019 and 2020 are 4.5 percent and 7 percent for 2019 and 2020 respectively Economic Recovery and Growth Plans (ERGP) remains far from the established forecasts.
“Nigeria’s economy needs to grow at an average rate of at least 5 to 7 percent to boost business productivity and sustainable growth. Meanwhile, challenges such as high borrowing costs and shrinking disposable incomes, as well as weak consumer demand, continue to dampen performance.”
In 2022, the IMF and the World Bank Group predicted that the country’s economy would grow by at least 3 percent, but it underperformed, growing by 2.25 percent in the 3rd quarter. This slow economic growth was highlighted in the PwC report. businesses, especially small scale ones, struggle with low patronage and price fluctuations.
Inflation rose to a 17-year high of 21.47% in November, marking the 10th consecutive month of increases, meaning business owners like Edwards and Owoeye have had to deal with constant price hikes.
Incessant inflation has made the future of SMEs in the country bleak. This could further worsen the economy and throw many out of work. Small businesses remain the backbone of the country’s economy.
The World Bank has consistently warned about the long-term impact of rising inflation on the economy and the poor.
The Chairman, Association of Small and Medium Enterprises of Nigeria, Lagos State Chapter, Dr. Adams Adebayo, noted that SMEs in Nigeria were struggling to survive as operating costs continue to rise.
“In the history of Nigeria, MSMEs have never been hit like this as the inflation rate has risen to 21.47 percent which is the highest level since September 2005 when the rate was 24.32 percent.
“Closely monitoring the report recently published by the National Bureau of Statistics (NBS), there has been a continuous and consecutive monthly increase in the inflation rate from January to October 2022. Even as countries around the world face rising energy and food costs, largely fueled by the Russia-Ukraine war “, he stated.
Adebayo noted that increased insecurity and climate change in Nigeria have combined to reduce food production with a consequent increase in commodity prices.
“The recent increase in the cost of energy in discotheques, the price of diesel and the PMS shortage in the last six weeks has worsened and weakened the purchasing power of consumers and increased the production costs of companies, hitting beyond the roof. an average entrepreneur could stand.
“Most of our members are stretched beyond their breaking point and completely broke.”
He asked how local businesses can cope with poor sales turnover, unhealthy competition and fierce competition from the Asian Tiger.
Adebayo noted that the recent policies of the CBN on currency redesign and withdrawal limits have exacerbated the challenges faced by small businesses, especially POS operators.
The Vice President of the Lagos Chamber of Commerce and Industry, Dr. Gabriel Idahosa, added that the rise in inflation reflected the trend of the current realities of the sharp decline in the value of the country’s currency, decline in food production and rising costs of critical items. industrial inputs including diesel.
“The closure of SMEs that are not able to operate profitably continues to increase. SMEs generally do not have the ability to adapt to the rapid volatility caused by current inflation. Only those who are very agile can survive the current trend,” he said.
Segun Kuti-George, the president of the Lagos branch of the Association of Small Scale Industries of Nigeria, stated that the increase in inflation in November would increase the financial billing of MSMEs as their purchasing power weakens.
“The prices of goods and services have increased. The National Bureau of Statistics has said that inflation is 21.47 percent, but we know that the actual inflation rate of the NBS is higher than that.
“What it means is that goods and services are falling out of people’s hands, especially because there is no increase in income. This means that more money will chase fewer goods.
“So people will be forced to spend money on what we call necessities at the expense of luxury goods. This also means that the manufacturers of luxury goods will experience a decrease in sales and, as we know, when there is a decrease in sales, there is a decrease in profits.
“And it may also mean that companies will be forced to lay off workers or close down. There has to be a way to contain that or mitigate the impact on the lives of the population,” he said.
Kuti argued that SMEs in Nigeria were going through tough times, adding that if the economic situation is not properly addressed, it would lead to higher unemployment, crime and poverty.
“SMEs are really going through tough times, and only the very strong and formidable can withstand this trend. If not avoided, many factories will close or lay off workers. And this will also lead to an increase in delinquency,” he said.