The rising level of inflation and monetary pressure have put Small Medium Scale Enterprises (SMEs), manufacturers and household income on knife-edge such that the harsh effects take its tolls on factory closures, shrinking production size and balance sheets of SMEs and micro manufacturing firms in the economy, LEADERSHIP learnt.
Amidst the undercurrent of food inflation and skyrocketing market prices, the Naira is becoming weak and losing its purchasing power such that, it is becoming challenging for households, micro sector operators and small businesses to manage their bills with the operating cost among the factors of production.
Obviously, the high operating cost of running business in the country has further worsened the general productive outlook in the manufacturing sector as micro, small and medium sized businesses struggle to reflate the economy.
The rising cost of energy, inflationary pressures and foreign exchange (FX) liquidity is putting constraints on SMEs such that the pressure spikes on the SMEs sector operating in Africa’s biggest economy.
Experts believes SMEs need to restructure businesses along production cost to battle headwinds of price inflation, supply side risk and corresponding job loss of SMEs in the rural economy.
Offering solutions to the quagmire, national president of Association of small business owners of Nigeria(ASBON), Dr. Femi Egbesola, urged SMEs on businesses and advisory models to restructure businesses along production cost to enable them manage their bills and operate without running completely at a loss while adding that, in most cases today, the operating cost has eroded working capitals of SMEs as businesses groan.
According to him, inorder to survive the unfavorable business climate and the rising wave of inflation, the SMEs have turned to panic drivers to direct their businesses to recoup returns on investment, thereby, tightening the loopholes of financial leakages.
Egbesola further said, under this prevailing harsh economic conditions, the SMEs operators and manufacturers are facing difficulty to either sell above cost price to enable them get more profits or face the risk of insolvency and closing of shops.
On his part, the chairman, Manufacturers Association of Nigeria (MAN), Apapa branch, Frank Onyebu, urged government to create policies and the enabling environment for value to be added to products before exporting.
He argued that the manufacturing industry is supposed to be the engine of the economy, but has so far failed to process because government has shown little concern.
He urged the government to stop paying lip service to the issue of operating environment, while lamenting that many potential investors abroad are interested in investing in this country but for the harsh environment.
“The country would have moved forward not just in value addition but in high technology but we are just sliding back. It is a pity that we still export primary products without value addition. We all know that the value of any product appreciates with each value addition,” he added.
For value addition to make the required impact, Onyebu said, small and medium scale manufacturers would have to be involved.
“Funds and FX, which are not readily available, are needed to procure the required machinery. Government needs to create technical institutions and make the existing ones functional. Millions of jobs could be created with the right policies,” he suggested.
Chairman, SMEs Group, the Lagos Chamber of Commerce and Industry (LCCI), Daniel Dickson-Okezie, said, although government has made efforts to improve the real sector through funding, more needs to be done.
He noted that corruption in the system was hindering those who actually need these funds from accessing them.
“Despite government’s statements on improving the real sector through funding, it’s not still enough. Corruption in the system has put a setback on the initiative. Most times those funds don’t get to the right persons. They end up in the hands of the wrong people,” he stressed.
The managing director, Goshen-Multi Nigeria Ltd and immediate past chairman of the National Association of Small Scale Industrialists (NASSI), Kuti George, stated that, loan facilities were not accessible noting that The Central Bank of Nigeria (CBN) needs to make access to funding easy.
“The country needs to build industries, when the nation is industrialised, it will boost the economy. Government needs to encourage production and manufacturing by funding them. Most people have ideas but don’t have the funds to produce and increase value. MSMEs need access to cheap funds.
“The government says there are a lot of windows to access loans but these windows are not actually accessible. The loan facilities are not accessible. The CBN needs to facilitate easy access to loans,” he pointed out.
Intensifying Local Input Sourcing
Speaking further, Analyst, Jide Babatope reiterated the need for SMEs and manufacturers to strengthen and intensify local input sourcing to bridge the gap of sourcing for local contents.
According to Babatope, one way they can cut the rising cost is to intensify efforts on local input sourcing which seems to be more cost-effective than importing it abroad.
But this is even a question of how many manufacturers in the FMCGs space have their inputs readily available in the local markets.
FMCGs product portfolios are elastic, meaning, the kind of products they manufactured have many substitutes; hence, these companies can redesign their product portfolio into cheaper and more affordable brands while being intentional about quality.
It is also noteworthy that big FMCGs players can afford to raise the prices of their products while still maintaining market share because of their brand reputation and a sizable chunk of their customer base are value brands, but FMCGs and smaller businesses are more disadvantaged.
Consumer expert and faculty director, Lagos Business School (LBS), Uchenna Uzo, said, if prices need to go up and organisations are not matching the prices with an increase in value, in the end, it will be a ticking clock for them.
“And what that means is that sooner or later they will notice that people are shifting to other brands that are nurturing their value needs. So, what they need to do is to either offer the small value in smaller quantities. But a lot of people might frown at that. So, they can offer the same value but add freebies that customers don’t need to pay for. This will make them appreciate that you have taken a step forward to show that you care for them.
“So, product and service bonding, promotions, and different things like that help people know that you care. Also, how the price increase is communicated is important. There are different ways you can communicate an increase that will not make people feel that it is an increase at the end of the day,” he said.
Similarly, group country director, Jeff & O’Brien Knowledge, Africa, Pascal Odibo, hinted that, “most FMCG institutions should structure their business around known costs. These costs are fixed and the people that are buying them are their variables. So, what they need to do is to go to those variables and find innovative ways to deal with them. Dealing with variables will therefore mean how the customers consume that product.
“For example, taking the product to the customer directly, cutting off middlemen who sometimes represent a cut in the income of large institutions, or developing new products that will serve the need of their present challenges. What happens most times is that those people that are supposed to think out new and strategic ways of improving the business don’t enter the mode of superior thinking but cost-cutting.”
Also speaking, an investor relations analyst, Seplat Energy plc Ayorinde Akinloye,, argued that, most of them are stuck between maintaining product quality and increasing the price of their product.
“At the moment, they are doing the best possible they can in terms of bringing the balance between quality and cost. So, the only thing they need to improve on is to see how they can manage the number of materials they can put in these products so that they can still improve the quality or they increase the quality of the product and let their margins suffer a bit,” he said
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