• Saturday, April 13, 2024
businessday logo

BusinessDay

Petrol price hike puts millions of businesses on edge

Fuel scarcity bites deeper as motorists groan

The surge in petrol prices occasioned by the removal of subsidy is the latest headache facing millions of small businesses in Nigeria, a couple of months after a cash crisis caused economic activity to shrink for the first time in almost three years.

Many of the country’s 39.6 million nano, micro, and small businesses have been struggling to survive in recent years owing to the fallout of the COVID-19 pandemic and the Russia-Ukraine war.

Small business operators in Africa’s biggest economy have been grappling with a combination of issues, including poor power supply, rising borrowing costs, soaring inflation, restrictive economic policies, foreign exchange volatility, and tax multiplicity. The recent petrol price hike is already taking its toll and threatening to keep many out of business.

“I started my business in 2019 and I process fruits and vegetables. I have three generators and often buy five to 10 litres of petrol daily to power my two deep freezers,” Toyin Oladimeji, chief executive officer of Ola Foods, said.

“I bought a litre of petrol for N190–N210 last month, now I buy a litre for N500–N550 since the subsidy removal. My production cost has doubled owing to this amid declining sales,” Oladimeji said.

“All this is already threatening my business which has been struggling for survival. Right now, it is really difficult for small business operators who rely on petrol to power generators,” she added.

Last week, President Bola Tinubu had in his inaugural speech announced the removal of the petrol subsidy. This triggered petrol queues in several parts of the country a few hours after as some fuel stations stopped dispensing the product.

The price of petrol in Africa’s biggest economy was raised to an average of N526.7 per litre from an average of N191.8 per litre a month ago, according to BusinessDay’s calculations.

Adenike Fagbemi, founder of BrandTell Nigeria Limited, a digital marketing company, said she usually put on her generator daily for at least five straight hours owing to poor power supply from the national grid.

“But now, I switch it on only when the need arises and put it off afterwards since the recent hike in fuel prices,” Fagbemi said. “The situation has made our work environment less conducive as we have to work without putting on air-conditioning when there is no power supply.”

Energy is a key element of the production process. Nigeria’s inability to supply and distribute sufficient electricity has left businesses at the mercy of alternative energy sources such as the use of generators that consume diesel and petrol.

According to the Manufacturers Association of Nigeria, manufacturers spend 40 percent of their total production cost on generating energy for their businesses.

“With the increase in petrol prices, small businesses will see their production costs double. This will suffocate many who are already struggling daily for survival,” said Femi Egbesola, national president of the Association of Small Business Owners of Nigeria.

“There seems to be no end in sight for small business operators as things continue to get harder for them,” Egbesola said.

Egbesola noted that more businesses are going to shut down their operations amid the worsening cost-of-doing-business crisis in the country.

John Udeagbala, national president of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), said in a statement that the association is not against subsidy removal but is concerned about the impact on businesses already burdened with several economic shocks.

According to him, if nothing is done to cushion the negative impact of the subsidy removal, more micro, small and medium enterprises will shut down operations, thus accelerating the country’s unemployment rate.

With the high energy spend, small business owners often transfer the burden on cash-strapped Nigerian consumers, who have to bear the brunt.

Africa’s most populous country has been grappling with double-digit annual inflation since 2016 but with a faster acceleration since last year, with the consumer price index hitting 22.22 percent in April, according to data from the National Bureau of Statistics (NBS).

The recent hike in petrol prices across the country will further cause another round of increases in the prices of goods and services and worsen the cost of living crisis, with fixed-income earners most hit, say experts.

Ayodeji Ebo, managing director and chief business officer at Optimus by Afrinvest Limited, said the subsidy removal would increase the cost of production for businesses in the medium term.

He urged the government to make provisions for power infrastructure to reduce production costs for businesses in the long run, while also calling for some sort of tax holiday to cushion the effect.

Read also: Explainer: Who collected over N11 trillion Buhari spent on petrol subsidy?

Similarly, NACCIMA called on the Federal Government to urgently fix the country’s four refineries, which have remained comatose for the past 16 years, to end petroleum products importation.

“It will also address the impact of fuel subsidy removal without adding additional debt burden on the nation,” said Udeagbala. “Besides, our ability to provide some basic raw materials internally will help our industries to compete better to benefit from the African Continental Free Trade Agreement.”

NBS and the Small and Medium Enterprises Development Agency of Nigeria said in a 2022 report that 1.9 million small businesses exited the Nigerian business landscape.

Experts say the numbers will be higher when the figures for 2022 and 2023 are released.