SMEs under immense pressure as logistics costs spike
Small businesses are going through tough times in Nigeria as logistics costs continue to rise amid unending challenges of high funds cost, and high diesel prices.
Operators of micro, small and medium scale enterprises (MSMEs) told Start-Up Digest over the weekend that transport and port charges have arisen on back of foreign exchange challenge and cost-push inflation ravaging Africa’s biggest economy.
The Nigeria Customs Service began the implementation of a new exchange policy, pegging import duty rate at N282 to a dollar since July 1.
This has frustrated many SMEs in the import sector who now bear more costs. It has also affected manufacturing exporters that import inputs, as it raises their production costs.
“The accretion in my cost of production hovers between 10 and 20 percent,” said Ike Ibeabuchi, managing director of a small chemical firm, who imports inputs from Asia.
John Tudy Kachikwu, an exporter in the foods sector and CEO of John Tudy Interbiz, who is also the chairman of SME operators in the Lagos Chamber of Commerce and Industry (LCCI), recently told BusinessDay that the export sector has become stagnant.
SMEs who transport goods reported a 10 to 25 percent rise in charges in the last two to three months.
The National Bureau of Statistics (NBS) said in June that there were highest increases in prices in electricity, liquid fuel (kerosene), furniture and furnishings, and notably passenger transport by road, as well as fuels and lubricants for personal transport equipment.
A recent report entitled, ‘Enabling a More Productive Nigeria: Empowering SMEs’, done by The Economist says Nigeria’s road and
rail system remains insufficient, adding that investments should continue to be directed towards light rail transit to enable faster commuting for city workers, and towards infrastructures feeding the country’s vital port systems.
While urging SMEs to leverage the rail transport system, analysts say the infrastructure must be lifted from doldrums.
Inflation rate in Africa’s biggest economy hit 16.5 percent in June, forcing the central bank to raise the Monetary Policy Rate from 12 to 14 percent.
Most operators of MSMEs argue that this will further raise cost of funds in deposit money banks, making it much more difficult for them to have access to credit needed for growth and expansion. They say this will cut their profits and force most small businesses to shed jobs.
“Businesses are already exposed to FX rate, high energy cost and import duty, weak consumer spending, among others. They could just have left it at 12 percent because the pressure is too much on businesses,” said Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI) on the phone.
Femi Egbesola, national president, Association of Small Business Owners said, this was not good for businesses.
“With the high exchange rate differentials coupled with the recent increase in interest rate, businesses are going to suffer and this would have a tremendous impact on jobs,” Egbesola said.
According to Friday Opara, director, strategic partnership, Small and Medium Enterprise Development Agency of Nigeria (SMEDAN), increase in MPR to 14 percent means that SMEs would not get loans from the deposit banks.
“This implies that many will be out of business because the environment is getting tougher for them,” Opara said.
Nigeria’s demography provides opportunities for its 37 million MSMEs, which can leverage untapped potential in the economy to grow. But power is scarcely available, forcing SMEs to use alternative energy sources, whose prices have continued to rise.
ODINAKA ANUDU & JOSEPHINE OKOJIE