Chisom Marvelous Elekwa is a young graduate of Public Health from one of the private universities in Nigeria. After two years without a job and not ready to watch her 50-year old mother struggle with her siblings school fees, Chisom in November 2019 went into the rice business, buying from producers and selling to consumers. She invested her life savings into the business which became instant success as she had huge patronage. But that joy was short-lived as the coronavirus disease which index case in Nigeria was detected in February 2020, took away her means of livelihood.
Fortunately, she applied and got N1millon loan from the Federal Government to cushion the effects of the pandemic. Today, Chisom is back to her rice business owing to the lifeline.
But while Chisom is grateful and happy, Jummai Abdullahi, another small scale entrepreneur is sad and distraught. She told BusinessDay that the N5 million MSME loan she took from the Central Bank of Nigeria (CBN) last year which she invested in cassava and poultry farming has become a source of sorrow. Her 10 hectare farmland located in the outskirts of Kuje in Abuja, was last year destroyed by cattle herders whom she alleged invaded her farm at a time the crops were about to be harvested. “My brother I am in tears. All the money I took from the CBN and the ones I borrowed from my bank went down the drain due to no fault of mine. I went to my farm on November 10, 2020 to discover that the cattle ate up all the crops. How and where do I start from paying back the loans?’’ she said with tears.
The above two cases illustrate the joy and sadness associated with small scale entrepreneurs who were pushed to the world by the ravaging effects of COVID-19 which was first recorded in Nigeria on February 27, 2020.
In one year, the COVID-19 pandemic has had a far-reaching impact on the country’s already fragile oil and import-dependent economy. The pandemic affected the livelihood of 85.2 million people living in poverty, who mostly sustain themselves on daily labour, and 41.5 million small and medium enterprises (SMEs), which account for 76 percent of the labour force and contribute half of the gross domestic product (GDP) but are mostly informal.
The World Bank Group predicts that the long-term fallout of the pandemic led to food shortages, massive unemployment, and large-scale business failure while the recession that followed may increase the number of people living in poverty to 95.7 million by 2022, and reduce Nigeria’s economic and development outcomes. The government has taken decisive actions to mitigate the humanitarian and economic impact of the pandemic and the oil price shock but the outcome is still uncertain.
Government efforts have been enhanced by a US$3.4 billion loan from the International Monetary Fund (IMF) and have been augmented by massive support from the private sector and development organisations.
In the wake of the pandemic, the Federal Government provided access to funds for households and businesses affected by the pandemic, including cash payments for the most vulnerable as well as an Economic Sustainability Plan (ESP) – a one-year programme estimated at ₦2.3 trillion, focusing on achieving mass employment and mass domestic production and on expanding pro-poor spending to protect the vulnerable.
There was also a fiscal stimulus for micro, small and medium enterprises (MSMES) which include N50 billion loan SMEs, extension of revenue remittance deadlines for key non-oil tax payments (VAT, corporate taxes) and 50 percent rebate on corporate taxes for employers who do not make staff cuts between March 1 and December 31, 2020. Others were: three-month repayment moratorium for all TraderMoni, MarketMoni, and FarmerMoni loans and to all Federal Government funded loans issued by the Bank of Industry, Bank of Agriculture, and the Nigeria Export-Import Bank Central Bank measures.
COVID 19: Impact on businesses
The COVID-19 pandemic presented new challenges to businesses, disproportionately affecting smaller and less-efficient firms across all industries. Businesses had to move quickly to remote operations while ensuring business continuity under the lockdown. They had to change their operating models to safeguard workers and customers, manage disruptions in supply chains and cash flow, and respond to changing demand. Increased working capital requirements coupled with liquidity constraints, reduced access to forex for imports, logistics disruptions at ports and in interstate transport, and rising insecurity in the north have strained business operations. Right now, experts say many businesses are being forced to downsize operations, retrench workers, and reduce compensation to avoid failure.
Indeed, the pandemic severely affected MSMEs on the demand and supply sides. Both micro-enterprises, which are estimated at 37 million, and the approximately 28,000 SMEs are experiencing these impacts. A survey by the Lagos Chamber of Commerce and Industry (LCCI) on the impact of the COVID-19 crisis on the Lagos business community revealed that 81 percent of SMEs were “severely” affected by the pandemic.
On the supply side, MSMEs have limited capacity and digitisation to adopt their business model to the new operating environment and changing consumer behaviour. Many reduced labour capacity because employees have to tend to children while schools are closed or operate remotely. They have struggled to create a safe work environment, to observe new health protocols, and to move to cashless transactions to protect their workforce and customers; only a few are able to work remotely.
Sadly, close to 25 million microenterprises operating in tourism, hospitality, entertainment, and trade have had to close or face significantly reduced operating hours. With large markets closed during the lockdown, many traders temporarily lost their access to customers. Small shops have found it difficult to adjust to changing demand and supply-chain disruptions without digital inventory management and they are running out of cash. The compounding effect of demand and supply shocks and payment delays that are, in part, a result of the limited use of mobile money, is straining MSMEs’ ability to meet short-term cash obligations, including salaries, and raise the potential of failure.
A recent report by the International Finance Corporation (IFC) on Nigeria states that “the fallout from the pandemic severely affected several sectors that account for two-thirds of GDP, 28 percent of employment, and up to 60 percent of micro, small, and medium enterprises”. The most affected sectors, not taking into account planned government’s interventions are: (a) manufacturing and trade because of disruptions in international and domestic supply chains, forex constraints, and rising import costs caused by the devaluation of the naira; (b) non-essential services, such as aviation, hospitality, food services, and arts and entertainment; (c) infrastructure and real estate because of lower demand, and (d) financial services, which are at risk of increasing defaults.
To minimise the long-term costs of losing viable businesses and jobs, experts say liquidity must urgently be injected into affected sectors to meet mounting working capital needs.
COVID-19-induced business opportunities
Despite its negative side, some business owners and managers said COVID 19 made them think inwards. The closure of international borders by the Federal Government made entrepreneurs resort to backward integration as well as open new market outlets to sell their products. Areas that hitherto were ignored became market centres as producers explored new areas of business and marketing became competitive.
Edmund Ohiwerei, and Johnson Obinadi, joint owners of a garri processing factory in Keffi, Nassarawa State, told BusinessDay that the pandemic forced them to visit some remote villages and communities in search of buyers of their products. The result, they said, was rather than fold up, they now have a larger market than before the pandemic. At the same time, their turn over doubled. In the same vein, yam, rice and other food crops and noodle producers had thriving businesses as governments and individuals bought large consignments for distribution to as palliatives to the less privileged.
Analysing the situation, Samuel Ajoku, a professor of development economies said the pandemic presented opportunities that transformed some sectors and drove recovery. “Agile companies that can adapt their business models to changing consumer behaviour, reduce dependence on imports, secure supply chains through greater value-chain integration, and increased competitiveness in regional markets became stronger during the crisis”, he said.
Another economist, Tunde Lawal said interventions arising from COVID-19 encouraged firms to take advantage of the opportunities to diversify their business interests and markets.
“If successful, the efforts can speed recovery, reduce Nigeria’s dependence on oil, grow non-oil exports, and increase resilience”, he said.