Cold room business is one of the most lucrative in the SME sector. Every day, some businessmen and women across Nigeria work hard to take advantage of the ever-present need for seafood, poultry products, and beef. Talk about meeting people’s basic needs whilst making cool cash in the process!
Mr Muraina Mobolaji is one of those businessmen involved in the cold room business. In his office located somewhere in the Iyana-Ipaja area of Lagos, he disclosed how much the business is booming. According to him, livestock products are regulars on most Nigerians’ dinner plates. And since the commodities are often perishable, there is the need to preserve them.
But Mr Muraina, 34, has not always been a businessman; much less a cold room operator. He was once a secondary school teacher who became frustrated by the “poverty-pay” and the unpleasant conditions of employment he was subjected to. According to him, he realised at some point that he could no longer take it. As a result, he began putting plans together to start his business.
Not surprisingly, starting a new business was not an easy decision for the man. But he didn’t it anyway, finally taking the leap about four yes ago by first resigning from his teaching position, and then establishing the cold room. Today, he sells assorted fish, prawns, chicken, turkey, etc.
What is the cold room business about?
Basically, this business entails the preservation and distribution of perishable (livestock) food items; direct from the farms to people’s dinner tables. As you may well know, animal farm produce (such as chicken, turkey, and seafood) typically passes through a long distribution channel before they end up in people’s pots of soups and stews. During this long distribution process, a lot of business activities occur. It is here that SME business owners such as Muraina come in by making sure that your chicken is available for consumption at all times; albeit fresh and with all the nutrients intact.
Please note that the cold room business also involves the sale of other commodities such as frozen yogurt, ice block, ice cream, soya milk, etc. But for the purpose of this article, a clear focus is on the preservation and sale of meat products.
Cold room operation is a multi-billion naira business
Nigerians consume about 1.2 billion birds (mainly chicken and turkey) every year. In the same vein, they consume some 3.32 million metric tonnes of fish annually, according to statistics by the Fishery Committee for the West Central Gulf of Guinea. These stats are indicative of a huge business environment where both farmers and marketers have the potential to make billions in revenues. But just as it is a profitable venture, cold room business also costs quite a lot to go into.
How much is needed to start a cold room business?
After quitting his teaching job, Mr Muraina had to combine his life savings with a bank loan in order to finance his cold room business. According to him, he realised after completing the feasibility study that in order to start and scale the business, he would need at least ₦8 million.
In his own words-
“You know, in every business, you have to either start small or big. I categorise myself as a wholesaler, in the sense that I sell mostly to retailers who in turn sell to consumers. Therefore, to succeed as a wholesaler in this business, one would definitely need to have more seed capital than those starting as retailers.
After conducting my research, I realised that I needed at least ₦8 million before I could start and favourably compete in the business. So I had to get the money by all means.”
What is the money needed for?
As an intending cold room owner, there are two important things that must be sorted out from the onset. These are your equipment- the cold room storage facility, and your power generator. According to Mr Muraina, there are many companies in Nigeria that specialise in the manufacturing, installation, and maintenance of these facilities.
Interestingly, a bulk of his seed capital went into having a large cold room panel purchased, shipped and installed at his present location. He spent about ₦4 million for that alone. He also has a Mikano power generator right beside the cold room which he said was purchased for some ₦1.5 million; second-hand price.
He also needed to spend money to lease the small patch of land on which his business is situated. In the same vein, Mr Muraina had to register his business with the appropriate government agencies, particularly the National Food and Drug Administration and Control (NAFDAC) which gave him the necessary accreditation he needed to operate his business.
How does the business work?
Most of the birds and fish sold in Nigerian cold rooms are imported from outside the country. This increases the cost of doing business for Mr Muraina. Unfortunately, he has no choice but to establish relationships with importers of the products who supply to him at subsidised rates. He, in turn, sells to retailers within the Iyana-Ipaja environs. These retailers include fish sellers at popular markets, women who walk around neighbourhoods singing and attracting people’s attention to come and buy fish, and those who have stores with deep freezers where customers come to buy fish, chicken, or turkey.
Prices differ, depending on what produce and quantity of produce a customer are buying. According to Muraina, “a carton of chicken can sell for up to ₦14,000, depending on the season. Turkey is typically the most expensive, with a carton selling for nearly ₦16, 000. Fish is the least expensive. There are different types of fish, and their prices vary. But for Titus which is mostly demanded by customers, a carton is between ₦11, 000, and ₦10, 000.
“Now because I do sell to end-users sometimes, and some people prefer to buy either half a carton or a quarter of a carton, what I do is to simply divide the price of a particular product by the size a customer wants to buy. However, I do not sell anything less than a quarter of a carton.”
