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Business Owners Groan As Operation Costs Skyrocket

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An increasing number of Nigerian businesses are feeling the strain of the increasing costs of production, largely due to the removal of subsidies on petrol and diesel.  As a result, the costs of petrol and diesel continue to climb, causing production expenses to surge. This unpleasant situation has become a cause of worry for some operators that their businesses might fold up if the government fails to intervene urgently.

President Bola Tinubu on the assumption of office on May 29, 2023, announced the removal of subsidy on petrol. Nigeria is highly dependent on both petrol and diesel because of its lack of stable electricity.

Access to electricity in the country is the lowest globally, with about 92 million Nigerians lacking access to power, the Energy Progress Report 2022 released by Tracking SDG 7 recently revealed.

The World Bank has also disclosed that businesses in Nigeria lose about $29bn annually because of the country’s unreliable access to electricity.

Many households and businesses in the country depend on petrol- and diesel-powered engines to keep their lights on and production running and any shift in the cost of either product negatively impacts the economy.

However, since the subsidy was removed, petrol prices have risen by 210.31 per cent year-on-year in June 2023 (a month after the removal of the subsidy) to N545.83 according to the National Bureau of Statistics. The price of diesel also rose by 11.18 per cent y-o-y to N815.83 per litre in June.

This increase in fuel prices (particularly petrol) in combination with persistently high inflation is expected to impoverish more Nigerians, weaken disposable income, and crash the demand for many products.

The World Bank recently stated that Nigeria has one of the highest inflation rates, and this pushed about four million people into poverty between January and May 2023.

The Bank also said 7.1 million Nigerians would become poor if the Federal Government fails to compensate or provide palliatives for them, following the removal of fuel subsidies. This prediction is expected to push the number of poor people in the country to 100.9 million.

It said, “The poor and economically insecure households will face an equivalent income loss of N5,700 per month, and without compensation, an additional 7.1 million people will be pushed into poverty.”

With more Nigerians falling into poverty, experts believe businesses will struggle with turnover to mitigate against their own rising cost of production.

The Abuja Chamber of Commerce and Industry recently said many Small and Medium-sized Enterprises in Nigeria are already shutting down.

A trader, Mrs Taiwo Balogun, who sells frozen foods in Lagos, told The PUNCH that things are getting worse, and it has become difficult for her business to cope.

Meanwhile, he suggested that what the government could do to cushion the effect of the present harsh realities of the economy on SMEs is to create an enabling environment, especially in terms of infrastructure.

“Majority of the SMEs in Nigeria are high-cost producers, they provide electricity for themselves and when all these things are added to the cost of production, it’s going to increase,” He added.

Aworinde noted that the expectation here is that the government should try as much as possible to create a conducive environment and ensure that electricity is provided.

“If there is a constant supply of power, the implication is that the cost of production would reduce drastically,” he argued.

Aworinde emphasised that the government must ensure ease of doing business in Nigeria as it would also cushion the effect of the high cost of operations for SMEs.

He warned that failure on the part of the government to intervene would lead to the closure of businesses and job loss in the economy.


Written by: Kevin Nwabueze

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