BusinessDay

Inflation leaves Nigeria’s MSMEs vulnerable

The accelerating inflation rate in Africa’s biggest economy is pushing millions of small businesses to the brink, with many now unable to continue operations.

In one month in Lagos, Nigeria’s commercial nerve centre, at least two micro-business owners have told BusinessDay about their plans to shut down and move into paid employment due to the surge in prices of inputs.

Sales have dropped monumentally with many entrepreneurs seeing over a 50 percent drop margins amid consumers dwindling income.

BusinessDay in its usual manner interviewed some businesses and here are their responses below.

Oladapo Olayinka is the co-founder and chief executive officer of Mobkilishi

How are you coping with the rising input prices?

We are taking a proactive approach to combat the rising input costs. We engage our supply chain partners via bulk buying arrangements to enable them to maintain their profit margins and not just lower the prices of our products to hopefully stay affordable for our customers.

We also invest in our production facility, which is located in Northern Nigeria, where we engage in sun and air-dried meat processing. This helps us produce premium Kilishi. We firmly believe that customers will reward you when they get value for what they pay for. Hence, we make sure that every bite of our products delivers the authentic taste of superior quality kilishi, with no hidden ingredients and additives. This is what keeps our customers coming back for more.

Are you making much more money compared to before?

Yes. The launch of the store was intentional and strategic, we knew, before the pandemic that we had to be ready for it. We decided to invest in an online store; we had only one distribution center at the time, and most of our inventory was produced within a few mile radii – which was ideal but it soon became obvious that it wasn’t good enough.

The pandemic disrupted our supply chain and we were barely hanging on. Moving forward, we decided to double down on our operations by optimizing everything from production methods, supply chain, and logistics to product features. Our post-pandemic comeback has been remarkable. This month only, our total sales are up 110% from March. Every critical store metric is through the roof. We have also seen increased shopping from Nigerians in diaspora due to an influx in the country, reflecting the ease of several travel restrictions around the world. With our e-commerce platform, gathering data has been easy to accurately measure our performances.

Are customers buying your products?

It’s encouraging to see that we’re adding at least 500 new customers per month and sales are increasing daily. This suggests that consumers love our product and are happy to recommend it to others. We need to make sure that we continue providing a great experience via social media and other channels so that even more people discover our brand. Sales are the lifeblood of any business, so it’s important to make sure that customers are buying your products. There are some ways to gauge this – social media engagement, customer satisfaction ratings, and most importantly, sales figures.

How is the worsening power supply affecting your cost of production?

The question above is very interesting

In the Northern region of our business, we have relatively low tariffs for production compared to the South. However, this is not a serious problem as power issues are manifested in the Southern segment of our operation where packaging and distribution happen. We have invested in renewable energy resources that supply us with sufficient energy to ensure that we always operate under favorable conditions regardless of whether shortage in supply of power or unpredictability related to the power supply. To buttress our businesses against external influences, we must come up with innovative solutions.

Businesses that require electricity to produce their goods or services are directly affected by the worsening power situation

Read also: How rising cost of cooking gas hurts Nigerians

Which strategy did you adopt as a business to survive the covid-19 pandemic?

The primary reason we were able to survive this pandemic is that we have great people working with us, each with his or her skill and passion for what they do. Our business strategy to survive was to use digital means to get over the major hurdle. Our e-commerce platform is more convenient and easier to access than the traditional way of buying meat snacks, which is through various distributors. We took stock of all we had and what we could realistically sell in the current market. This was a daunting task, but it was necessary to assess our options and find the best way to move forward.

We decided to focus on selling our products online, as this would allow us to reach more customers than if we relied on conventional sales. But as soon as our inventory was exhausted we had to own up to the reality of telling customers honestly they wouldn’t be able to get them kilishi. Being a tough situation and everyone going through it together, it was easy to understand and accept. During that downtime, we took the opportunity to upgrade how our kilishi was packaged, and sort out our branding & identity issues while researching how to make kilishi even better than before so that when the distribution channels opened again we would hit the ground running.

Is the Nigerian business environment improving?

Nigeria has always been a country with immense potential. However, due to various factors, it has not always been able to fully tap into that potential. In recent years, however, there have been positive signs that the business environment in Nigeria is improving. One of the biggest obstacles facing businesses in Nigeria is the infrastructure which is making it very difficult to operate a business successfully.

However, there have been some recent efforts to improve infrastructure, and things are slowly getting better. In addition, security remains a major concern in Nigeria. Businesses face the risk of violence and theft daily. Government should step up its efforts to combat insecurity. Overall, while there are still many challenges facing businesses in Nigeria, the overall trend seems to be one of gradual improvement. With continued effort from all involved, I think Nigeria would finally realize its vast potential as an economic powerhouse in Africa.

Arinola Okeowo, CEO, Ultra Farms

How are you coping with the rising input cost?

The hike has been crazy but we have to keep developing means to cut costs. For instance, in a bid to minimize cost, joint farming or conjoined farming has been the practice. For example, it’s more cost-efficient for a tractor to clear an acre as compared to just 2 plots. This way we ensure costs as a group at stated discounts which we wouldn’t have had access to individually.

Are you making much more money compared to before?

No way. There has been a 300 percent increase in the cost of fertilizers, especially due to the Russia-Ukraine war. There’s been a hike in the price of farm inputs like seeds stemming from the weak strength the Naira wields against the Dollar in the exchange market. Currently, fertilizer, NPK, and urea are scarce asides from being expensive.

Are people buying your products?

Well, regardless of the price increase, people need food to survive so yes we make sales because food is a necessity.

How is the worsening power supply affecting your cost of production?

It is not encouraging. I think every business owner in Nigeria is facing this particular problem. Especially for those of us that deal in perishable and processed foods. About 2 months ago, I lost over 15kg of strawberries due to an epileptic power supply and I had to stop stocking them even though customers won’t stop asking. Production is currently double the normal cost all thanks to the poor power supply

What strategy did you adopt to survive the Covid-19 pandemic?

If there was one thing the Pandemic taught us, it was to adapt to situations and make the most of them. We adopted going digital and don’t regret it. Cheers to making lemonade out of lemons.

Is the Nigerian business environment improving?

From a personal point of view, I’ll say yes though not at the expected pace with the main setbacks being government policies, the lack of basic amenities, poor access to loan facilities, and inadequate funding.

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