An increasing number of Nigerian businesses are feeling the pinch of rising production costs, owing largely to the elimination of petrol and diesel subsidies. As a result, the price of gasoline and diesel continues to rise, increasing production costs. This terrible circumstance has caused several operators to fear that their firms would fail if the government does not interfere quickly.
President Bola Tinubu declared the abolition of petrol subsidies upon taking office on May 29, 2023. Nigeria is heavily reliant on both gasoline and diesel due to a lack of reliable electricity.
According to the Energy Progress Report 2022 provided by Tracking SDG 7, access to electricity in the country is the lowest in the world, with over 92 million Nigerians lacking access to power.
According to the World Bank, businesses in Nigeria lose over $29 billion per year due to the country’s unpredictable access to energy.
Many people and businesses in the country rely on gasoline and diesel engines to keep the lights on and manufacturing running, and any change in the price of either product has a detrimental impact on the economy.
However, after the subsidy was abolished, petrol prices have climbed by 210.31 percent year on year to N545.83 in June 2023 (one month after the subsidy was removed), according to the National Bureau of Statistics. In June, the price of diesel increased by 11.18 percent year on year to N815.83 a litre.
This increase in fuel prices (especially petrol), combined with continuously high inflation, is likely to further impoverish Nigerians, erode disposable income, and depress demand for a wide range of products.
According to the World Bank, Nigeria has one of the highest inflation rates, which has pushed almost four million people into poverty between January and May 2023.
The Bank also stated that 7.1 million Nigerians will become impoverished if the Federal Government does not pay or provide palliatives for them as a result of the elimination of fuel subsidies. This forecast will increase the number of poor people in the country to 100.9 million.
According to the report, “The poor and economically insecure households will face an equivalent income loss of N5,700 per month, and without compensation, an additional 7.1 million people will be pushed into poverty.”
With more Nigerians sliding into poverty, analysts say firms will struggle with turnover to offset increased production costs.
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According to the Abuja Chamber of Commerce and Industry, many Nigerian SME’s are already closing their doors.
Mrs Taiwo Balogun, a merchant who sells frozen foods in Lagos, told The Punch that things are getting worse and that her firm is struggling to keep up.
She claims that the cost of her commodity, logistics, and running her firm has increased. Despite this rising cost, sales have not increased, and consumer patronage has decreased, as clients no longer frequent her shop as they used to.
“Power supply is not common here in my area, so I mostly run on generator,” she explained. We yelled when the petrol price was raised to N488, but it has now been raised to N617 per litre. How does the government anticipate small enterprises surviving?
“This high cost of production has eaten deep into my profit, and I have nothing left after I sort out other expenses.”
Mr Akin, a printer who runs a printing press in Shomolu, bemoaned the high operational costs of printing due to the present pump price of diesel and the volume he must buy everyday to satisfy the printing orders of his customers. He indicated that he couldn’t run his firm only on the electricity supplied by the Disco since it was unreliable.
Akin went on to say that prices for practically everything have risen, including sheets of paper and other printing materials.
He could only hope that President Bola Tinubu handles the issue of the petrol price increase, which has severely impacted his profit.
A barber identified as Kola Adebayo, who runs a barbing saloon in Okota, claimed the rising cost of gasoline is harming the operation of his barbing saloon.
Adebayo chose gas to lessen the burden of gasoline on his business because he had to shift his generator from petrol to gas.
“So far, that decision has been cost-effective because gas lasts longer than gasoline.” “I now spend less than I would have if I had purchased gasoline at the current daily rate,” he explained.
A baker who owns a pastry shop in Ajao Estate who just identified herself as Mrs Folashade said, “The cost of operation is increasing daily, and it is affecting my baking business.”
She emphasized that the price of a bag of flour has risen due to the naira’s devaluation versus the dollar, “and you cannot even predict what the market price will be by the next time you go to the market.”
Folashade is hoping for a quick return to normalcy because the cost of running the generator and maintaining her machinery and equipment is killing her.
She stated that patronage has decreased as a result of the current economic realities that Nigerians are facing. Folashade, like Adebayo, is considering switching her generator from gasoline to gas to save money.
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