Nigeria: Four million MSMEs shutdown in two months over fuel subsidy removal, naira devaluation
Job losses in Nigeria, Africa’s biggest economy, are on the rise as a result of the surge in petrol prices occasioned by the removal of subsidy and the devaluation of the naira.
Rising inflationary pressures in recent months have weakened the purchasing power of cash-strapped consumers, even as businesses grapple with higher operating costs.
This has forced many small businesses to close shop, worsening the country’s unemployment situation.
About 10 percent of the 40 million Micro, Small and Medium Enterprises (MSMEs) in the country have shut down since the subsidy removal, according to Abdulrasid Yarima, president/chairman of the governing council of the Nigerian Association of Small and Medium Enterprises (NASME).
“It’s been very tough for our members as we are managing to survive. Some of them are closing shops while others are looking for new business opportunities,” he said.
He said most businesses use petrol power generators and that other alternatives like gas or diesel are expensive. “The high cost of diesel made factory owners switch to petrol machines and the cost of converting to gas is expensive for generators.”
Although Femi Egbesola, national president of the Association of Small Business Owners of Nigeria (ASBON) could not give the number or percentage of businesses that have stopped operating, he projected that more than 20 percent of their 27,000 members have been affected by the mounting economic woes.
“This is necessitated by the business environment that is getting harsher and harsher by the day. The unfortunate thing is that the end is not near. We are totally confused and living in the fear of the unknown,” he said.
According to Egbesola, many of his members who are manufacturers have closed their factories to search for other means of livelihood.
“Some are operating on a skeptical basis, downsizing their staff or producing 30-40 percent of their capacities which is not sustainable. Inflation is increasing day by day and disposal income of consumers is being eroded,” he said.
He said businesses cannot project their profits or investments due to the instability in the economy. “This is scaring away investors who are major players in the market.”
Energy is a key element of the production process. Nigeria’s inability to supply and distribute sufficient electricity has left businesses at the mercy of generators that consume diesel and petrol.
Manufacturers spend 40 percent of their total production cost on generating energy for their businesses, according to the Manufacturers Association of Nigeria.
“It is a double tragedy for manufacturers, and myself may also be included very soon if care is not taken. I produce culture marble and granite for buildings but people are not buying, instead they are looking for money to eat,” Segun Kuti-George, national vice president of the Nigerian Association of Small Scale Industrialists, said.
He said people will start going into the unemployment market, and this may lead to an increase in crime unless something is done urgently.
President Bola Tinubu, in May, announced the removal of the petrol subsidy upon his inauguration into office. Barely three hours after the speech, petrol prices across the country surged by an average of 174.6 percent to N526.7 per litre.
Last week, Nigerians saw the second hike in petrol prices as the Nigerian National Petroleum Company Limited increased the pump price at its stations in Abuja to N617 and other marketers across the country also adjusted their prices.
Ogugua Belonwu, founder and chief executive officer at MyJobMag, said they noticed a sharp decline in the number of job openings available when they added a further hike in petrol cost. “Most employers are being careful in looking for positions unless they are very necessary.”
In June, the Central Bank of Nigeria abolished segments of the official foreign exchange market to the Investors & Exporters Window, where the “willing buyer and willing seller” was re-introduced. Based on this adjustment, the official rate rose from N463.38/$ to N787.16/$ as at Monday.
“Our members are complaining seriously that they may have to downsize or close down because of the cost of gas which is priced according to dollars,” said Hamma Kwajaffa, director-general of Nigerian Textile Manufacturers Association.
“Because they have converted it to naira and they are basing it on the correct rate, it is just terrible,” he added.
The latest Purchasing Managers’ Index by Stanbic IBTC Bank show that business activity in the country dropped to 53.2 in June, the lowest in three months, from 54.0 in the previous month.
The MSME sector is important to market economies as it acts as the wheel of the economic growth of any country. By creating new products and services, they stimulate new employment, which ultimately results in the acceleration of economic development.
In Nigeria, the sector contributes 50 percent of the GDP and has provided over 48 percent of all employment opportunities in the country, according to the United Nations Industrial Development Organisation.
“We have not been included in the palliatives despite our significant contribution to the GDP. We have made submissions but no government has attended to us,” Yarima of NASME said.
He added that the government should engage with the association so that they can give informed information to create interventions for the small businesses.
Nigeria’s unemployment rate has risen more than fourfold to 33.3 percent as of the fourth quarter of 2020 from 8.2 percent in Q2 2015, data from the National Bureau of Statistics show.
The unemployment numbers for 2021 and 2022 are yet to be released, with the Presidential Economic Advisory Committee projecting 40 percent for 2021 while KPMG Nigeria forecast 37.7 percent for 2022.
“The labour market is becoming a darker hole and the pulse within the market is very low. If unemployment is growing at the rate inflation is growing, you can only imagine what we have,” Olamide Adeyeye, a Lagos-based human development researcher, said.
“And the reason why it is more of a concern is because both sides of the labour market, which is the demand and supply, are feeling the heat,” he added.
Egbesola of ASBON recommended that the government should provide credits with better or low interest rates, some form of grants for those in the micro sector of the economy, tax reliefs or holidays to support entrepreneurs and keep the cost of registering a business stable, not increasing it. “We also want them to create business hubs to reduce the cost of doing business.”
