Nigeria is witnessing a surge in job losses as a result of the recent increase in petrol prices due to the removal of subsidy and the devaluation of the national currency. Inflationary pressures have further weakened the purchasing power of consumers, adding to the challenges faced by businesses coping with higher operating costs.
The impact on small businesses has been particularly severe, with about 10 percent of the 40 million Micro, Small and Medium Enterprises (MSMEs) in the country shutting down since the subsidy removal, according to Abdulrasid Yarima, president/chairman of the governing council of the Nigerian Association of Small and Medium Enterprises (NASME). Many small businesses rely on petrol power generators, and alternatives like gas or diesel are expensive, leading to increased operating costs.
Femi Egbesola, national president of the Association of Small Business Owners of Nigeria (ASBON), expressed concern that over 20 percent of their 27,000 members have been adversely affected by the deteriorating economic conditions. Some manufacturers have been forced to close their factories, while others are downsizing their operations due to increasing inflation and declining consumer disposable income.
The production process heavily depends on energy, and Nigeria’s struggle to supply sufficient electricity has left businesses reliant on generators that consume diesel and petrol. Manufacturers, in particular, bear a significant burden, spending 40 percent of their total production cost on generating energy.
The removal of petrol subsidies was announced by President Bola Tinubu in May upon his inauguration into office, resulting in an average surge of 174.6 percent in petrol prices across the country to N526.7 per litre. The Nigerian National Petroleum Company Limited recently increased the pump price to N617 in Abuja, and other marketers adjusted their prices accordingly.
The soaring petrol costs have also affected the job market, with employers becoming cautious in creating new positions unless absolutely necessary. The Central Bank of Nigeria’s adjustment of the official foreign exchange rate has further added to the challenges faced by businesses, especially those heavily reliant on imported goods or services.
The MSME sector, which contributes 50 percent of Nigeria’s GDP and provides nearly half of all employment opportunities, is vital to the country’s economic growth. Despite this significant contribution, the sector feels neglected, as it has not been included in government palliatives or interventions.
The rising unemployment rate in Nigeria, reaching 33.3 percent in the fourth quarter of 2020, presents a grim outlook for the labor market. The lack of interventions and support for small businesses may exacerbate the unemployment crisis in the country. To address the situation, recommendations have been made for the government to provide better access to credit, grants for micro-sector enterprises, tax relief, and stable business registration costs.