Small Nigerian businesses feel pinch of fuel subsidy removal
Small businesses in Nigeria are feeling the pinch of rising transport costs and commodity prices following the removal of a decades-long subsidy on petroleum products.
Bello Abdulkadri manages a laundry service in the capital Abuja. He spends an average of 300 U.S. dollars on electricity bills monthly and still runs a backup generator due to the erratic power supply.
With the abolishment of a subsidy that has kept fuel prices below half of the real cost since the 1970s, Abdulkadri says operational costs have soared while patronage and profits have declined.
“Because of the transportation issue and the small consumables that we just run to the market and buy and to cover up some things, so like 15 percent from our profit has reduced, 15 to 20 percent,” he said.
Nigeria’s economy has taken a significant hit since President Bola Tinubu removed the fuel subsidy that cost the government 10 billion U.S. dollars last year alone.
The cost of petrol rose by nearly 200 percent as motorists went into panic-buying following the directive in late May.
Analysts are warning about the impact on inflation, which has jumped to a nearly two-decade high.
“It’s reducing purchasing power and increasing hardship as it stands. So the impact in terms of human development is negative because it’s not contributing to any form of economic development. It’s also not contributing to an increase in the GDP rate. It means that many of these businesses will have to struggle,” noted Isaac Botti, an economist.
Currently, petrol sells at about 70 cents a dollar for one liter across Nigeria. Oil marketers have projected the new cost of fuel could rise to as high as a dollar in July due to the devaluation of the naira.
“What we have seen since the new president came on board has been stringent, stringent economic policies, stringent macroeconomic policies. We have seen the removal of subsidies. We have seen the floating of dollars in the open market and now electricity tariff increment is coming up. We are seeing a possibility of more VATs, more taxes on already poverty-stricken Nigerians,” said Botti.
Due to the high cost of operations, there is growing concern the hike in fuel prices could lead to small Nigerian businesses shutting down.
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