How weak economy shut down 2,877 firms in 4 years

On February 19, 2016, South African retailer Truworths exited Nigeria, shutting down two remaining stores in Africa’s biggest market.

The clothing retailer cited stringent import regulations and rising costs as key reasons for exiting the market.

Many medium enterprises like Truworths exited the Nigerian market between 2013 and 2017 owing to sluggish growth, recession, regulatory pressure and poor economic management.

The latest report by the National Bureau of Statistics and the Small and Medium Enterprises Development Agency (SMEDAN) put this number at 2,877, which shows why unemployment rate is 23.1 percent in Africa’s most populous country.

“The number of medium-sized enterprises decreased significantly from 4,670 in 2013 to 1,793 in 2017, indicating a 61 percent drop,” said the report launched last Thursday.

Interestingly, the number of micro, small and medium, enterprises (MSMEs) when viewed as a group grew from 37million in 2013 to 41.5million in 2017, the National Survey shows.

However, micro enterprises were responsible for this growth, with the number hitting 41.469 million (99.8 percent). Small enterprises were 71,288 (0.2 percent), but medium-scale businesses were only 1,793 (0.004 percent) from 4,670 before 2013.

“The periods covered by the survey were when the Nigerian economy was mostly down and in recession. The small and medium enterprises suffered from shocks in the economy, forcing many to close shop,” Friday Opara, director, strategic partnership, SMEDAN, who contributed to the survey, told BusinessDay by phone.

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“This was why we had a decline in the number of medium-sized businesses. The growth recorded in micro businesses was as a result of so many retrenched workers starting up micro businesses to keep life going,” Opara explained.

Micro enterprises are businesses that employ less than 10 workers and are worth less than N5 million. Small businesses, on the other hand, employ 10 to 49 workers and are valued at N5 to less than N50 million. Medium enterprises, however, engage 50 to 199 staff members and are valued at N50 to less than N500 million.

“The number of MSMEs grew but the increase in numbers are made up of micro enterprises involved in trade, and not production, “Femi Egbesola, national president, Small Business Owners of Nigeria (ASBON).

“This is not what we need to grow our economy and create the needed jobs. The economic situation has been very challenging for SMEs and these have forced lots of them to close shop or operate far below their capacity,” he said. In August 2016, the Manufacturers Association of Nigeria (MAN) and the NOI Polls reported that 222 small-scale businesses closed shops, leading to 180,000 job losses.

Grif, maker of aluminium drums, exited Nigeria, including Federated Steel from China, maker of iron rods, which sold its assets to MNIL Limited.

Another iron rod maker, Universal Steel, was also among firms that shut down. These are medium-scale manufacturers. Frank Jacobs, former president of MAN, said 54 firms closed their factories between 2015 and 2016 owing to foreign exchange shortages.

Oil prices showed signs of peaking in 2013 and 2014 under former President Goodluck Jonathan. It eventually slumped below $50 in 2015. After the general elections in 2015, however, Muhammadu Buhari won but could not appoint his cabinet six months into his administration.

These and other factors helped to tip the economy into recession in 2016 and the unemployment rate reached 23.1 percent, according to the NBS, with almost 50 percent of the 200 million Nigerians in multidimensional poverty cadre, according to the United Nations Development Programme (UNDP).

“The challenge is that it is even the medium enterprises that create the jobs that are closing down,” Ike Ibeabuchi, a manufacturer and analyst, said.
“Micro enterprises can only employ one, two or three, but medium businesses can employ up to 100 at a go. This calls for a policy shift and serious introspection on the part of the Nigerian leadership,” he added.

Most SMEs commit 40 percent of their expenditure to energy and pay 54 taxes introduced by different levels of government, according to experts. The World Bank ranks Nigeria 146th on its Doing Business Index, which reflects the difficult situation faced by businesses. The SMEs are left to battle with various issues ranging from a tough environment to restrictive economic policies, overbearing regulatory agencies, and tax multiplicity.

Access to finance is poor, with interest rate on loans from banks hovering between 20 and 35 percent.

The Manufacturers CEOs Confidence Index (MCCI) survey conducted by the Manufacturers Association of Nigeria (MAN) in the first quarter of 2019 highlighted various issues hurting Nigeria’s productive sector.

According to the MCCI, CEOs confidence stood at 51.3 points in the first quarter of the year, slightly above the 50 points benchmark of a good performance. Issues around foreign exchange, double-digit interest rate, government capital implementation, multiple taxes, overregulation and raw materials were identified by chief executives of Nigerian firms as some of the challenges dragging the growth of the sector backwards.