Diesel price hike, naira depreciation — and other economic shocks of 2022

It has often been said that small and medium-sized enterprises (SMEs) are the lifeblood of the Nigerian economy as they play a crucial role in alleviating poverty and unemployment.

Consequently, Nigeria has seen a surge in the proliferation small businesses as many youths turn to self-employment in the face of a worsening unemployment crisis.

At least, 39,654,385 micro, small and medium enterprises (MSMEs) operated in Nigeria of December 2020 according to a report jointly released by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS).

A breakdown of the figures showed that micro enterprises (MEs) accounted for 38,413,420 million, while the total number of small and medium enterprises (SMEs) stood at 1,240,965 million.

However, a vast majority of these businesses die within the first five years as they struggle to navigate Nigeria’s harsh economic environment. In 2022, new and existing SMEs have had to adopt different survival measures to remain afloat.

Here are five of the most significant economic challenges that small businesses faced in 2022.

NAIRA DEPRECIATION

In 2022, the naira depreciated rapidly against major global currencies such as the dollar, pound and euro. The situation took a toll on small businesses given their reliance on foreign exchange (FX) for various purposes.

From N560/$ at the end of December 2021 to N750/$ by mid-December 2022, Nigeria’s currency depreciated by 33.9 percent in the parallel market within a year. Similarly, the naira devalued from N414/$ to N456.50/$ in the official market within the same period.

Speaking with TheCable, Gbemisola Olahanmi, creative director of Misola Luxury Hairs, said she had to source for dollars at the parallel market to buy hair bundles from factories in India, China, Cambodia and Vietnam.

Olahanmi, who also imports hair products and styling tools, said she lost customers who could no longer afford her products because of the higher prices.

“Even when dollar reduced a bit, I couldn’t reduce prices because I already stocked products at high rates,” she said.

“The prices of everything were skyrocketing and it was only logical for me to increase my prices to remain in businesses. Customers complained but they also understood.”

Olahanmi’s plight is echoed by Emmanuel Onuorah, president of the Premium Breadmakers Association of Nigeria (PBAN), who said the increase in the price of importing wheat into Nigeria led to a surge in the prices of bread.

He added that rising energy costs and hike in the cost of raw materials caused a lot of bakeries to close shop.

“Bakeries are also going out of business because they can’t cope. I used to have 150 workers. Today, I only have 45 workers. I used to do two shifts but now I only do one shift. Those people are all out of jobs,” Onuorah told TheCable.

“The government must look at how to create a special window for millers to access FX. They should also remove the 15 percent wheat development levy on imports.

“The government should encourage backward integration for wheat growers in Nigeria. We should have enough wheat in the country. How can we be importing everything from abroad?”

INFLATION

Inflation is simply defined as an increase in the general price level of goods and services in an economy. In November, Nigeria’s inflation rate hit 21.47 percent — the highest it’s been in 17 years.

The National Bureau of Statistics (NBS) attributed the surge in inflation to a sharp increase in demand ahead of the Christmas season, import cost hikes due to the depreciation of the local currency, and a rise in production costs.

To ensure the survival of their businesses, many small business owners have been forced to make the difficult choice of how much of extra costs they can afford to pass on to their customers without risking patronage.

NATIONAL GRID COLLAPSE

So far this year, the national electricity grid has collapsed eight times — with the last occurring on September 25, 2022 when power generation on the system crashed from over 3,700MW to as low as 38MW.

In 2022, Nigeria suffered nationwide power outages largely due to the collapse of the national electricity grid.

This, in turn, negatively impacted small businesses, as they were forced to rely on alternative, off-grid power sources.

TheCable had reported that the grid experienced 206 collapses between 2010 and 2019.

DIESEL PRICE HIKE

The price of automotive gas oil (AGO), better known as diesel, increased from N260 per litre last year to over N850 outside major cities like Lagos and Abuja currently, and this has made it extremely difficult to run a business profitably in Nigeria.

Findings by TheCable revealed that the major reason for high diesel prices is the rise in the price of crude oil in the international market due to the war in Ukraine.

With limited electricity supply from the national grid, a lot of Nigerian businesses depended on diesel generators to provide a steady and reliable supply of power, thereby increasing their operating expenses.

RECURRING PETROL SCARCITY

In the same vein, recurring petrol scarcity throughout the year made life tougher for small businesses.

As expected, the scarcity led to a hike in the price of petrol as well as long queues at filling stations.

Since February till date, millions of Nigerians have spent a ridiculous number of hours daily on queues jostling for petrol. Some have had to trek long distances to reach their destinations as transportation costs also skyrocketed.

Despite the joy and happiness of the festive season, a lot of Nigerians spent Christmas Day queuing for petrol at fuel stations across the country. Many were forced to buy the product from black marketers who sell for double the official price.

The situation compounded the woes of small businesses as they struggled with low productivity and a surge in operating costs in 2022. And it is likely that the status quo will remain as TheCable observed that some fillings stations stayed closed into January, 2023.