Why 1.9 million MSMEs shut down in 3 years
COVID-19, regulatory pressures, difficult operating environment and foreign exchange (FX) volatility forced 1.9 million micro, small and medium enterprises (MSMEs) to exit the Nigerian business landscape between 2018 and 2020, according to the National Bureau of Statistics and the Small and Medium Enterprises Development Agency of Nigeria.
The MSMEs are left to battle with various issues, ranging from poor power supply to restrictive economic policies, FX volatility and tax multiplicity.
“The manufacturing world has not yet recovered from COVID-19. And the rising cost of inflation has caused an increase in the cost of input which will have a multiplier effect on the manufacturers’ cost of output,” said Abdulrasid Yarima, president/chairman of the governing council of the Nigerian Association of Small and Medium Enterprises (NASME).
Yarima said the high cost of foreign exchange, customs duty, poor power supply, and insecurity have forced many MSMEs to shut down operations.
He said the situation in the sector has worsened with the Russia-Ukraine war, adding that the number of MSMEs has reduced to 35 million in 2022 from 39.6 million in 2020. “The managers of the economy are not managing it well.”
According to experts, the Nigerian business environment is becoming increasingly tougher for small businesses as they struggle for survival.
Poor power supply has continued to take a toll on Nigeria’s economic development, and its impact is more pronounced in the MSME sector.
“Power is a major challenge that has crippled a lot of businesses. The government must reform the power sector to improve supply for Nigerians,” said Femi Egbesola, president of the Association of Small Business Owners of Nigeria.
Another challenge is the duplication of functions among various regulatory agencies, which continues to affect the growth of SMEs.
Government agencies collect regressive and multiple taxes and levies as well as other unofficial fees from SMEs experts say.
“The complexity of the functions of regulatory agencies seriously affects the growth of SMEs as some laudable projects are being frustrated by regulators,” Yarima said.
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 currently contributes 50 percent of the Gross Domestic Product and has provided over 48 percent of all employment opportunities in the country, according to the United Nations Industrial Development Organisation.
According to experts, FX volatility is another factor that has continued to limit the progress of MSMEs as many are importers of either finished products or inputs.
“My cost of operations has increased because my business deals with a lot of dollars. So, I was forced to look for ways to ensure that I don’t run out of the business by cutting costs,” Tolu Craig, the founder and business lead at PTwebs, said.
He said he had to reduce the number of staff who were placed on fixed salaries to two from six. “Right now, I just pay based on deliverables because I don’t have that luxury.”
“MSMEs account for a large number of jobs. So, when they feel this kind of shock, it will get saturated into high unemployment numbers,” Muda Yusuf, chief executive officer at Centre for Promotion of Private Enterprise, said.
