Over the years, Nigeria's economy has heavily depended on the oil and agricultural sectors as its main sources of growth and development. Recently, however, a significant shift has occurred, with small and medium-sized enterprises (SMEs) emerging as crucial contributors to economic growth in the nation. These SMEs play an essential role in Nigeria's economic framework, making substantial contributions to job creation and the gross domestic product (GDP).
As reported by the Nigerian Small and Medium Enterprises Development Agency (SMEDAN), SMEs represent over 50% of industrial employment and contribute around 48% to the nation's GDP. This impressive impact has not only stimulated economic growth but has also attracted international attention, highlighting the vast potential of Nigeria's SME sector in driving progress and development.
Nigeria encounters substantial infrastructure challenges, characterized by frequent power outages, insufficient transportation networks, and restricted access to dependable internet services. The World Bank's annual Doing Business report consistently highlights these issues. In the 2021 edition, Nigeria was positioned 171st out of 190 nations in the "Getting Electricity" category, reflecting considerable obstacles in obtaining reliable power. These challenges impose significant financial strains on businesses and impede the efficient functioning of small and medium enterprises (SMEs), limiting their potential for long-term growth.
Before September 2024, Faith Idebuemi, the CEO of SeaFa Collections, made it a priority to promptly ship every piece of jewellery sold by her store.
However, following two price hikes in premium motor spirit (PMS), she now advises customers to purchase in larger quantities or stock up to minimize delivery expenses.
“The cost of logistics has doubled, and in some cases, it exceeds the value of the items ordered,” she explained.
At times, she opts to deliver items while commuting home or attending other appointments.
“This method is more economical than using delivery bikes,” she remarked.
Since May 2023, the price of PMS has surged fivefold due to the removal of petrol subsidies and market deregulation.
As a result, small and medium-sized enterprises (SMEs) operating online are finding it increasingly difficult to serve and retain their customers due to soaring delivery costs.
Faith Ogidan launched her business as a student in 2014, selling shoes, bags, and other imported products from China, often offering minimal delivery fees.
Today, she can no longer maintain that model due to rising expenses.
“I reside near Owode Onrin in Lagos. Delivery to Ketu used to cost N1,500, but it has now risen to N3,000. The price to Yaba has increased from N2,500 to between N4,000 and N5,000. Deliveries to Ikotun and Iyana Ipaja have jumped from N4,500 to N8,000. Everything has become more costly,” Ogidan stated.
She assists her clients in accumulating items prior to shipment. “I facilitate bulk purchases for customers, allowing them to send everything at once. Often, if they opt to buy a single item, the shipping cost can exceed the item's price, which discourages them from completing the purchase. Therefore, I provide alternatives such as combined delivery or stockpiling.”
Ganiyu Adebola, CEO of Moma Couture, stated: “Previously, I employed dispatch riders daily. Now, I consolidate all items for dispatch and only send them out twice a week. The new trend is to utilize delivery services for larger orders.”
Like many businesses impacted by the recent surge in fuel prices, logistics firms have raised their fees. “Given the current economic climate, especially the substantial increase in fuel costs, we find it essential to revise our delivery procedures,” Remedial Health, a health-tech startup supplying medications to pharmacies, communicated to its clients via email.
Media reports indicate that Fez Delivery, which once charged N2,500 for deliveries weighing between 0 and 5kg, has now increased its fee to N3,075 for the same service.
Zainab Sadiku, general manager of Paralex Logistics, remarked: “Fuel is the cornerstone of our operations. Without it, we cannot function. The rise in fuel prices has directly resulted in higher logistics costs.”
Sadiku noted that prices have more than doubled, and customers are starting to grasp the situation.
“For example, the fare from Yaba to Lagos Island used to be around N1,200/N1,500, but now we cannot accept anything less than N3,000 to N3,500. Many of our clients understand this change.”
She also observed a rising trend of customers opting for commercial buses for local deliveries. “People are now traveling to Obalende to send items to Yaba. Previously, this was more common for interstate deliveries, but we are increasingly witnessing a rise in intrastate transactions.”
The recent changes have significantly impacted the demand for delivery services. "With rising costs, the frequency of deliveries has decreased. Previously, we earned approximately N25,000 per bike from ten trips, but now we achieve the same revenue from only five trips, and overall demand has diminished," she explained.
Sadiku observed that small businesses that once required daily delivery services have now transitioned to a bi-weekly schedule. She mentioned that these businesses are assisting their customers in accumulating items for bulk delivery.
"Instead of spending N5,000 to send an item valued at N5,000, customers are asking businesses to hold their items until delivery costs become more reasonable."
In Aba, Abia State, southeastern Nigeria, delivery costs have surged by at least 50 percent over the past two months due to escalating petrol prices. Items purchased for N1,500 sometimes incur an equal delivery charge. A similar trend is evident in Abuja, where Jude Anite, a father of two, reported buying a household item for N2,100 but paying N1,600 for delivery.
Williams Fatayo, CEO of TruQ, remarked, "Prices are rising across the board. We are witnessing nearly a 100 percent increase in mobility costs. When services become costly, and potential customers cannot afford the new price points, a decline in sales and engagement is to be expected."
Industry experts concur that efficient goods movement is essential for commerce to flourish, yet the current cost-of-living crisis is rendering delivery services less attainable. With purchasing power eroded by double-digit inflation (32.70 percent in August), such conveniences are increasingly viewed as luxuries.
To address these challenges, the government should prioritize the development of infrastructure, particularly in regions with a high concentration of small and medium-sized enterprises (SMEs). This requires significant investment in power generation and distribution systems to reduce the frequency of outages, partnering with a telecommunications provider to enhance broadband infrastructure for improved internet access nationwide, and promoting the effective utilization of digital tools and platforms for business operations, communication, and online market access. Furthermore, improving transportation networks, including roads, ports, and logistics infrastructure, will enhance connectivity and lower transportation costs for SMEs.
Additionally, the government can foster a favorable environment for SME growth by utilizing public-private partnerships (PPPs) in infrastructure initiatives. This strategy will ease the burden on public finances and ensure the efficient execution of projects. As a result, it will attract investments, encourage entrepreneurial activities, and drive economic growth, benefiting both SMEs and the wider economy.