Many micro, small and medium enterprises as well as retail traders are reviewing the prices of their products or temporarily suspending operations as they incur debts following the depreciation of the naira against the dollar in recent weeks.
The value of the naira had plunged to record lows on the back of the Central Bank of Nigeria’s decision to redesign N200, N500 and N1,000 notes effective December 15, 2022.
The Financial Derivatives Company had, in its economic news flash on the naira redesign, said the first reaction to the new regulation would likely be a flight to safety where there was a scramble for a more valuable currency.
“Some initial speculation against the naira is expected following the announcement but this should be short-lived; in times of uncertainty, investors, speculators and manufacturers will prefer to be long in dollars and short in domestic currencies,” it said.
Bemoaning their losses, some businesses are complaining about debts being incurred on the back of the naira depreciation.
Akinleye Jennifer, the founder of Bloom Nigeria, who imports products to sell, said she spoke with her shipping company a week ago concerning her goods and was asked to pay N745.5 per dollar. She refused and decided to wait for her goods to arrive and was told to pick up at N780/$1 but she eventually cleared the goods at N800/$1.
“It is even worse for my business because people placed orders when dollar was N600 and I received the goods at N800, which is already a loss and a debt for me. This is also exclusive of other costs such as logistics to get it to my shop and even delivery cost because of the fuel scarcity,” she said.
Giving a breakdown of how much it cost to get goods worth about N350,000 and weighing 125kg, she said the shipping cost was $950 at an exchange rate of N800/$1 while the clearing cost was N75,000.
Akinleye is currently battling with debts and is torn between making refunds and asking for additional payment from customers, which to her is very risky, especially for first-time customers.
Usman Imanah, chief executive officer of Friska Farms Limited, manufacturers of baby cereal and herbal teas, told BusinessDay that his company had stopped importing raw materials for production as the continued naira depreciation was not favourable for business operations, among other challenges.
“We get all our raw materials locally now and it’s of good quality; the challenges with importing raw materials were many. You cannot make plans for production, you cannot access dollars for transactions, and if you eventually get the dollars, transferring it is a problem,” he said.
“In the space of two weeks, makeup products are now so expensive and some are no longer available, and this is a period when I buy and use a lot of products,” Funmi Godwin, a Lagos-based makeup artist, told BusinessDay.
Godwin said the price of a powder she bought for N5,000 in early October had increased to N8,500, adding that she was scared to restock as her clients had booked based on the previous prices.
Many businesses are already effecting price increases as the rising cost of supply and naira weakness can no longer be managed.
Uche Onyekwelu, CEO of Stuch beddings, said on her Instagram handle that effective November 9, all the prices of her products would be reviewed upwards so that her business can continue operations because numerous challenges are stifling businesses in the country.
“How do I factor in buying diesel for N350 in January to N800 per litre now? What about the rising exchange rate? At the moment, to remain in business, we have no choice but to increase our prices,” she said.
Many are the challenges facing Nigeria’s 39.6 million MSMEs, 58.6 percent (23.23 million) of which are involved in wholesale and retail trade and are import reliant.
Access to foreign exchange, credit availability and regulatory policies have topped the challenges chart of MSMEs in Nigeria and have become multi-dimensional.
Many MSMEs deal in the sale of clothes, household kits, shoes, electronics, among others, primarily sourcing the products from China, Turkey, Dubai, the United States, etc. where the dollar serves as the dominantly accepted currency.
The unfavorable exchange rate and restricted access to the dollar continue to affect these businesses as they are forced to pay more for purchases, which erodes their profits.
Currently, it costs N440 to get a dollar from the CBN. The naira-dollar exchange rate rose to as high as N900/$1 at the parallel market earlier this month.
Although the black market is much more expensive, it has a faster and less cumbersome process, unlike commercial banks that do not have enough to go round.
Abdulrashid Yerima, president and chairman of the Governing Council of Nigerian Association of Small and Medium Enterprises, said MSMEs need to review their operations and manage them in a way that reduces reliance on foreign exchange.
“They need to look inwards for raw material sourcing and also consider using renewable energy; for example, those that import clothes can make them locally rather than importing already sewn clothes,” he said.
Yerima added that adopting these measures will not only help reduce the challenges these businesses encounter but will also boost their contribution to job creation and economic development.
Jide Babatope, an economic analyst, said the pressure in the forex market was a result of the speculative demand for dollars which could be linked to the CBN’s recent decision on the naira redesign.
“Many MSMEs are affected, especially as regards getting FX but seeing that this is a recurring challenge, it is advisable for MSMEs to try to limit their exposure to FX,” he said.
