CITING the impact that inflationary pressures from global events were having on Jamaican small business in general, and his manufacturing company, in particular, chairman and CEO of Boss Furniture Omar Azan described 2022 as “probably [one of] the toughest times”.

In an interview with the Jamaica Observer on Thursday, Azan, a former president of the Jamaica Manufacturers Association — one of two organisations succeeded by the Jamaica Manufacturers and Exporters Association (JMEA) — noted that the rising cost of raw materials and energy which pushed governments and central banks the world over to increase interests has reduced spending power among consumers.

“We’re operating in a very tight, tight space. So the buying power of our people obviously has weakened somewhat, I guess [it comes], with all the inflationary effects of literally every item [going up], whether it’s gas, whether it’s electricity, whether it’s food items. So the spend ability of our people is affected so much,” Azan said.

“A lot of manufacturers today are trying to create lower cost products every day, whether it be reducing the cost of the size of the ketchup bottle, trying to reduce the inputs that you put in your mattresses, or even the paint, you know, whatever,” he continued, hinting at shrinkflation.

Shrinkflation, also referred to as grocery shrink ray, deflation, or package downsizing, is the process by which companies reduce the size or quantity of their products, or even sometimes reformulating or reducing the quality, while maintaining their prices. This is a practice that is common in developing countries.

However, in the case of local manufacturers, Azan pointed out that most were trying to source lower-cost raw materials while maintaining affordable prices to meet the pockets of consumers.

“Well, it’s very challenging because we have tried to source lower-cost materials out of the Far East. We have tried in every way to try and reduce the cost of our inputs…into our products,” Azan shared with Sunday Finance, outlining one the strategies he has employed at Boss Furniture.

“We are literally at the limits in terms of pricing, trying to keep inflation down and helping the Government and helping the pockets of the people by not raising prices. Because if we were to really raise prices to where it should be to maintain margins, to keep the businesses going, a lot of us will be out business today.”

Across the board, raw material costs including lumber and chemicals to make foam for the mattresses the company produces have doubled, he disclosed. Added to this, the scarcity of goods coming out of China has forced shipping lines to increase their freight costs due to a lack of volume.

Pointing to the lifting of COVID-19 restrictions in China, Azan is wary of a potential resurgence of infections from the contagion that could have an economic spillover. He is, however, hopeful for economic stability that will allow companies to recover what they have lost in the last two years.

The challenges to which Azan referred is not limited to Boss Furniture. “A lot of companies are suffering” because of the tight profit margins that they are seeing, which are not enough to cover overhead costs, input costs, salaries, and repay loans.

When asked if he was only griping because his company and others were not pulling in huge profits like they did pre-pandemic, the CEO invited naysayers to assess his books and those of other companies, arguing that some entrepreneurs have kept their doors open for the sake of employees. For Boss Furniture, “we had to use up our savings to ensure that”. He also boasts that since the pandemic the company has not laid off one employee, neither has any employee had to go home without a salary.

“What is happening is that our margins are so tight and shrinking; some things we’re selling even below cost just to keep things and keep employment going. And I know for my company, our margins are much smaller than where they were in the past,” Azan disclosed.

“There are many companies out there, and I’m familiar with many companies operating and speak to many manufacturers. Everybody’s in the same shoe,” he added.

Drawing a comparison with businesses operating in the global sphere, such as in the United States, Azan argued that Jamaican companies have had to face a more challenging business environment and as such were operating below the level of their international counterparts. He highlighted that while the United States Government has been able to provide stimulus packages for companies in that market, the same did not obtain in the local context, especially to the extent in did in the US.

“We in Jamaica, we had to struggle through with literally zero or any help from the Government because our Government, as you know, is in a struggling position also. So companies are challenged. We had to struggle through all; we had to do it all on our own,” Azan stated.

Notwithstanding, he commended the Government for doing its best in monitoring the exchange rate and trying to manage inflation, though he said he is not convinced that all the strategies have worked. The fluctuation in the exchange rate, he said, has made it difficult for businesses to forecast cost, even though band of fluctuation has been smaller than recent years. Additionally, the rising interest rates instituted by the Bank of Jamaica has forced business owners to think twice about loan financing.

To this end, Boss Furniture is looking to increase its exports to offset rising expenditure. In December last year the company signed a deal to become one of two exclusively licensed manufacturers of Spring Air International bedding in the Caribbean. Revenues from this new suite of products will go a far way in helping the furniture manufacture cover its US dollar-denominated expenses.

“We’re still having a lot of challenges with suppliers or creditors that were able to give credit.They themselves have cash flow challenges, so where you used to get 60 to 90 days credit with a particular supplier, they’re now saying, ‘Boss, we have to cut back. We are having challenges ourselves. You know, you have to pay us within 30 days.'” Azan related.

“Some of them are requesting a 20 per cent or a 50 per cent advanced payment, which puts a strain on our already strained cash flow that we have,” he told Sunday Finance.

Looking ahead, the former JMEA president said that Jamaica could see the long-haul effects of a recession, referencing an IMF report which said the global economy could slip into a recession this year.

“I can tell you when I go supermarket, now, even though I’m a business owner, I have to be putting back and trying to maintain where we are to keep things going. So in business it’s the same thing: we’re trying to strike that balance,” Azan concluded.