Cost containment must guide SMEs in 2016

It has been a long year for us Nigerians. The year 2015 was indeed a very long one. It brought with it a complex chain of events that presented differently to different people. As an election year, the fear of the unknown was evident, especially before the elections were held. People were not sure what the supporters of the two leading political parties would do if the elections went against them.

Uncertainty came early in 2015 and given the predictions on the corporate existence of Nigeria, genuine fears prevailed.

However, Nigeria was spared much of the agony by the statesmanlike conduct of the then President Goodluck Jonathan. All those who had planned to foment trouble on account of the election results were disappointed when the incumbent president accepted defeat, practically before the formal end of the elections. This action of the president brought calm to the restive nation and doused all the tension. Nigeria had escaped the first straw in the chain of events which the doomsayers had predicted would ignite the process of the country’s disintegration.

But that was the beginning of the uncertainties of 2015. From that point on, Nigerians went into a tunnel of confusion as they waited for the new government to take shape. While this was going on, the price of the country’s major foreign exchange earner, oil, continued to go south, dropping to as low as below $40 per barrel. In the midst of the confusion, the monetary authorities took a number of panic measures in the hope of protecting the national currency. These actions include the refusal to provide foreign exchange support for certain categories of imports considered non-essential. As we write, the local currency is still suffering losses in value and the uncertainty has now shifted from the political to the economic. Under the foregoing circumstances, Nigerians cannot be said to have had a wonderful 2015. It has been a very long and tortuous year; the type most people wish may never recur.
As the year 2015 draws to a close, a new and better year is my wish to all our readers and friends of the Small Business Handbook. We wish our friends in the SME world a great new year that is filled with productive action. I know that most of us have had to become very close to our spiritual leaders in the past year. It is understandable. At times like these, when men can no longer trust in their skills, contacts and connections, the divine takes pre-eminence. At such times, it is usually no longer a matter of faith but a question of what works, and the spiritual part of us comes alive. I really and truly join my faith to those of all Nigerians who have since the elections become more spiritual. I continue to hope and pray that your doubts and fears will disappear in 2016.

As this year closes and we prepare to welcome 2016, certain things must happen if we are to go through the definitely trying times ahead with minimum damage. Those of us with the entrepreneurial mindset in Nigeria must be busy right now plotting the way forward for a profitable year. So we must do some hard thinking before we make the first moves in 2016. At least we had the 2016 federal budget in time enough to do some planning. But the planning must recognize certain imperatives or we will be planning in vain.

The first reality is that Nigeria is no longer a rich country. When a country is described as an oil-rich country, many tend to think it means that the country has oil and is rich. That confusion has to be cleared. An oil-rich country is rich in oil but not necessarily rich in the sense of being wealthy. As things stand today, Nigeria is rich only in oil. We may be an oil-rich country, which simply means it is endowed with a lot of oil. If oil remains the black gold, then it is fine, but if its price continues to fall as it is currently doing, then the term oil-rich becomes of no significance. Nigeria has lost much of its foreign exchange income to the fall in oil prices. We are now without any doubt a low-income country.

Unfortunately, certain costs in our national and individual expenditure are sticky downwards, as economists would say. They do not immediately accept the reality of a downward change. They are like wages, which once increased are hard to reduce. Such costs continue to be high even as incomes drop. This category of expenditure is like the fixed costs of a production facility that do not easily respond to falling sales. One of the realities and imperatives of 2016 is that we must find ways to deal with those costs and bring them into alignment with our earnings. Cost containment is therefore one of the key management solutions in our management toolkit that SMEs in Nigeria must activate in 2016.

We are about to enter into a phase of our national life when we must feel the full impact of the changes that have recently occurred in the world economy and by extension the Nigerian economy. National revenue has taken a sharp and deep fall and so must national expenditure.

This means that we are entering into a period of economic contraction and, if care is not taken, we may experience a recession. Public policy must therefore rise beyond the routine of income and expenditure dynamics to activate anti-depressive economic policies to counter the expected decline in consumer spending.

The country has a new government that seems to move at a below average speed, which may be a virtue depending on what is at stake. It is not likely to get more fleet-footed. So we must provide for delays in a number of issues, including payments to those who provide services to government.

Our planning process should recognize the additional costs that will be imposed on the SMEs on account of this question of speed and timeliness of government action.

As we welcome 2016, the small business community in Nigeria is enjoined to brace up for more frequent and sometimes nagging visits of the so-called Internally Generated Revenue (IGR) mobilizers in their various states. Being upfront in dealing with revenue officials is always the best option. There will be need for learning many new things that help us fit into the new nature of the smaller Nigerian economy. Therefore, we must be ready to work hard and smart in 2016.

Dr Osuji, author of Microfinance and Economic Activity: Breaking the Poverty Chain, is Senior
Fellow, School of Business Admin, Pan Atlantic
University, Lagos.
[email protected]
@Emyosuji