Please note that these prices were confirmed by a roadside fish seller at Iyana-Ipaja bus garage who said that although she goes to Ijora (where the commodities are supposedly cheaper) to buy her goods, the prices are still relatively the same.
Meanwhile, speaking about how much he earns, Muraina disclosed that he can make as much as ₦100,000 in sales on a good day. This, therefore, translates to approximately ₦2,000,000 in monthly sales. This is the kind of money he could never have dreamt of seeing in a month as a public school teacher.
But there are some challenges…
According to the businessman, the cost of running his business is a big challenge. Electricity is the biggest challenge for him, he said. Without an adequate power supply, a whole stock of products could get wasted and result in loss. Unfortunately, the epileptic nature of power supply in the country has not helped his business at all.
“Power supply in Nigeria is in such a very bad state. And it particularly affects people like me who are in this kind of business. I need to ensure that in a day, this facility has an average of fifteen hours of power supply. But where in Nigeria can you get that? Consequently, I have to depend on the generator most of the time. And it is expensive. On average, I spend about ₦20, 000 on diesel every month. I also spend nearly ₦35,000 monthly on electricity bills, payable to the authorities. The unfortunate thing is that most times, they just bring the bills even without giving us enough light through the month. But then I would have no choice than to pay.”
Other challenges include the cost of maintaining both the cold room and the generator. According to him, compulsory maintenance work is always done on the cold room panel once in every three months. This costs about ₦30,000 each time.
Muraina is also “heavily taxed by the Lagos State Government”. Although he refused to disclose exactly how much he pays in monthly taxes, he believes the money is too much and should be reduced to encourage the growth of small businesses like his.
“There are many challenges facing this business. Electricity is the main one. The government needs to focus on solving the electricity problem in order to encourage the growth of small businesses. I always wonder why any government should be so concerned about collecting taxes by the end of every month without even thinking about whether or not businesses are making money.
Also, they should make loans easier for people to access. I had a lot of trouble trying to access a loan when I first started. You see all these organisations parading themselves as “saviours” of entrepreneurship and promising to provide financial facilities to SMEs, sometimes they really don’t. Their conditions are too much to fulfill. And I think it discourages some aspiring entrepreneurs.”
On the brighter side, it is easy to start making a profit in the cold room business. This is due to the fact that many Nigerians are constantly in need of this foodstuff. In Muraina’s case, even though he initially faced competition in the business, it was not long before he broke even; thanks to his established contacts, customer base, and the strategic location of his shop.
In conclusion, cold rooms are playing a huge role in meeting needs, solving the unemployment problem, and stimulating economic growth. In this light, therefore, governments at all levels should work assiduously towards creating a conducive environment for these businesses to operate, particularly by making adequate power supply available. In the same vein, investment in the agriculture sector should be increased in order to reduce the cost of importation of these livestock products which contributes to the hike in their prices.
African leaders should support MSMEs for rapid recovery of economies – Report
African leaders would help speed up the recovery process in most African economies if they can continue to support the MSMEs.
African leaders have been enjoined to promote and support policies that would strategically support the Micro, Small and Medium-sized Enterprises (MSMEs) and speed up the recovery process in most African nations.
This was stated in the Foresight Africa 2021 report, a publication of African Growth Initiatives of the Brookings Institution, a non-profit organization devoted to independent research and policy solutions.
According to the report:
- “Policymakers must continue to support businesses—both smaller enterprises and larger firms—that have been disrupted by the crisis.
- “Arguably, the greatest priority must be to bolster the micro-, small-, and medium-sized enterprises (MSMEs) that are key to African commerce and account for 83 percent of private-sector employment in Africa.
- “Such businesses, which number between 85 million to 95 million, are especially vulnerable to COVID-19 mitigation measures given they are often characterized by person-to-person contact. By just May 2020, 75 percent saw their revenue decline by over 30 percent.
- Finance will continue to be one of the greatest needs for African businesses; indeed, only 5 percent of MSMEs across the continent feel they have received adequate support from lenders. Provided governments navigate Africa’s fiscal challenges with skill and determination, they can continue offering suitable financial support to small enterprises; in addition to indirect support through value chains and banks, such assistance might include loans, debt forgiveness, low-interest rates, assistance with payments to suppliers, and reduction in utility costs.”
Ways Governments can provide financial support to MSMEs
- “There are several steps that governments can take to provide financial support to MSMEs. One option is to assist MSMEs through larger firms in their value chains, which might include upstream suppliers and downstream buyers.
- “Governments can provide easier liquidity and working-capital terms to these larger players, and they can make such support conditional upon these firms’ providing favourable financial terms to MSMEs.
- “Governments can also consider providing risk guarantees or first-loss mechanisms while requiring banks to on-lend under the chosen set of criteria and guidelines in order to encourage banks to lend to MSMEs.
