Small businesses have always carried the can, whenever a disaster happened. They did so in the case of Ebola and also in the 2008 Global Financial Crisis. The reason is simple: They are financially weak and have no capital buffers. Small businesses survive on the good will of patrons who are quick to take out the frills at the first sign of trouble. Besides, most small business-owners run a cash-and-carry, or what I call a hand-to-mouth, economy. Once the cash flow is cut for any reason, “alarm blows” as they say in Nigerian local parlance. That was what happened as soon the lockdown was effected. Their cash flows, and even those of their big corporate patrons, evaporated. Consumer spending is a very important component of the Gross Domestic Product and constitutes about two-thirds of it in many strong economies.
Now we are in a crisis and there is need to restore the global economic equilibrium disturbed by the pandemic. That effort should begin from helping businesses activate their business Continuity Plans, if any or leapfrogging fiscal and monetary policy to shorten the steps. Undoubtedly, most small businesses have no such plans. That is why it becomes a public policy question. We are however discovering that it is hard to contemplate any situation more difficult than restoring and restarting a business that witnessed a calamity, natural or man-made. The process of holding on to customers and then reinstating timely product and service delivery channels is harrowing. Some of the many recent disasters we have witnessed include hurricanes, such as Katrina, Irma and Harvey. Others are floods and some super storms, like Sandy.
Those who were old enough when the Nigeria-Biafra war ended would tell you how hard it is to locate even one’s old footprints after such catastrophic events. In the world of small businesses, picking up the broken pieces is hard enough, and going back to do what customers need is even harder. This is worse still if one is operating in a greatly challenging jurisdiction where serious and continuing external pressures have long been exerted on business entities, due essentially to infrastructure and leadership failures.
There are subsisting research findings and data on what happens to businesses after a calamity. The fact that a substantial number of businesses end their operations on a permanent basis, after disasters like COVID-19, is public knowledge. The American institute of Business and Home Safety estimates that 25 percent of businesses do not reopen after a disaster. Even worse estimates come from the Federal Emergency Management Agency (FEMA) of the United States, which projects that about that 40 percent of small businesses fail to reopen after being stuck by natural disasters. That is not all. Further estimates suggest that owing to the lingering impact of such events, another 25 percent of small businesses fail within one year of the disaster while another 90 percent die two years after they are stuck by a disaster.
Faced with the critical challenge of rebooting the economy, I propose ensuring business continuity, in the MSME sector, and revamping consumer spending as first principles.
The full extent of a disaster is not measured only by the lost income suffered by businesses in times of crisis. There are other equally significant losses, which are not even insurable and from which the business cannot be protected. Companies can take out insurance against flood, fire and storms but there is no insurance to cover the loss of reputation and market share caused by disaster. These kinds of negative effects are usually more pronounced if the disaster is specific to a company and not shared by its competitors. When a disaster applies generally to operators in an industry, the impact is less pronounced, as customers will have nowhere to go with the company’s market share.
COVID-19 is much more than a disaster. It is a catastrophe. Although both terms are used interchangeably, they differ in certain respects. A catastrophe is a disaster of gargantuan proportions that is beyond the ability of a community to handle. Actually, whether an event is an accident, a disaster or a catastrophe depends on the extent of its impact on the community. When a community’s capacity to deal with an event is overwhelmed by the sheer magnitude of it, as in the case of COVID-19, then a catastrophe has happened. It is therefore trite to predict that many businesses will not reopen after this catastrophe, and the number will be much more than what the FEMA report has stated because of the debilitating economic conditions in our jurisdiction. Given that most micro and small enterprises serve as the main source of livelihood to the key man and his family, the lockdown will definitely do havoc to their meagre capital – a problem from which many will never recover.
Those familiar with the origins of the present contributory pension system, the pioneering work of both PENCOM and the operators since 2004, would have noticed the emphasis that was place on Business Continuity and Disaster Recovery. It was not only mandatory for operators to maintain functional disaster recovery centres, at least 25 kilometres away from the main operational base, such centres were subject to regular regulatory review and inspection. The essence was to ensure that pension managers and custodians, who hold the future happiness of most workers, had to be sure to continue operations during and after a disaster. Good capacity for business continuity is vital to the sustainability of any business and the economy at large. Accordingly, what we need at this point is to ensure our businesses have the capacity to continue operations, albeit skeletal, as we gradually unlock the economy.
The pandemic cut the financial flows in the economy and brought businesses to a screeching halt. As a result, cash flows disappeared and no business can survive without cash coming in and going out. With the evaporation of cash flows also came the disappearance of spending power. Once spending power drops everything begins to look south – inventories pile, production cuts happen, jobs are lost and the economy goes into a declining spiral. Under that kind of environment, businesses cannot restart. They must have fresh funds to clean up the cobwebs of the pandemic and begin to see clearly towards their customers again. Given the nature of our economy and the obvious financial incapacity of household, we need to use fiscal action to shore up aggregate demand. Faced with the critical challenge of rebooting the economy I propose ensuring business continuity and revamping consumer spending as first principles.