It is no longer news that the cost of doing business in Nigeria has gone through the roof, causing unquantifiable harm to businesses, government and the citizenry. Currently, businesses are finding the business environment not conducive and their products uncompetitive.
The high prices of goods and services have made people cut down on their spending, thus affecting their standard of living. In turn, this affects the government because the not conducive environment affects business expansion and job creation.
A major input that every business must use is diesel. The price of diesel in recent times has skyrocketed, making it difficult for some businesses to survive. According to a survey conducted by the Manufacturers Association of Nigeria (MAN), which covered the period from 2018 to 2021, close to 400 big businesses had collapsed due to the rising cost of doing business in Nigeria.
Recent findings by BusinessDay show that in the first half of 2022, manufacturing firms listed on the Nigeria Exchange Limited incurred N207.54 billion as energy cost. This is higher than N155.86 billion incurred in the similar period of 2021.
The companies in question are Dangote Sugar Refinery, BUA Foods, NASCON Allied Industries, Dangote Cement, BUA Cement, GlaxoSmithKline Consumer Nigeria, among others. Dangote Cement alone incurred N129.97 billion as energy cost in the first six months of this year compared with N98.97 billion in the corresponding period of 2021.
Diesel price, which traded at N288.09 per litre on the average in January 2022 rose to N774.38 per litre in July this year. This alone represents a 168.8 percent surge in the price of diesel.
Another factor contributing to the surging cost of doing business is the volatile exchange rate. A previous survey of forex users by BusinessDay indicated that over 70 percent of Nigerians in need of forex got it from the parallel market. Currently, at the parallel market, the exchange rate of naira to the dollar is about N800.
Nigeria is yet to get electricity generation and distribution right. This is despite the transfer of the national assets about a few years ago to private operators. Thus far, generation has not surpassed 5,000mw. This is happening in a country where by now, electricity output should have been over 10,000mw.
There is the problem of multiple taxation. In most states, both federal and state government officials impose various forms of taxation on businesses, and the brunt is felt by the SMEs who are struggling to eke out a living.
Corruption is also an important factor in the surging cost of doing business. According to a retired justice of the Supreme Court of Nigeria, Olabode Rhodes-Vivour, corruption, which increases the cost of doing business, limits economic growth, impacts social well-being and denies the government of legitimate revenue.
The Nigerian justice system contributes to the high cost of doing business. Presently in this country, it is easier for a camel to pass through the eye of the needle than for small businesses to quickly get their legal cases resolved in the Nigerian courts. Commercial cases are delayed unnecessarily, and this creates an atmosphere of uncertainty, thereby increasing the cost of doing business.
The above problems are not without solutions if and only if the federal and state governments have the political will to address them.
Nigeria is an oil producing state. It is a shame that none of its refineries are currently working. Huge investments have been made into their refurbishment, and hopefully when they come on stream, the petroleum products, especially diesel will be readily available for businesses. This will save Nigerian businesses the hassle of looking for forex. Nigerian businesses will be saved from the shocks that usually come with disruptions that came with the Russia-Ukraine war.
There is a window of opportunity for the Federal Government to correct the mistakes made during the privatisation of the nation’s electricity sector. This is because, a major stakeholder in the sector, the National Union of Electricity Employees (NUEE) has asked the Federal Government to reverse the said exercise, describing the new owners as hawks and hustlers.
Over 60 percent of business operating costs go into power generation. Therefore, addressing this major cost component will go a long way to reducing the prices of goods and services in the country.
It is incumbent for all the states of the federation to have a one-stop shop where every enquiry on the business environment in a state could be made. This will reduce the recurrent challenge of multiple taxation.
Businesses thrive when other supporting infrastructure is available. Government should endeavour to provide this infrastructure as much as possible. Actions are needed, not promises.
The rising unemployment rate, and the worsening standard of living will be greatly reduced if Nigerian businesses are thriving. Nigeria needs to make the move now to avoid a situation where things will completely get out of hand.