The Nigerian retail landscape, particularly shopping malls and retail outlets, is facing a significant challenge: increasingly empty shelves. This predicament, primarily affecting Small and Medium Enterprises (SMEs), stems from a confluence of factors, including stringent regulatory hurdles, limited access to credit, the prioritization of foreign exchange for larger corporations, and persistently high inflation. These issues, coupled with unfavorable payment terms imposed by large retailers, are creating a perfect storm that is hindering SMEs’ ability to restock their goods and maintain their presence in the formal retail sector.
One of the most significant obstacles for SMEs is the recent regulation imposed by the Standards Organisation of Nigeria (SON), requiring all products displayed in malls to have SON certification. While seemingly aimed at ensuring product quality, this regulation has created a bottleneck for SMEs, many of whom previously relied on certification from the National Agency for Food and Drug Administration and Control (NAFDAC). The duplication of effort, combined with lengthy waiting periods for SON certification (often three months or more), effectively excludes many SME products from retail shelves. This not only hurts small businesses but also impacts retailers who lose out on potential sales and product diversity. The resulting scarcity of goods further exacerbates the problem of empty shelves, creating a vicious cycle that negatively impacts both producers and retailers.
Furthermore, the rising cost of credit and unfavorable payment terms are adding to the woes of SMEs. Many malls operate on a Local Purchase Order (LPO) system, requiring SMEs to supply goods but delaying payment for up to 90 days. In a high-inflation environment with limited access to affordable credit, this practice places a significant strain on SMEs’ cash flow and their ability to fund production. The high interest rates further compound the problem, making it increasingly difficult for SMEs to sustain their operations and meet the demands of the formal retail sector. This financial squeeze forces many SMEs to seek alternative markets, including exporting to other African countries through the African Continental Free Trade Area (AfCFTA), where they can earn foreign currency and mitigate the risks associated with the volatile Nigerian Naira.
The combined effect of these challenges is a shrinking MSME base in the Nigerian manufacturing sector. Many SMEs struggle to procure raw materials, largely sourced from overseas, due to difficulties accessing foreign exchange. Larger corporations often have preferential access to foreign exchange through commercial banks, leaving SMEs to compete in the less favorable black market. This disparity in access to foreign exchange inflates the cost of raw materials for SMEs, making it difficult for them to compete with larger manufacturers on price. Consequently, the number of SMEs actively engaged in manufacturing is dwindling, contributing to the scarcity of locally produced goods on retail shelves.
To address this complex issue, several innovative solutions are being proposed. One suggestion is for malls to adopt a more flexible approach to their space utilization, subletting empty areas to smaller vendors selling a diverse range of products. This mixed-use strategy could help malls mitigate overhead costs while also providing market access for SMEs facing exclusion due to the SON certification requirement. Another proposal is for malls to offer soft loans to their SME suppliers, enabling them to meet the regulatory requirements and restock their goods. This collaborative approach could foster a more sustainable ecosystem where both malls and SMEs can thrive.
Further recommendations include strengthening internal compliance systems within malls to ensure that products meet safety standards, even without SON certification. This would involve implementing due diligence processes to vet suppliers and their products before allowing them onto the shelves. By focusing on product quality and safety, malls can build consumer trust and drive sales, ultimately benefiting both retailers and consumers. Additionally, encouraging malls to unify and collectively advocate for their interests with the government could lead to more favorable policies and regulatory adjustments that address the unique challenges faced by SMEs in the retail sector.
Finally, the issue of persistently high inflation and its impact on consumer purchasing power needs to be addressed. While the rebased Consumer Price Index might show a lower inflation rate, the reality on the ground is that prices remain high, affecting both retailers and consumers. The high cost of goods discourages consumer spending and slows down restocking cycles, further exacerbating the problem of empty shelves. Addressing the root causes of inflation and stabilizing the economy are crucial steps towards creating a more conducive environment for businesses to thrive and for consumers to afford the goods they need. This multifaceted approach, combining regulatory adjustments, financial support, and collaborative strategies, is essential to revitalizing the retail sector and ensuring the survival and growth of Nigerian SMEs.
