The Nigerian Association of Small Scale Industrialists (NASSI) recently raised the alarm over the rapid closure of nano, micro, small and medium-scale enterprises (MSMEs). The association said it has lost over 30 per cent of its members in one year due to the challenging business environment. Also, stakeholders in the MSME space have expressed concern that if nothing is done urgently to stem the tide as much as 20 per cent of MSMEs will be forced to shut down in the next one year, TOBI AWODIPE reports.
Nigeria’s nano, micro, small and medium scale enterprises (NMSMEs), once touted as the pillar of the economy, contributing significantly to the gross domestic product (GDP) growth, have fallen on hard times, with stakeholders saying if nothing is done urgently to save the situation, the sector will go into extinction.
According to the Small and Medium Enterprises Agency of Nigeria (SMEDAN), the country had roughly 40 million MSMEs in 2021, with most of them being nano and micro enterprises. Today, this number has declined severely with stakeholders saying over 30 per cent of these businesses are no more.
The Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the best channel for accelerated job creation remains through the MSMEs. If for instance, he said, just 50 per cent of them create just one job each, that would generate about 20 million jobs. The employment multiplier of investments in small businesses is very high, he added, and it is also an effective poverty reduction strategy for governments at all levels.
MSMEs are the pillars and the life wire of the Nigerian economy, playing a critical role in its growth and survival. However, the mortality rate among them has worsened in recent times because of the numerous headwinds in the business environment, including poor infrastructure, the naira exchange rate depreciation and the related liquidity crisis in the FX market, galloping inflation, weak purchasing power, regulatory compliance costs, high transaction costs at the ports, multiplicity of taxes and levies, high cost of logistics, insecurity effects, high cost of funds, among others.
Yusuf said that of the roughly 40 million MSMEs in Nigeria today, about 97 per cent of them are micro-enterprises, hence their failure should be a great source of concern.
National Vice President of the Nigerian Association of Small-Scale Industrialists (NASSI), Segun Kuti-George, regretted that exorbitant input and energy costs are about to send even more MSMEs into extinction in the next one year if nothing is done to arrest the situation. “Most MSMEs are half-alive, half-dead, living from hand to mouth. Take for example my company; we used to stock raw materials, waiting for jobs to come but now, it is whenever we get jobs we buy materials. We cannot stock them again because one, the prices change daily and two, there is no money to stock anything. When the jobs come, we buy materials and charge accordingly. Sadly, this is not industry, this is not how to do business.”
Adding that input costs have gone up by as much as 600 per cent in the last two years, he said a drum of resin that used to retail for N200,000 now retails for N900,000. “How many of these costs can we pass on to the consumers? Purchasing power has been eroded so badly. Even if the minimum wage is increased, the level of inflation, which is already very high, will worsen overnight. Everyone is going to increase prices and the currency will become even more useless overnight.”
Adding that of the 40 million SMEs in the country, at least 10 million have gone under in the last two years, he expressed worry that even more will go under if care is not taken. On the allegation that many businesses are still reliant on imported materials, he said this is not very true.
“I source 75-80 per cent of my inputs locally (just as most of us do to save costs) but you see that remaining 25 per cent? It represents 75 per cent of my running cost. For instance, resin is the main ingredient we use and it is a derivative (byproduct) of petroleum, yet all resin used in Nigeria today is imported, despite being an oil-producing nation. It is not even so shocking, seeing as we import petroleum products, but these are some of the problems businesses face,” he said.
Urging the government to give reasonable grants to MSMEs and invest in them, he said no manufacturer can survive with an almost 40 per cent interest rate, almost 40 per cent inflation rate and sky-high FX.
“These three are the most important for businesses and all three are very expensive, how then do we expect MSMEs to survive? More businesses will close shop soon unless the government does what needs to be done. The N50,000 ‘grant’ that was promised to MSMEs is laughable really, because what can that amount do for businesses realistically in today’s Nigeria?” he queried.
National President of the Association of Small Business Owners of Nigeria (ASBON), Femi Egbesola on his part, said that according to the National Bureau of Statistics (NBS), over two million MSMEs have gone under in the last 24 months.
“However, we know this number is not very correct, because from our data, in the last year alone, double that number has folded up. The current environment is not conducive for business, businesses are not making a profit, nor can they pay for input costs or overhead,” he said.
