Manufacturers, SMEs on ventilators as operating costs soar

Nigerian manufacturers and small and medium-scale enterprises (SMEs) share a common denominator: they are struggling to stand strong on sinking sand.

They are facing mounting pressure from rising petrol prices, as higher energy and transportation costs continue to drive up production, logistics and operating expenses across the economy.

The development has renewed debate over the controversial petrol subsidy regime, with stakeholders divided over whether the government should introduce targeted interventions to cushion businesses and consumers or sustain the market-based system while taking urgent measures to reduce the cost of domestic refining.

The pump price of Premium Motor Spirit (PMS) has risen to about N1,470 per litre in some locations, triggering increases in transport fares and the cost of moving raw materials and finished products. Manufacturers and SMEs, many of which depend on petroleum products for transportation and power generation, say the development is putting further pressure on already-tight profit margins.

The impact is also spreading to food prices, as higher transportation costs increase the cost of moving agricultural produce from farms and rural communities to urban markets.

Former Vice President Atiku Abubakar has advocated what he described as a production subsidy, under which the government would support domestic refining by making crude oil available to Nigerian refineries at a lower and more competitive price, rather than returning to the former system of subsidising imported petrol.

The Federal Government, however, has rejected calls for a return to the old subsidy regime, describing it as fiscally unsustainable. The Minister of Information and National Orientation, Mohammed Idris, had said restoring the subsidy could reverse some of the fiscal gains recorded since its removal.

According to him, subsidy savings mobilised about N15.8 trillion for the Federation between June 2023 and December 2025.

Reacting to the increase in petrol prices, Atiku said the impact of petrol at N1,470 per litre went beyond the filling station, as it affected transportation, food, school runs, farming, manufacturing and virtually every aspect of household consumption.

Commenting, Chairman of the Lagos chapter of the National Association of Small Scale Industries (NASSI), Gertrude Akhimien, said the increase in fuel prices was raising costs across the entire business supply chain.

She said transportation of raw materials and finished products had become more expensive, while workers were also spending more to commute to and from work.

“The overheads for warehousing, distribution, and logistics services are going up. There is also pressure on profitability, especially for low-margin or commodity-driven sectors,” she said.

Akhimien said businesses would ultimately be forced to transfer the additional costs to consumers, resulting in higher prices of goods and services.

She called for urgent government intervention, including temporary and targeted support for vulnerable SMEs and essential sectors.

Her recommendations included direct subsidies for critical sectors, temporary tax reductions or exemptions on essential goods and transport services, as well as grants and other financial support for micro, small and medium enterprises struggling with rising operating costs.

She also advocated measures to stabilise fuel supply, eliminate avoidable delays and tackle market abuses.

According to her, the government should consider targeted fuel subsidies for essential sectors such as public transportation, freight and agriculture, while temporarily reviewing non-essential taxes and levies that contribute to the cost of petroleum products.

Akhimien further urged the government to accelerate the expansion of local refining capacity, including modular refineries, improve fuel storage and distribution infrastructure, and publish regular information on fuel prices and supply.

She warned that the impact of higher petrol prices was particularly severe for MSMEs, traders, artisans and operators of minibuses, who face immediate livelihood risks that could worsen unemployment, poverty and social hardship.

She therefore called for emergency price-stabilisation measures, grants and soft loans for affected businesses, as well as targeted support for transport and logistics operators.

She also urged the government to improve electricity supply as an alternative to petrol and diesel-powered generators, including through incentives for SMEs investing in energy-efficient and cleaner backup systems.

For the agriculture sector, she recommended dedicated fuel support for food distribution and transportation to ensure that rising logistics costs do not further worsen food inflation.

Similarly, SMEs expert, Daniel Dickson-Okezie, said Nigeria needed to pay greater attention to agricultural production and tackle insecurity to enable farmers return to their farms and increase food output.

According to him, higher fuel prices inevitably translate into higher transportation costs, which then push up the prices of goods and services.

“Anything that affects transportation will affect goods and services, especially food items that have to be transported from farms to markets. That will ultimately drive inflation,” he said.

Dickson-Okezie argued that Nigeria, as an oil-producing country, should be able to stabilise domestic petroleum prices by ensuring that crude oil supplied to local refineries is made available at a controlled and competitive price, rather than being priced strictly at prevailing international market rates.

He also urged the government to accelerate the expansion of domestic refining capacity, establish strategic fuel reserves and strengthen regulatory oversight in the petroleum sector.

He called for tighter border controls to curb the smuggling of petroleum products to neighbouring countries, warning that diversion could worsen domestic shortages and place additional pressure on prices.

Project Lead, Calabar and Gulf of Guinea Municipal and Trade Centre, David Etim, also said Nigeria’s priority should be to strengthen domestic refining and maximise the country’s growing refining capacity.

He proposed that a portion of Nigeria’s crude oil production should be allocated to domestic refineries at controlled prices, rather than exposing local refiners entirely to international crude prices.

According to him, such an arrangement would allow local refineries to produce petroleum products more competitively and reduce the exposure of Nigerian businesses and consumers to global oil market volatility.

“If the actual production cost of crude oil is about $35 per barrel, the government could supply it domestically at around $50 per barrel, including margin,” he suggested.

Etim proposed that about 450,000 barrels of crude oil per day could be dedicated to domestic refining, while the balance could be exported to generate foreign exchange and government revenue.

He said the arrangement could promote greater stability in domestic fuel prices while ensuring reliable supply for businesses and households.

Etim also called for stronger measures against fuel smuggling, recommending the deployment of digital tracking and geo-fencing technology by agencies such as the Nigeria Customs Service to monitor petroleum tankers leaving refineries.

He said the technology could help identify trucks attempting to divert petroleum products illegally across the country’s borders.

Meanwhile, Imokhai Ehimigbai, a member of the Manufacturers Association of Nigeria Export Group, said rising fuel prices were deepening economic hardship for both businesses and consumers.

“When fuel prices increase, transport fares rise, food prices increase, and ordinary Nigerians face more hardship,” he said.

Ehimigbai noted that manufacturers and SMEs were heavily involved in logistics, production and distribution and therefore could not escape the impact of higher energy costs.

“At the end of the day, the final consumer bears the cost,” he added.

He questioned why Nigeria, despite being one of the world’s major oil-producing countries, continued to face difficulties in ensuring adequate and affordable crude oil supply to domestic refineries.

For the business community, the renewed fuel-price crisis has therefore shifted the debate beyond whether petrol subsidy should be restored.

Stakeholders argue that a more sustainable approach would involve reducing the cost of domestic refining, ensuring adequate crude supply to local refineries, curbing fuel smuggling, improving energy infrastructure and providing targeted relief for vulnerable businesses.

They said the key challenge for the government was to strike a balance between fiscal sustainability and the urgent need to prevent rising energy and transportation costs from further weakening businesses, fuelling inflation and eroding consumers’ purchasing power.

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