- “Policymakers must not lose sight of the region’s informal sector, as 84 percent of African MSMEs are unregistered. Policymakers can take advantage of the opportunity created by the crisis to convince larger numbers of informal enterprises to register, and thus gain better access to finance and markets. Moreover, to promote registration, governments could shape bold campaigns and attractive packages, potentially including multi-year tax holidays and capacity building for MSMEs.”
Why this matters
- Micro, Small and Medium-sized Enterprises (MSMEs) are widely recognized for the important contributions they make to sustainable development, in terms of contributions to economic growth, creation of jobs, provision of public goods and services, as well as poverty alleviation and reduced inequality.
- The pandemic has seriously impacted the MSMEs in all African nations as it has exacerbated economic hardship and may have pushed more than 40 million Africans into extreme poverty.
- It is imperative that the African leaders focus on enabling businesses to respond effectively to these new and unfavourable conditions to which most MSMEs have been exposed to.
The FG in partnership with the private sector will continue to support MSMEs – Osinbajo
Osinbajo has stated that the FG in partnership with the private sector would continue to provide interventions to boost the growth of small businesses.
Nigeria’s Vice-president Prof. Yemi Osinbajo during an MSME stakeholders’ meeting, disclosed that the Federal Government in partnership with the private sector would continue to provide interventions to boost the growth of small businesses across the country.
According to a press statement issued by Laolu Akande, the VP made this statement on Monday at the first meeting of MSMEs stakeholders for the year 2021.
Prof. Osinbajo said the Government would continue to support innovation and interventions to deepen the involvement of new and existing MSMEs in the nation, this he said would help to improve the economy and create more employment opportunities for Nigerians.
He stressed further that the implementation of the Economic Sustainability Plan Survival Funds has sent positive economic signals. In a bid to complement the gains in this space, the Government needs to scale up interventions in the MSMEs sector.
In this vein, Osinbajo urged stakeholders in the public and private sectors at the virtual meeting to be innovative in the interventions planned for small businesses across the country, so as to consolidate on the gains recorded in the MSMEs space in the past few years.
What they are saying
Prof. Yemi Osinbajo, during the MSME stakeholders’ meeting, said:
“We must continue to be innovative in the interventions that we plan for MSMEs because small businesses are the engines of growth of any economy, in the areas of wealth creation and employment opportunities, MSMEs are very important.”
Continuing, Prof. Osinbajo said:
“We really have to think out of the box in our engagements going forward. We need to change the way we do many things, we need to look for ways of multiplying our efforts because the challenges in this space are greater than what we have been able to achieve so far. Of course, we have done a lot, but looking at the numbers in need, you will find out that there is a lot more to be done.”
What you should know
- The Federal Government’s MSMEs Survival Fund grant scheme, which includes Payroll Support, Artisans and Transport support tracks, is a component under the Nigerian Economic Sustainability Plan, NESP.
- The Survival Fund scheme was designed to cushion the economic effects of the COVID-19 pandemic especially on the most vulnerable small businesses, is a conditional grant to support vulnerable MSMEs in meeting their payroll obligations and safeguard jobs in the MSMEs sector.
- The scheme is estimated to save not less than 1.3 million jobs across the country. However, 283,023 Nigerians employed by MSMEs across the country have benefited from the Payroll Support Scheme. This leaves millions of Nigerians out of the consideration of the scheme.
283,023 Nigerians employed by MSMEs have benefited from FG Payroll Support Scheme
The FG has revealed that over 200,000 persons have so far benefited from its Payroll Support Program.
The Federal Government of Nigeria has disclosed that 283,032 Nigerians employed by MSMEs across the country have so far benefited from the Payroll Support Scheme of the Federal Government.
This disclosure was made in a tweet shared via FG Survival Fund’s official Twitter account.
— MSME Survival Fund (@SurvivalFund_ng) January 6, 2021
What you should know
- The Payroll Support Program by FG under the Survival Fund initiative was created to provide an adequate buffer against the impact of the COVID-19 on the stream of income of MSMEs.
- This, however, is an offshoot of the Survival Fund initiative, established to support and protect small businesses from potential vulnerabilities brought about by the COVID-19 pandemic.
- In line with the mandate of the programme, the government will support MSMEs with staff salaries for 3 months.
- It is important to note that the COVID-19 pandemic and other regulatory actions of the Federal Government affected the core segments of SMEs, as well as the revenue and income vehicles of Small businesses in Nigeria.
- According to a survey by NBS, it became public knowledge that the total number of Micro, Small and Medium Enterprises in the country was about 41.5 million, as of December 2017, with significant employment contribution running to millions.
- In the light of this, it is plausible to say that the Payroll support programme is not inclusive enough, as the recent move by FG to support MSMEs leaves millions of MSMEs and their employees out of the radar.