Fuel price hike spells doom for Nigerian businesses as inflation concerns mount

Business a.m.

The Manufacturing Association of Nigeria (MAN) has issued a warning that the recent hike in the cost of petrol across the country could result in a surge in inflation and lead to the closure of more businesses, especially small and medium-sized enterprises.

The Nigerian economy has been struggling to address a severe inflation crisis, with the inflation rate reaching  33.4 percent in July 2024. Adding to the woes, over 700 manufacturers closed down operations and 335 were distressed due to the unrelenting economic challenges in the country.

To compound the problem, the Nigerian National Petroleum Company Limited (NNPCL) reportedly raised the price of petrol from N568 to N855 per litre, sparking widespread price hikes in transport fares and other goods and services across the country.

In response to the recent petrol price hike,Segun Ajayi-Kadir, the director-general of the Manufacturing Association of Nigeria (MAN) has predicted that the impact of this increase, based on past experiences, would be a significant rise in the cost of transportation and prices of goods and services across the country.

Ajayi-Kadir noted that this price hike would further exacerbate the already dire inflationary pressures in Nigeria, leading to an even more challenging economic environment for businesses, particularly small and medium-sized enterprises.

“As the cost of petrol rises, consumers will spend more on transportation and energy, leaving them with less disposable income. This decrease in purchasing power may lead to reduced demand for non-essential goods and services, affecting businesses across various sectors. These point to the possibility of a rise in inflation figures, impacting household budgets,” he stated.

According to the MAN DG, the recent petrol price hike will have far-reaching consequences on the already ailing manufacturing sector.

Ajayi-Kadir warned that this increase would further add to production input and logistics costs for manufacturers, ultimately leading to higher prices for consumers. He also noted that given the already low disposable income of the average Nigerian, this price hike would result in a decline in consumer demand, leading to a build-up of unplanned inventory and reduced capacity utilisation for manufacturers.

The MAN Director-General further emphasised that businesses across all sectors will be forced to adjust their pricing strategies in response to the petrol price hike. This, he explained, will inevitably lead to reduced profit margins, as consumer demand is expected to decline in the face of higher prices.

Ajayi-Kadir expressed particular concern for the already vulnerable SMEs, which typically operate on tight margins. He warned that the increased costs could push some SMEs to reduce their operations or even close down, as they may struggle to pass on the additional costs to consumers.