Business

Fuel hike as added burden on informal sector

Recently, the Federal Government further increased the pump price of petrol. Members of the organised private sector (OPS) have categorically stated that the frequent increase is affecting the growth of micro and small businesses in the country’s informal sector. TAIWO HASSAN reports

Surprisingly, since the ease of COVID-19 lockdown by the Federal Government in a bid to reopen and jump-start the country’s fragile economy, the prices of petrol has been increased three times in Nigeria when the impact of the pandemic is yet to abate as informal sector businesses are yet to overcome its dire consequences. Besides, the informal sector also known as underground, black or shadow economy is part of a country’s economy that is neither taxed nor monitored by government. Particularly, Nigeria’s informal economy is one of the biggest in Africa in terms of employment. Precisely, about 80 per cent of the country’s labour force is absorbed in the informal economy. A MSMEs survey conducted by Small & Medium Enterprise Development Agency of Nigeria (SMEDAN) and National Bureau of Statistics (NBS), revealed that the total number of micro enterprises in Nigeria stood at 41.4 million in 2017 and accounted for 99.8 per cent of MSMEs in Nigeria. In addition, micro businesses also account for 95 per cent of one employment in the MSMEs space. These numbers underscore the strategic importance of the informal economy in Nigeria, from employment perspective. Besides, the sector has helped many individuals, who were unfortunate to get formal employment, and earn a living. No doubt, wholesale/retail trade, agriculture and other services activities make up 76 per cent of micro businesses in Nigeria.

Fuel hike

However, the recent increment in pump price of fuel from N159 to N170 per liter by the Federal Government has opened up debates on the fate of micro and small businesses in the country. The move by the government to increase the pump price has been condemned in all ramifications for the simple fact that for an economy, which is still battling the damages caused by COVID-19 has seen fuel being increased three times in a roll without considering the effects on businesses, cost of production, inflation rate and high cost of energy.

MSMEs reactions

For Halima Adeyemo, a pharmacist and health attendant in Lagos, since the increase in pump price of fuel, her pharmacy business has been on downward trajectory as high cost of inflation has affected the prices of drugs. She insisted that the increase in the pump price had worsened the situation in the country as patronage of her business remains low with profit being seriously affected. According to her, such a hike is an additional log tied on the economic neck of many Nigerians, especially the small business owners. For Babatunde Adesayo Samuel, founder and chief executive officer, TGR Limited, a fintech service provider, government had no justification to increase the cost of fuel to N170 at this challenging time when the purchasing power of many Nigerians is low. He said that there was no such justification when there were practical options to maintain affordable prices given Nigeria’s production capacity and potential. Samuel noted that the mismanagement of the country’s oil resources was responsible for the high costs and hardship being suffered by millions of Nigerians, who could barely afford their meals and basic necessities of life.

OPS’ comments

Besides, the private sector had insisted that the hike in fuel pump price would be very inimical to Nigerian businesses, warning that this could lead to further inflation as business owners battle rising cost of running businesses with regard to purchasing raw materials for production. In addition, they pointed out that the hike would have severe implications on businesses particularly micro small and medium scale enterprises that depend on PMS to power their generators to augment electricity supply following erratic power in the country.

Acting Director-General of Manufacturers Association of Nigeria (MAN), Paul Oruche, in an interview with New Telegraph, explained that government should find a way to compensate small businesses through tax rebate and grant to ensure sustainability and competitiveness at this challenging time due to the fuel increment. He said: “You know, nobody can guarantee that increase has stopped. As long as the industries are recovering in other countries, the request for crude oil would be on the increase and that means that the price of PMS would go up.” In his own comment, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, said that the increase in fuel pump price again by government had shown that President Muhammadu Buhari’s administration has finally removed fuel subsidy in the country. According to him, the country’s mounting inflation rate is driving small and medium businesses to their death. In addition, the Chairman, Oil and Gas Sectoral Group of MAN, Dr. Micheal Adebayo, noted that the hike would further spike the price of gas in the country. He said that many manufacturing firms had shifted to gas as alternative ower generation for production since they cannot depend on electricity from the national grid, adding that the sudden increase in price of PMS would amount to more increase in gas price.

Last line

The informal sector has shown to be a strategic component of Nigeria’s economy, so the use of energy (fuel and electricity) is very critical to achieving and attaining economic growth in the country. However, this economic agenda would be a tough hurdle for them if government continues to hike pump price of petrol.

 

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