How SMEs survive high cost of doing business
Hauwa Bello, proprietress of Mumtaz International School, Lugbe, says the cost of doing business has increased tremendously in the past few months due to hike in fuel price and inadequate power supply.
“In Lugbe, where my school is located, sometimes for a whole day, there will not be power supply; hence we have to use the generator. Before now, we spend about N3,000 to buy 40 litres of petrol but now we buy it N6, 000. Generally, the cost of other items have gone up,” Bello laments.
Mr. Agbo Odeh who operates a sachet water factory in Mararaba area of Nasarawa State, said his cost of production has risen by 20 per cent due to epileptic power, more fuel cost and the rising cost of inputs and services. He said he has been at a crossroad as he is scared of increasing price which could send his customers away.
“I have called my staff to a meeting over three times on whether we should raise the price of sachet water from N10. What they always tell me at each meeting is that, though the price of fuel and other services have risen, the per capita income of our customers has not grown,” he said.
Bakare Adebayo, CEO of Bread and More, explains her plight. “Since February this year, we are just trying to survive. Cost of flour and other materials have increased by 33%. If I sell a big loaf of bread at N400 before now and I choose to sell at N700 who is going to buy? So, the little increase in the price of bread is not commensurate to the cost of production. If our profit used to be N20 on each loaf it has reduced to N5 , Adebayo explains.
Abdul Gwani, a barbing salon owner in Lugbe said the barbers’ association has not thought of increasing the rate from N200 per hair cut but the increase in fuel price has dealt a huge blow on their daily earnings from the job.
“The fact is, our daily earnings has now reduced significantly by buying petrol to fuel our generators at extra price. The difference in per litre of petrol is N58 and that is significant to us,” he said.
Analysts at Afrinvest (West Africa) Limited were reported to have predicted that in the short term, increase in PMS prices would add more pressure on consumer spending .
They had noted that real income will also further experience a drag, as they estimate inflation rate to likely overshoot the 14.0 per cent mark in May. Expectedly, the inflation rate released this week by the National Bureau of Statistics puts it at 16 per cent.
“The hike in fuel price will worsen prices, most especially in major cities like Lagos and Abuja, as transport and electricity, gas and other fuels constituted 23.2 per cent of the Consumer Price Index (CPI) weighting pressure, in the May inflation report. Hence, increase in general price level will hurt real wage rate significantly,” it reported.
The present situation many SMEs operators said put them on the edge of business. “To some of us who got loans previously, the drag means more burdens to repay their loans while faced with little or no profit in the meantime,” Abiodun Segun, a fashion designer who started her business with a N2million loan in Abuja last year said.
Barrister Kunle Olubiyo, the President of Nigeria Consumer Protection Network in Abuja said the recent price hike has increased the general cost of living and doing business as “there are multiplier effects of the PMS hike across the value chain of the economy.”
Olubiyo advocated for the speedy passage of the Petroleum Industry Bill (PIB) which if enacted he said would help to create more jobs, bring in more revenues to the government for providing the needed massive infrastructural facilities.
He noted that if there are infrastructure including subsidised transport systems and adequate power supply, the cost of doing business and living would drastically go down and the effect of the domestic fuel price hike would be cushioned in the long run.