Listing inflation, high FX, depreciating naira, high electricity and alternative energy costs hike in interest rates amongst others as factors causing the demise of MSMEs all over the country, he said the issues, though present before, worsened significantly in the last year. “Most of the goods in the market today are undersold when it comes to pricing. Manufacturers have increased prices so much that they cannot even increase them anymore because they know consumers would simply not buy. We are not even talking about profit margins again; we just want to remain in the market and retain customers until things improve. Sadly, many businesses cannot run at a loss and wait for the situation to come out, forcing them to close shop.”
“Some of our members that closed shop have sadly turned to menial jobs to keep body and soul together. Some of them have started riding tricycles (keke Marwa), motorcycles (okada) and minibuses (korope) to make a living; those can be sold off what they can and have left the country while some have embraced farming. It is very sad when you think that MSMEs that are supposed to be the engine room of development are depleting daily and those in charge are not bothered. There is currently no hope from the government, they have announced some policies, but we are yet to feel any impact,” he said.
He said MSMEs are the drivers of the economy, contributing over 50 per cent to the country’s GDP and employing about 87 per cent of the nation’s workforce. “When the driver of the economy is sick and the government refuses to support that driver, then the economy will be sick and until the situation is dealt with appropriately, we will continue going around in circles,” he said.
According to their projections, he said if nothing is done urgently, at least another 20 per cent (eight million) businesses will go under in the next 12 months. “I am not sure this government understands how serious this problem is, because if they do, their attitude and body language will be different from what we are seeing now,” he said.
Speaking, the Director-General of the Nigeria Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde, said the operating environment and input costs are the two key factors that will determine the fate of many MSMEs in the next six months. He said if the operating environment remains as it is currently, with input costs climbing up daily, it is sure that many more small businesses will pack up.
“There are too many factors stifling MSMEs daily; from high electricity costs to high alternative energy costs and a generally difficult operating environment. We cannot confront businesses with these problems and expect them not to pack up; it is simply cause and effect. We should not cry about the effects when we all know the cause.”
“Pending when the promised reforms would see the light of day, all the different reliefs that were promised to businesses- single digit loans, tax and levy waivers, grants and so on, should come into effect immediately so that we can save the remaining MSMEs still managing to operate.”
“Input costs keep going up daily, businesses cannot keep up and no business will produce at N500 and sell finished goods at N400, it is not possible. This is part of why we were concerned with the activities of the Federal Competition and Consumer Protection Commission (FCCPC) when they were going around businesses and asking them to explain why the cost of goods is high. It did not make sense then and still does not make sense now because they did not deal with the root cause but are unhappy with the clear results,” he said.
Lamenting that stable pricing of local inputs must take centre stage immediately to save local manufacturers and industries, he said one of their members recently opened a biscuit factory but had to shut it down barely six months later because of the unstable prices of cocoa (which is priced internationally), and hundreds of workers lost their jobs.
For things that can be produced locally, the government needs to help businesses seriously. Farmers are abandoning their farms because of heavy insecurity and things like palm oil, cassava, and wheat (used by many companies) have become very expensive. All these things are interconnected and interrelated and if the government is serious about rescuing industries, it knows what to do,” he said.
National Executive Secretary of the Nigerian Association of Small and Medium Enterprises (NASME), Eke Ubiji, pointed out that the issues facing MSMEs are multi-faceted and obvious and if the government is still interested in their survival and the economy’s survival, it needs to stem the rate of MSME closure, which he said has gone beyond worrisome into desperate levels.
Revealing that fuel subsidy removal, increased transport costs, increased electricity and energy costs, zero access to funds, high FX costs and so on, have all snowballed to affect input costs which in turn has made end-user goods extremely expensive.
“A good number of our members are on life support and those that cannot cope have packed up. In the last year alone, of our 10 million members, about 20 per cent of them closed shop; mostly nano, micro and small businesses. The failure rate is already very high in those categories but the current economy worsened an already bad situation. In the last year, the failure rate of these businesses, which used to be about 20-30 percent, jumped to over 50 per cent, a situation which is giving us sleepless nights,” he said.
Berating the N50,000 business palliatives announced by the government last year, he said that amount will do nothing for businesses, regretting that they cannot even access funds from commercial or industrial banks.
Ubiji pointed out that the failure rate of small businesses will rise even more significantly in the next one year if these numerous problems are not addressed immediately and a conducive environment is created for businesses to thrive in the country.
