..As experts lament high inflation, exchange rate, unaccessible loans
By Cyril Ogar, Abuja
No fewer than over 200,000 Small and Medium Enterprises, SMEs, in Nigeria have collapsed within the last two years, according to information exclusively obtained by AljazirahNigeria from the Association of Small Business Owners of Nigeria, owing to the hash economic policies implemented by the Central Bank of Nigeria, CBN.
Experts have warned that more Micro, Small, and Medium Enterprises,MSMEs, may shut down due to the economic policies of the Federal Government through the CBN.
Some of the economic policies said to have led to a crisis in the country include: the removal of the fuel subsidy, the devaluation of the Naira, and an increase in electricity tariffs.
The current economic policy direction is killing the economy. Especially, looking at the MSMEs, they can’t sustain their businesses anymore simply because of the energy crisis. Energy is very expensive as of today in Nigeria.
The recent removal of the fuel subsidy triggered a dramatic rise in the cost of goods and services, exacerbating the already tenuous economic conditions. SMEs, which form the backbone of Nigeria’s economy, are particularly affected.
“MSMEs employ over 85% of Nigerians and contribute over 50% to Nigeria’s GDP. If you look at these factors, you’ll see that MSMEs are very important. The Federal Government should consider steps to ensure the sustainability of MSMEs”.
As in most countries around the world, MSMEs are the engines of the economy. As of last count, Micro, Small, Medium Enterprises ,MSMEs, accounted for a good percentage of total businesses registered.
The sector also contributes more than a third of the country’s gross domestic product ,GDP, with 36 percent of the total GDP.
Recall that the Small and Medium Enterprises Development Agency of Nigeria ,SMEDAN, had in the past lamented that over 2 million Small and Medium Enterprises has collapsed across 36 states of the federation and the Federal Capital Territory.
Specifically, the agency explained that during its SMEs’ census in collaboration with National Bureau of Statistics ,NBS, it recorded 41 million small businesses, noting that the number reduced drastically to 39 million
In a landmark demonstration of solidarity and frustration, Small and Medium Enterprise ,SMEs, across Nigeria had undertook a nationwide shutdown to protest against the government’s economic policies.
This unprecedented action highlights the severe strain on businesses grappling with soaring operational costs, inflation, and excessive taxation.
The removal of the peg on the foreign exchange ,FX, the naira’s value on the Investors’ & Exporters’ FX Window ,I&E FX Window, by the Nigerian Central Bank has been declining, predominantly reflecting a devaluation. On June 14, 2023, the Central Bank of Nigeria ,CBN, consolidated all segments of the foreign exchange markets into the I&E forex window.
Manufacturers in Small Medium Enterprises ,SMEs, are lamenting that the development has further stifle their operations and worsening the economic crisis because more naira will be needed to buy foreign exchange to sustain their businesses and consumers will have to bear the brunt as cost of goods will increase.
Experts have attribute the development to policy fatigue from the fiscal and monetary authorities and are calling for immediate change in strategy to prevent the economy from falling off the cliff.
Collaborating this assertion. Association of Small Business Owners of Nigeria also said that 20% of businesses have gone under within the past two and a half years, till date.
According to survey, there are about 39 million existing businesses that are captured by data, 20% of that is gone. If you look at 20% of that is 7.8 million businesses that have gone under”.
Obviously, the lack of recognition for such sustainable development programmes, especially those that are capable of enhancing SMEs’ growth, is responsible for the current economic state of the country.
The situation is further compounded by the government’s attitude of indifference and apathy, which contributes directly to the current dire situation of the country’s economy.
… Inflation & foreign exchange
The inflation rate in the nation has been on a galloping ride, and the volatile nature of the forex market poses great consequences on the business. Inflation is nearly 20% and a dollar exchanges at N1570-N1590 in the official market and above N1650 in the parallel market.
Nigeria largely thrives on import and most of the production materials are brought into the country with forex. SMEs in these businesses bear the brunt. For example, wheat, palm oil, and flour prices have continued to soar.
… Inaccessible loans and high-interest rates
The Central Bank of Nigeria has increased the interest rate from 11.5% to 14% in the last four months.
According to a report by MetLife Chamber, 39% of SMEs have taken out loans to offset the burden of production fueled by inflation. This means SMEs who seek loans will pay higher costs to service the loans.
