How fuel scarcity, rising inflation is affecting SMEs

Blessing Uchenna owns a frozen food shop in Nigeria’s capital, Abuja. Sitting on a wooden chair, she looks expectedly for customers. 

“What do you want to buy? I have chicken, fish, and turkey; which should I bring?” she asked.

Just as she was calling to get customers to buy things from her shop, her colleagues were also beckoning to this reporter to buy from them instead. 

According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), there are 41.5 million MSMEs in Nigeria, and they are credited with being responsible for over 80 per cent of Nigeria’s jobs and also responsible for about 50% of Nigeria’s Gross Domestic Product. A Dataphyte report also recently noted that there are 3,300 Startups in Nigeria. 

Blessing told Dataphyte that running her business has been difficult due to unfavorable business conditions. For her, the absence of electricity makes it costly to run her business. 

She said that she spends at least N20,000.00 monthly to provide power for her business. Despite making around N50,000 monthly from sales, her running costs, including payment of dues and taxes means she often runs at a loss, she added.

“You know I will still stock my business from any sales I make and it can be most times devastating, even there are times I would not make sales but I still have to keep the stock frozen and also incur other costs, doing that at a high cost,” she said.

Blessing’s plight mirrors the struggles of small business owners and startups who are faced with galloping inflation and petrol scarcity. For instance, at the time of filling the report, the country’s capital, Abuja, has been battling with fuel scarcity for up to a year. 

“In this area, we do not have electricity, so we outsource power. For instance, where I got electricity from, I pay N15,000 monthly and still pay other dues, surviving has been hard” she said.

In the Utako market, one of the biggest in Abuja, some business owners noted that they pay N500 daily for electricity from a private source, due to the erratic supply from electric distribution companies. 

“Whether you make sales or not, you will pay money daily for electricity,” a trader told Dataphyte, revealing that he and his boss (the owner of the business), depending on the business thriving and a lower cost of running the business to live daily.

Another respondent, Sunday Adeniyi, told Dataphyte that he spends N2000 daily to fuel his generator as a way to ensure that his business runs.

“Imagine if I did not have N2000 daily to fuel my generating set, what will I do” he stated, this is even as the availability of petroleum is in question.

Sunday said this experience is coupled with the increased cost of living, especially as his source of survival and income lies in his business.

Not Just Fuel Scarcity or Cost of Power;  Cost of Doing Business, a Source of worry

Asides from the electricity scarcity and high cost of getting power, the cost of running MSMEs, business owners told Dataphyte, has been on the increase.

This may not be unconnected to Nigeria’s inflation currently, at 21.34 per cent. 

For instance, when Funke Akinloye wanted to purchase her stock she revealed that she could not because the cost involved in purchasing would mean she may have no profit to account for after-sales.

“My stall was short of stock, so I thought about restocking but calculating the cost of doing so, I won’t have any meaningful profit, cost of transportation alone scared me and these issues have been consistently occurring,” she told Dataphyte 

Asides from increasing costs, this may also affect the price of products leading to inflation of goods and services in the country.

A report in 2020, noted that Startups failure rate in Nigeria stood at 61%.

Startups have also been reported to have noted that the cost of electricity is killing them and making survival hard.

In 2022 alone, the country recorded not less than five power grid collapses. Petrol which is used to fuel generators has become scarce and costlier while the price of diesel is continually skyrocketing.

Startups also rely on equipment for their activities, most of which are imported. 

When filing this report, a Dollar is N454.08 Nigerian Naira. This is however the official exchange rate which is released by the Central Bank of Nigeria.

Business owners have been reported to complain of not being able to access Dollar at the official rate, leaving them at the mercy of Bureau De Change (BDC) operators. As of the time of this report, Dollar to Naira at the BDC rate stands at between N745-N755. 

The implication of the Dollar to Naira rate is that the higher the exchange rate, the higher it costs to import goods for business owners in Nigeria.

Nigeria’s many promises to the MSMEs, Startups

Nigeria has continued to restate its commitment to helping MSMEs survive. In January 2022, Nigeria’s Vice President, Yemi Osinbajo, said more than N150 billion has been disbursed to support MSMEs. 

The government said MSMEs will provide 1.3 million jobs countrywide and revealed that it committed N1.3 billion in 2021 to the sector.

Recently, tax relief for Startups was also said to have been approved. However, tax is a component of profit, and with the cost of doing business and the possibility for profit in question, tax effectiveness of these concerns become a core concern.

This is even as the country is ‘largely MSMEs driven and given the important role startups play in the country’s economic ecosystem.

A PWC survey earlier reported electricity, transportation, and other infrastructure topped factors affecting MSMEs in the country at 15%.

This is even as the government is banking on the MSME and Startups to ease its unemployment worries and create jobs.

Already, poverty and inflation is projected to make 95 million Nigerians poor.

What government should do for ‘massive’ MSMEs, Startups Potential- Expert

A policy expert, Samuel Atiku, told Dataphyte that there is a need for the government to prioritize MSMEs and Startup development in the country.

He noted that while the cost of doing business has continued to rise, there is a huge potential for developing the country and creating jobs if MSMEs, Startups were given the right incentives.

Samuel opined that providing key infrastructures is key to ensuring that the large base of MSME ownership in the country translates into better meaningful development.

While acknowledging the efforts of the government, he noted that some policies aimed at helping MSMEs become more efficient and also aimed at critical infrastructural developments for the MSME sector were formulated without proper consultation of business owners.

The policy expert tasked the government to prioritize MSMEs to distribute critical infrastructures. 

He cited that with the increased cost of doing business and providing essentialities like electricity, multiple taxations still form some of the challenges faced by MSMEs and make many persons abandon their businesses when the incentive of doing business which is profit cannot be met.

“It is not magic if we can address growing concerns for these MSMEs,Startups and make them see reasons to continue doing business, we would be talking about creating millions of jobs and boosting the economy, it is not rocket science, it is just what will be obtainable. We need to invest in our MSMEs sector like other countries do and even train them” he noted.

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