Businesses see fresh spike in inputs prices on FX scarcity
BUSINESSES in Africa’s biggest economy are seeing a fresh spike in input costs as manufacturers struggle to get the dollars needed for imports.
The Nigerian naira has been on a free fall against the US dollar since the Central Bank of Nigeria (CBN) announced plans to redesign the banknotes.
As of Monday, November 7, the exchange rate between the naira and the US dollar closed at N881 percent, an all-time low at the parallel market.
Since the COVID-19 pandemic, Nigeria which depends largely on crude oil proceeds has been riddled with weak foreign inflows, resulting in a liquidity challenge in the country’s FX market. The Russia-Ukraine crisis worsened the country’s FX challenges.
The National Bureau of Statistics had in its September CPI report attributed the inflation rate, which is at a 17-year high, to the increase in import cost due to the persistent currency depreciation.
To gauge the level of impact, Businessday interviewed a dozen of small businesses, and nearly twothirds of operators say they are seeing a fresh surge in input costs.
Here are their responses: Chioma Mary Njoku Njoku is the chief executive officer of That Gloss - a Lip Care brand that provides lip care products to individuals, young and old.
Are you seeing a fresh spike in the cost of inputs?
Yes. Prices just keep increasing daily and this is also forcing us to increase our prices as well. What is driving it now is the FX. Most businesses still import most of their inputs.
How are you coping with the recent cost of doing business?
In any case, it is a reality we all have to cope with as business owners. What I keep in mind is the grand vision of being able to provide a top-notch lip care product to all categories of Nigerians, affordably at that. To cope with economic realities, I have had to make necessary adjustments in the production and stocking framework. I have done my research on various vendors that provide the materials I use, then make my analysis as to who might be the best bet cost-wise. The objective is to continue giving Nigerians That Gloss, as we hope for an improvement in economic conditions.
Are you making much more money compared to before?
Yes. In 2022, I have been able to make more money compared to past years. My work ethic changed, I became more dedicated to the business, and I participated in a fair that brought more people to the knowledge of That Gloss. Putting more effort into developing myself and my brand has gotten me a good number of customers and has increased the amount of money made, up to the extent that I have people who are interested in investing in my business.
Are customers buying your products?
Customers indeed are buying my products. Those who are interested in lip care and even those who are just at the beginning of their lip care journey. Individuals tend to have mindsets like “It’s just lipgloss, why is it that price?” but once they get a feel of the quality That Gloss products provide, they always come back for more.
How is the worsening power supply affecting your cost of production?
At that gloss, all our products are handmade and require no form of power supply to be able to be produced. This has come as a plus because the power supply worsening in the country has caused a lot of setbacks for many businesses but luckily, that is not the case at That Gloss.
Which strategy did you adopt as a business to survive the covid-19 pandemic?
That gloss originally began in September 2020 so it officially kicked off
when things were starting to go back to normal in the country. There were still hurdles to surmount because getting products delivered was not as swift as it used to be and getting raw materials was not as quick as it was meant to be. Still, a strategy I was able to adopt as it relates to making deliveries was finding reliable logistic companies that were operating fully and efficiently. To get raw materials rapidly, I was able to get in contact with a vendor that was in a state close by.
Is the Nigerian business environment improving?
With the current state of Nigeria’s economy, being a business owner is daunting, especially with the current foreign exchange rates. Its impact is being felt in every industry. Importation costs are up and affecting everything from food to essentials, and even cosmetics. The effect has gone right down to small businesses, so the cost of doing business is up, and it is ever more challenging to stay afloat. One would be to say that the Nigerian business environment is improving because even the Nigerian government does not make things smooth in such industries.
Omowumi Afolashade Afolashade is the head baker at The Sweettreat Paradise
How are you coping with the rising input cost?
It’s tiring and discouraging, even clients have a budget and tend to not exceed their budgets thereby turning us down, if we decide to do it cheaper then we run at a loss.
Are you making much more money compared to before?
No! Most times I just do it so it won’t look like the business is packed up. Most times there’s profit and most times there’s not
Are people buying your products?
Yes! A couple of retiring customers, however, we turned down some that are not profitable.
How is the worsening power supply affecting your cost of production?
It’s affecting the cost of production and even storage. We currently spend a lot on diesel and that is impacting our bottom line. There is hardly any power supply where my business operates, so we rely on diesel most of the time.
What strategy did you adopt to survive the pandemic?
During the pandemic, it was difficult for us, especially during the shutdown to curtail the virus’s spread. We had to re-invent the business to survive the difficult moment by developing a menu for individuals that want to satisfy their cravings and we leveraged social media to drive our sales.
Is the Nigerian business environment improving?
No! It’s not. It is still difficult to get your business registered and you still have to pay several taxes. We still cannot access cheap loans despite surging in everything today. Many businesses are even planning to shut down own to the numerous challenges in the ecosystem.
Agoro Olajumoke Adunni Adunni is the founder of Dunnispot Catering Services, a food vendor in the Lagos metropolitan. Here is her response to the questions:
How are you coping with the rising input prices?
Understanding my customers and investing in market research were two of the many tools I used to curb this rising input cost. I went into the marketplace myself to talk to customers directly to understand their pain points and how their attitudes and behaviors in response to price inflation. I realized more customers were looking out for promotions and discounted sales on certain meals, so I cut prices not across the board but only on meals selected as inflation-busters. For low-income customers, promotions hit key price points on small pack sizes while high-income customers encourage multi-unit purchases ahead of inevitable next price increases.
Are you making much more money compared to before?
To be factual, I am not making more money now because the standard of living for an average Nigerian today’s high, and most people work on budgets. Thankfully, as a food vendor, food is an essential most people can’t do without so I have been able to still cash out.
Are people buying your products?
Yes, I have customers patronizing my brand, as I put my brand out there on almost all social media platforms so I have new customers, lots of referrals, and my loyalist that has taken us where we are today.
How is the worsening power supply affecting your cost of production?
The lack of a working grid has led to high financial costs. When businesses such as mine add up the hidden expenses - generators depreciation, maintenance, and personnel cost, it can be discouraging but alternative sources of electricity such as inverters and generation have helped my brand in the preservation of my perishable products.
What strategy did you adopt to survive the pandemic?
During the pandemic, my business thrived via social media, D.I.Y videos to my loyal customers on request, and home deliveries. It was one of the most profitable periods for my brand.
Is the Nigerian business environment improving?
Yes, it is, as there are many avenues through which brands can showcase their various skills and products and equally cash out at the same.