Nigeria’s small businesses in unending battle against dollar shortages

Nigeria’s small businesses are locked in a survival battle against a foreign exchange crisis that is forcing them to adapt or die trying.

Micro, small and medium scale enterprises (MSMEs) are regarded as the core of the economy, seeing that they provide platforms with which the economy can grow and develop.

This group of businesses has significantly contributed to economic growth through job creation, revenue generation, economic diversification, etc.

Nigeria has 39.6 million Nano, Micro, Small, and Medium Enterprises (NMSMEs), who currently account for 96.9 percent of businesses in the country, provide 87.9 percent of employment and contribute 46.31 percent of the national GDP, according to the National Bureau of Statistics (NBS).

However, their huge number and significant contribution to economic growth do not exempt them from challenges that make them vulnerable to closure and frustration, especially those primarily involved in wholesale and retail trade.

For the 23.23 million businesses (58.6%) involved in wholesale and retail trade, 33.3 percent of which are micro-enterprises, buying products abroad, receiving them, and eventually selling the products are different stages of business that has their own peculiar and stressful challenge.

Most of them deal in the sale of clothes, household kits, shoes, electronics, among other things, primarily sourcing the products from China, Dubai, the United States, and Europe. Many of these businesses have not been privileged to travel to these places to carry out transactions, however, the use of technology has enabled the almost seamless buying and selling activity.

One major problem that stresses transactions for these businesses is the payment system which stacks the odds against them. To start with, the Nigerian naira is quite weak against the dollar which predominantly serves as a mutually accepted currency between these countries.

Currently, it costs N415 to get one dollar from the Central Bank of Nigeria (CBN), while it costs no less than N550 in the parallel market, this unfavourable exchange rate affects them as they are forced to pay more for fewer products. In addition to this, sourcing the dollar currency is another major problem they face as it is not readily available in banks.

Before the pandemic, small businesses sourced dollars through agents who got the sought-after currency after aggregating different orders as one request tangible enough to receive attention.

In August 2020, the CBN issued a directive that restricted third parties or middlemen from accessing the FX window through the form M, this further tightened access to FX for SMEs because they do not have the capacity to, and many of them can not connect with the original producers of these things neither do they have the financial ability to purchase thousands of dollars at once.

Following a directive from the financial regulator, Nigeria banks pegged the monthly dollar limit between $100 and $200 on the naira MasterCard, which limits the amount business owners can use on their debit cards. Even with the use of a dollar card, there is a limit of about $3000 per month.

How businesses managed payments

Facing different policies that threatened to stifle business operations, MSMEs devised means to solve the payment system challenges. Most MSMEs when shopping from China, prefer to use the Yuan because it is relatively cheaper and allows a diverse option of suppliers howbeit with different rates.

Oguntoyinbo Olayinka, founder, WOW Superstores who deals in clothes and accessories, says she has a currency supplier in China and the USA that helps her pay in their own currency and she refunds them in their naira wallet, a plan she says has served her well since 2019.

“I do not rely on one source of payment to avoid disappointments and I sometimes use Alipay when buying from China, also due to the $100 limit, I have to spread the payment across many accounts or use different cards when other options are not available the naira equivalent is then deducted from my account,” she explains.

Akhuewu Jennifer, who owns Bliss & Bloom Nigeria, states that she buys goods from Turkey, Dubai, and China, depending on the item and type of product, and makes payment however the supplier prefers to be paid.

“I make payments using the Naira debit card, WeChat, and other mobile applications where you can reach agents and suppliers directly, due to the exchange rate before making payment I compare the available rates of different suppliers and go with the most suitable one,” she says.

Asking if she tried using banks to pay directly, she says, “In 2021, I tried getting $2500 from my bank directly so I can travel with it and sort out payments, it took them almost 10days to even process it and I still did not get it despite presenting different documents, I had to go back to my agents to buy even though it was much more expensive.”

Akhuewu notes that the unfavorable exchange rate is a major problem especially as it changes without prior notice and consequently erodes their profit. Tracking and confirming payment also poses problems as Nigerians are always suspected to be fraudulent which permanently makes suppliers distrust them.

“After payment has been made, you have to hope that it is confirmed quickly and that the network does not tamper with the flow of activities especially when you are using an online platform, you may be debited while the other person may not be credited,” she states.

Fintech start-ups have also created buffers that help mitigate the stress of paying through its products offerings. For example, Flutterwave’s Barter is a web and mobile app that allows individuals to send and receive money abroad, it also allows users to create unlimited virtual dollar cards for transactions that can be funded with a naira wallet. It can be used on most global payment sites.

Despite finding a way around the payment issues, MSMEs also face other problems confirming payments to suppliers and also tracking the movement of their goods.

Shipping cost

After successfully paying for products, businesses also have to work around shipping costs, shipping delays, and tracking items.

“Sometimes the cost of sending your products is more than the price of items ordered because each item has its own shipping cost calculated in dollars,” Oguntoyinbo says.

She adds that when the items are sent, receiving them has additional cost except there is a private shipper between both parties which still does not totally eliminate the cost. After shipping cost, she makes the payment for customs duty charges, clearing charges, and other taxes which are calculated according to the value of the items, the size of the items, or the discretion of the officers.

“In addition to this, the shipped items are also not secured and can be damaged or looted by the time the owners receive it,” she says.

She reveals that there are some Nigerian shipping agents in the US and China who charge all-inclusive air cargo shipping fees and door-to-door delivery services, hence you can avoid meeting with customs officers.

Supplier issues

Due to the fact that most of these businesses cannot travel on there to get products, they easily fall prey to scammers abroad who either abscond with their money leaving no traces or send low-quality products that are different from what was advertised.

“Sometimes lower quality of goods are sent to you and the duration of return of goods is exceeded before the goods even arrive, consequently you have to sell your goods lower than the cost price, so as just to break even or even get a portion of your capital back,” Babayemi Oluwatobi, owner, Flotob Empire, says.

She says most times it is advised that MSMEs opt for referrals, assign a resident over there to confirm the supplier’s details and offers, and simply hope not to fall into the wrong hands.