This is the reality for 46-year-old Deborah Due, who lost her business after she couldn’t access loans to scale up.
“My businesses folded up after I could not get funds to reinvest. I had been a victim of theft and was in desperate need of funds to restock, but the loans at the time scared me to death. I wasn’t sure I could keep up with the rates, so I did not take it. And going to the bank was a no-go area. It would require lots of documentation”.
Mr Adamu Ishaku also explained that getting access to loans was a dead end. “I applied to get a loan, but they told me it wasn’t available. I did all the registration and kept checking back for three months and I always got the same reply, that the loan was not available. I finally gave up on it. “They say that these loans are available and yet we can’t access it”.
… Experts speak
The Chairman of the Lagos State Chapter of the Nigerian Association of Small Scale Industrialists, Mrs Gertrude Akhimien, disclosed that 30% out of the over 24 million registered small and medium enterprises in Nigeria folded up last year.
Akhimien while reacting to the recent removal of electricity subsidy by the Federal Government. Said, “At least 30 per cent of the businesses I am aware of have shut down. Many called me to say that they had shut down and I told them we would try to see how we could manage the situation and all that; how we could do one day in and out. The shutdown was between last year and this year”.
The subsidy on electricity has been completely removed from the tariff payable by power consumers in the Band A category, who constitute about 15% of the total number of power users in the country.
Financial experts have pegged the high mortality rate of SMEs on a lack of capacity to survive macroeconomic challenges.
The Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, highlighted the inconsistencies of the economy, saying that they were partly responsible for the demise of these businesses.
“SMEs have limited capacity to absorb shocks. In the last two years, business shocks have been extremely high. So the mortality rate of SMEs is high”, he said. He also identified lack of business experience as a factor
“There are many SMEs. Many of these business owners can’t handle business. They just gather funds and just start a business without good management skills.
“If you have poor business management skills, anything can throw you out of balance. It combines both capacity to manage the business and exogenous factors”.
Another expert, the Deputy President of the Lagos Chamber of Commerce and Industry, pegged the problems on the rising cost of materials to run businesses and a slowing down of demand induced by inflation.
“The reason is the escalating inflation. The SMEs need to operate. They can’t increase prices if you have fuel and diesel inflation. If you are an SME and use products from another town, the cost of transportation is very high. Transporters are increasing the fares every two weeks because of an increment in the price of diesel.
“A lot of SMEs can’t survive this onslaught on their profit margin. And the business starts making losses. They may try to sustain it for a short while, but after a while, they collapse”, he noted.
Director of Research and Strategy at the Chapel Hill Denham, Tajudeen Ibrahim, also blamed the inconsistencies on the Nigerian system.
“For the past three to four years, the exchange rate has not been what it used to be. With inadequate power supply, some SMEs depend on power to run their businesses. So, it is a major challenge for them.
“Another element is the lack of basic infrastructure. For instance, a pepper trader bought in Calabar and sold in Lagos. Each time that road conditions are worse. So, naturally, those people will either cut back on business or fold up”,
Yusuf further noted that the lasting solution was a conducive environment devoid of economic and infrastructural lapses.
“The environment for business operations is very tough. Imagine an environment with a regular power supply and no galloping inflation.
So, these are the factors, and the primary thing to do is to create an enabling environment for SMEs”.
Also speaking in with AljazirahNigeria, Chief Economist for Africa and Middle East at Standard Chartered, Razia Khan, stated that the Naira slide is the latest bout of volatility since President Bola Tinubu relaxed foreign-exchange controls in June last year.
Khan noted that the naira has depreciated around 68% against the dollar since then, adding that the latest swing shows market forces are being allowed to work.
She said, “When the currency appreciated very fast, there had been a bout of profit taking by offshore investors and this meant that dollar-naira exchange rate backed up again. This is completely in line with the functioning market. Nigeria in recent years, has faced a weaker rate of growth.
In his assessment of the issues, the Chairman, SMEs Group, Lagos Chamber of commerce and industry ,LCCI, Daniel Dickson-Okezie, emphasized that the toxic operating environment alongside the low supply of FX has led to significant losses for manufacturers.
He stressed that there is an urgent need for government intervention to improve the business environment, address infrastructure deficiencies, provide better access to finance, and tackle issues such as insecurity and multiple taxation.
“The economic situation is forcing businesses to close down because many people in MSMEs can’t afford to buy products at high costs and sell them for a profit.
