Rising Unemployment and Inflation: The Fallout of Nigeria’s Subsidy Removal -By Omojo Wada
Consider the wonderful purpose of subsidies, a kind gesture that allows individuals and businesses access to petrol, an essential treasure, despite limited resources. However, in this tale, the small and medium enterprises (SMEs) in Nigeria have been dealt a huge misfortune by the subsidy removal, casting a shadow of uncertainty on their growth trajectory.
Nigeria, which is a country endowed with an abundance of 2.4 million barrels of crude oil every day, sadly sees its wealth sent abroad. This was made possible by a history of corruption and neglect which rendered our local refineries inactive, leaving the country to rely heavily on imports for more than 70% of its petrol consumption.
Recent realities demonstrate this. The elimination of subsidies has put small-scale business owners in a tough position only three days after a new government took office. These entrepreneurs, like battling fires without air, feel their profits dwindling and their survival threatened by this harsh approach.
In its most basic form, the fuel subsidy acts as a buffer, restricting the price of this petrol and insulating buyers from its true cost. The government, to its credit, bridged the gap between market pricing and regulated value per litre.
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Now picture, if you will, the bustling streets that were once packed with the goals and aspirations of courageous entrepreneurs. These spirits forged ahead, inspired by the promise of financial relief, under the soothing shade of the subsidy tree. However, the withdrawal of this crucial lifeline has cast a dark cloud over the Nigerian business landscape, plunging SMEs into a maze of unparalleled difficulties.
Transport costs, like a raging fire, now eat their budgets. Entrepreneurs, who were previously helped by subsidised fuel, now face the hard reality of dedicating a considerable percentage of their cash to sustain operations. These additional expenses will eventually descend, like predatory birds in the sky, impacting consumer purchasing power and casting a shadow over economic growth.
According to a World Bank analysis, MSMEs account for up to 45% of total employment and up to 33% of national income in emerging economies. As noted by the Financial System Surveillance 2020 (FSS2020), the MSME sector is considered strategic for the development of the Nigerian economy due to its enormous potential and contributions.
In this difficult environment, the difficulties encountered by businesses attempting to manage high petroleum operating costs, which are critical to their operations, are worrying. Because of the costs imposed by the elimination of subsidies, small-scale business owners may be forced to lay off staff, dramatically raising the unemployment rate.
A worldwide consulting group predicted that Nigeria’s jobless rate will reach 49.6% in 2023 by December 2022. As of the fourth quarter of 2020, the country’s unemployment rate was 33.3%, according to the National Bureau of Statistics.
The statistics office produced an inflation report in February, revealing a considerable increase in the country’s inflation rate to 21.91%. Unfortunately, this percentage is expected to increase much higher in 2022, reaching 37.7%. and 40.6% in 2023.
Furthermore, the Bureau of Statistics had earlier predicted that the elimination of fuel subsidies and the adoption of the 2023 Fiscal Bill would exert additional pressure on domestic prices in 2023.
The headline inflation rate increased to 22.04% in March 2023, up from 21.91% the previous month, further exacerbating the problem. Nigeria’s annual inflation rate resumed its continuous rise in April 2023, reaching an alarming 22.22%. This statistic was the highest in over 18 years.
This problem has a particularly negative impact on food prices, which have risen dramatically. Food inflation rose to 24.61% in March, exceeding the previous month’s figure of 24.45%. Essential commodities like oil and fat, bread and grains, fish, potatoes, yams, fruits, meat, vegetables, and spirits all contributed to the population’s load.
With the elimination of subsidies, providers of vital products are now confronted with the new problem of deteriorating infrastructure. Nigeria, once brimming with opportunity, today struggles with decaying roads and intermittent power supplies, both of which have a significant impact on small-scale business owners. These challenges stifle ambitions and inhibit growth.
Transportation bottlenecks and power outages have become common occurrences in this turbulent environment. Entrepreneurs face logistical challenges that limit their ability to meet market demands efficiently. In an era when success is measured in millimetres, the lack of dependable infrastructure stifles productivity and creates uncertainty for countless SMEs.
In this absence of subsidies, the country is plagued by rising unemployment and soaring inflation. High food prices alienate the public, while the dreams of small-scale businesses, which are critical to economic growth, are jeopardised.
As we reflect on the plight of Nigeria’s SMEs, it is evident that this enormous problem will necessitate more than just government intervention. It is critical to create a collaborative ecosystem that encourages inter-SME collaboration. Business associations, industry experts, and experienced entrepreneurs have the ability to steer the path forward. These guiding lights can provide support, resilience, and prosperity by sharing knowledge, promoting best practices, and mentoring. This collaborative endeavour will unlock entrepreneurs’ true potential, reviving the nation’s spirit and ushering in a new period of limitless prosperity.
Omojo Wada, a serial entrepreneur, is the founder of Solohan & Co, Africa’s premier legal outfit company. Since its beginnings, the firm has outfitted over 12,000 lawyers and justices throughout the world.