Prior to the advent of the COVID-19 pandemic, the cost of doing business in Nigeria hasn’t been relatively cheap. This has come as a concern, especially for small businesses thriving to rise to the top of the value chain.
In its Business and Economic Brief Report, Volume 1: March 2020, the Lagos Chamber of Commerce and Industry (LCCI), shared insights on the implications of high cost of doing business in Nigeria
Low competitive advantage in the global market
Because manufacturers produce at high cost as a result of weak infrastructure especially -poor power supply, bad road networks, delay in clearing goods at ports and multiplicity of levies to mention few, their products are less competitive in the international market.
Transporting goods from Lagos to China is cheaper than transporting the same goods from Lagos to Kano.
Foreign products compete favourably than Nigerian-made ones because they are manufactured at a relatively lower cost, and this perhaps explains the growing preference of Nigerians for foreign products to domestic counterparts.
A country’s level of competitiveness can be gauged by the Global Competitiveness Index (GCI).
The index measures how productively a country uses available resources.
Nigeria was the least ranked country on the GCI in relation to contemporary African nations. Looking at enabling environment indicators, Nigeria underperformed South Africa, Rwanda and Ghana in the area of institutions, infrastructure, economic stability and ICT adoption
Reduction in Profit
The high cost of production faced by businesses put pressure on their profit and makes it increasingly difficult for them to break-even.
The issue is more prominent in the fast-moving consumer goods sector where industry players are confronted with high cost amid slowing demand for their products and are unable to pass cost to final consumers.
Shutdown of operations & job losses
The inability of some businesses to cope with high overhead costs has made them wind down operations and consequently resulting in job losses.
According to the World Bank Enterprise Survey Report, 322 organized private companies shut down between 2009 and 20147.
This has implications for unemployment in the economy as more people are rendered jobless.
The high cost of doing business has forced some businesses to leave Nigeria for other neighbouring countries with more enabling business environment.
Typical examples are Dunlop Nigeria Plc and Michelin, who relocated to Ghana over inability to cope with high cost of operations in Nigeria.
Discourages Foreign Direct Investment (FDI)
The state of a country’s business environment is a key indicator considered by foreign direct investors.
FDI tends to flow more into countries with friendly and enabling business environment characterized by adequate infrastructures, policy consistency, absence of bureaucratic bottlenecks, provisions of tax incentives, regulatory quality as well as political and economic stability.
Weak FDI flows to the country signals that investors are pessimistic about the business environment.
Favours imports than local production
The high cost of doing business favours imports than local production because it is cheaper.
This reflected in the trade statistics for the fourth quarter of 2019 in which imports of non-oil products is higher than exports