SMEs hardest hit by Nigeria’s policy failures
The micro, small and medium enterprises (MSMEs) have felt the pinch of Nigeria’s policy failures the most.
Only last year, 222 MSMEs closed shop on the back of what analysts regarded as ‘rudderless policy direction of the Federal Government and its poor management of the foreign exchange market’.
A report carried out by NOI Polls Limited and the Centre for the Studies of Economies of Africa in August 2016 showed that the 222 small-scale businesses and 50 manufacturers (mostly small-scale) shut down operations, leading to 180,000 job losses.
Similarly, a directive was given by the Central Bank of Nigeria (CBN) in August 2016, stating that 60 percent of available foreign exchange be given to manufacturers.
However, small-scale manufacturers told Start-Up Digest that they were exempted by banks and had production interruptions many times in 2016. Hence they could not get dollars to import the needed raw materials. Even when they got, it was from the parallel market, where a dollar exchanged for N450-N480 as against N305/$ in the official market.
“Unfortunately, the dollars do not go round. Today we hear that what the Federal Government is doing is to allocate 60 percent of available foreign exchange to manufacturers. Well, it’s a good idea, but the issue is this, how do you make certain that this foreign exchange will not be eaten up by the rich and powerful manufacturers? How many SMEs can have access to the dollars?” Ikpong O. Umoh, managing director of Stellarchem Nigeria Limited, a firm producing chemical intermediates, asked in an interview.
Apart from the foreign exchange market woes, experts see the 14 percent Monetary Policy Rate (MPR) as one policy that continues to stifle small businesses. Most banks lend to small businesses at over 20 percent.
Also, policy uncertainties in the previous and present administrations have continued to hit SMEs hard. There have been constant policy reversals in the specific sectors in Nigeria such as textiles, iron and steel, and imports. Up to 41 items were excluded from accessing foreign exchange from the local market, many of which are import products of SMEs. In the immediate past administration, import waivers were given and stopped without announcements. Such volatilities affect all businesses, but especially those without buffers, according to The Economist, which carried out a survey in 2015, entitled, ‘Enabling a more productive Nigeria: Powering SMEs’.
Honey Ogundeyi, founder and CEO of online fashion retail site, Fashpa.com, told The Economist that “The hardest thing for SMEs is that you cannot predict anything. If you are a big company you have more of a financial cushion to absorb some of the volatility in the system. As an SME you feel everything. It is the difference between driving an SUV and riding an okada [motorbike]. You feel every bump.”
Moreover, Nigeria’s power sector reforms have yielded little results. Power distributors complain that they only distribute the megawatts of electricity they are given by the generating companies—less than 4,000 megawatts.
Power is only available between three and six hours in 24 hours, according to Nigerian start-ups. Many small businesses use fuel and diesel to power their generators owing to incessant electricity interruptions. A litre of fuel has risen from N87 to N145 in eight months. A litre of diesel has also spiked from about N150 to N180 to over N240 in six months.
“I buy ten litres of fuel every day—that’s N1450. Electricity has to be on for many hours, whether we are working or not,” said a 27-year-old Ikenna Oduzor, a computer operator in Lagos.
Emeka Osuji, author of Microfinance and Economic Activity: Breaking the Poverty Chain’ and senior fellow at School of Business Admin, Pan-Atlantic University Lagos, said small business community has borne the brunt of most policy failures in Nigeria.
“The political difficulties that followed the transition of power from the PDP to the APC were momentous. Business had to wait for the new government to settle into the job because of one of the very bad attributes of our economy – government is not only the largest spender but probably the only relevant spender – a problem we tried to curtail through privatization but failed. If we remember that several months before the elections, businesses optimism had waned and investing was no longer a flourishing habit, then we know the sacrifice the small business community has made to promote and protect whatever is left of the economy today. This is more so when we recognize that it is big business that has been favoured, if anything, by this administration. And we can explain this point,” Osuji said.
ODINAKA ANUDU