By Merit Ibe
Owing to the undulating downward movement of the naira against other foreign currencies which has left in its trail hardship, failing businesses, loss of jobs, experts have predicted that about 4 million Micro Small and Medium Enterprises ( MSMEs) may close shop this year.
The unstable nature of the naira has been a troubling development for businesses and key industry players and will continue to shape and reshape the direction of the nation’s economy.
Those who spoke on the issue noted that with the challenges of forex and fluctuation of the naira really high, 10 percent of small businesses, which is about 4million SMEs will likely die in Nigeria.
Nigeria, being an import-dependent country, is troubled anytime the naira comes under pressure and its value falls against other currencies, due to the effects on other sectors of the economy, including the MSMEs.
Apart from forex which is biting hard and restricting Import and export, SMEs are pummeled by rising cost of energy, transportation, poor infrastructures and multiple taxation to unbalanced government macroeconomic policies, which have made it difficult for Nigerian SMEs to favorably compete in the global marketplace and contribute meaningfully to the national GDP.
The issue of interest rate and exchange rate volatility have been the bane of SMEs’ performance in Nigeria. The frequency with which the naira exchanges value makes it difficult for long-term planning.
Daniel Dickson-Okezie, Chairman, SMEs Group of the Lagos Chamber of Commerce and Industry (LCCI), noted that rising exchange rate has been a major problem not only to MSMEs but to all operators in the real sector of the economy.
Citing the report by the National Bureau of Statistics(NBS), Dickson-Okezie, said Nigeria has about 39.6million MSMEs. “They account for about 96.9percent of businesses in Nigeria and provide 87.9percent of employment, contribute about 46.32percent of the national GDP.
About 58.6percent of those SMEs are involved in whole sale and retail trade, while 33.3percent are micro enterprises buying products abroad and selling to different stages of businesses that have peculiar and stressful challenges.
“It’s likely that 10percent of SMEs will close shop due to forex squeeze and fluctuating exchange rate which is getting out of hand . As at today, the dollar rate is about #415.22 for the CBN rate and the black market rate is about #620 to a dollar.”
He noted that part of the challenges faced by these SMEs with regards to forex and naira fluctuation issues include shipping cost. The cost of shipping in raw materials and goods keeps increasing which eventually falls back on the buyer.
“Suppliers also face the issue of increase in cost after agreements have been reached.
“Many commercial banks have equally stopped lending money to importers because of the high exchange rate.”
He said since the country is an import dependent country, forex shortage is a major problem.
“The fluctuating exchange rate is affecting most businesses expecially the MSMEs. From the cost of raw materials, to the cost of goods they have to sell. It affects every strata of business and the economy.
“Now, there seems to be no solution in sight on this issue of exchange rate fluctuation and the forex squeeze.
We even expect it to get worse this season, because politics has a way of affecting the economy and businesses.
For now the politicians are bringing in raw dollars to share among themselves this will worsen inflation.
“Also the exchange rate issue will get worse because many Nigerians are trying to send their children abroad due to persistent ASUU strike.
A number of factors are putting pressure on the naira.
He emphasised the need for government to encourage local manufacturers. “Those companies producing, like the Innoson company that is now producing tricycles should be encouraged to do more. If the billions used to import tricycles are channeled to the production of this product in Nigeria, it will go a long way in, creating employment, stabilising the naira and boosting the economy.
“Non-oil export and more export should be upscaled.
“We need to improve our production particularly in the area of agriculture. If we produce, the lesser we import and that is the better. We really need to reduce our imports and export more of our products.
In the past few years, some manufacturing companies have closed shop and relocated to nearby West African countries. If we produce more and export more our GDP will grow and the value of the naira will improve.
One of the problems in the country is policy summersault.
We need to improve our economy, produce better. The ease of doing business is not real. The hurdles that exporters face are too many.
Corruption, bad roads and other obstacles are discouraging and killing businesses.
The issue of insecurity must be addressed to open the floodgate of foreign investment inflow into the country and also encourage local production to save the naira and increase forex.”
For the Lagos Chairman of the National Association of Small Scale Industrialists (NASSI), Gertrude Akhimien, forex squeeze has affected every strata of the economy.
Some companies have equipment to service, raw materials to import or pay bills in naira or foreign currency. So the forex issue is affecting businesses in one way or the other.
Some companies pay technical staff in dollars, so when the value of naira keeps fluctuating it will affect them.
Though the effect of naira fluctuation or forex issue is worse with small businesses because they cannot just increase prices of products, they must consider their consumers and competitors which are some big companies that can easily manage those added costs.
“Passing on higher raw materials costs to consumers carries risks because it could compel customers to either take their business elsewhere or simply go without.”
Millions of SMEs will close shop this year, going by the harsh business terrain.
Akhimien noted that the rising diesel cost by 300 percent is ridiculous, adding that the effect on the capital is unimaginable.
“The rise in exchange rate is disturbing as most businesses cannot even import which has been made worse by the Russia Ukraine war. Many countries cannot export their products any more, so import dependent countries like Nigeria are made to suffer. The alternative is to look inwards and source for their raw materials. The supply chain has been broken.
“The fluctuating naira is even pitching suppliers against buyers, as most times the price agreed on does not work out when naira depreciates.”
To stabilise the naira, the NASSI chairman said it depends on government’s policy. “Our government doesn’t seem to be getting it right. I believe if they do, the economy will be better of.”
She decried the security situation, saying it has forced many SMEs out of business as it has added to the pain of small businesses.
“Insecurity is a major reason for the shut down of many SMEs. Many SMEs who are into production need raw materials which they have not been able to access due to the security situation especially in the Northern part of the country.
The security situation is also scaring foreign investors who would help to bring in foreign currency and strengthen the naira.
“Small business owners are afraid to risk their lives due to the senseless killings and kidnappings. So the little raw materials that come in are expensive and at the end of the day there is no profit. As I talk to you now, five bakeries just shut down. The bakery section just raised alarm of the continuous rise in the price of raw materials as such many have closed shop waiting till price stabilises. If price keeps increasing, consumers cannot buy, they rather make alternatives.
“Members are lamenting seriously. Getting market for their goods is quite difficult, as purchasing power has gone down and people are prioritising their needs now.
I’ve told my members to look inwards and source for their raw materials if importation is becoming difficult due to forex squeeze.
Dr Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprises (CPPE) had said for the fact that the economy is highly import dependent, the impact of instability of the naira on the economy and welfare of the citizens is often profound.
Many manufacturing firms are also slashing production due to their inability to procure dollars for raw materials.
Yusuf said the naira volatility will continue to determine the state of Nigeria’s economy and businesses.
For him, one of the negative effects is a rise in inflation and subsequent uptick in the cost of production and prices of goods.
“As the naira exchange rate falls, prices of goods and services rise.
“It worsens uncertainty for investors including SMEs; Undermines investors confidence; Heightens investment risks; High cost of production due to high import dependence of our manufacturing sector for imported raw materials and equipment; Low sales and turnover because of the consequential increase in price and resultant contraction demand and Erosion of profit margin.”
However, he added that the positive side of the currency predicament is that a weak currency makes exports competitive and provides a significant boost for export growth and more dollar-earning. “So non oil export should be encouraged.”