• Sunday, May 19, 2024
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BusinessDay

COVID-19: MSMEs face mounting pressure as Chinese supply chains vanish

MSMEs

Owolabi Mercy, a 28-year old entrepreneur, woke up to news of a SARs-like disease in Wuhan, China in January. Less than a week after, she was having difficulty restocking her products because her suppliers in China had shut down operations.

“When the pandemic started, my suppliers were initially responding but I can’t reach them anymore,” Mercy told BusinessDay. “I am running out of stock and there is no opportunity for me to restock because I cannot travel and logistics have suspended operations as well.”

In the coming weeks, Mercy would add actuate demand shortage to her list of worries as Nigeria implements stricter social-distancing measures to curb the disease that has so far affected 11 people in the country.

She tells BusinessDay her operating costs are still high because she has to keep her generators running, pay for electricity and other similar bills. “But I am not making sales like before and I could as well just sit at home till this whole crisis goes away,” she said.

Mercy is one of many micro, small and medium scale business owners in Nigeria that are being hit hard by the impact of the Coronavirus on economies around the world.

In Nigeria, Micro, Small and Medium Scale Enterprises (MSMEs) account for 90 percent of all businesses in the country and contribute to 50 percent of GDP. But these businesses, which run with capital as little as N50,000 to N1million, face the risk of suspending and possible shutting down their operations following the outbreak of the Coronavirus.

The pandemic outbreak started from China, a major manufacturing hub and one of the world’s largest trading partner (Nigeria inclusive) especially for import and export activities both of which  accounts for a major part of the country’s business activities.

Data from the National Bureau of Statistics (NBS) shows that as of the third quarter of 2019, imports from China stood at N1.22 trillion while capital importation from China stood at $26.95 million.

A national survey of MSMEs conducted by the National Bureau of Statistics (NBS) in 2017 shows that the country has 41.5 million MSMEs scattered across various sectors. The data also affirms that about 73 percent of these MSMEs fully engage in wholesale and retail trade activities with China as a principal partner.

In addition to the supply struggle of goods, the COVID-19 outbreak also instigated a pendulum-like movement on oil prices which presently stands at $26.27 per barrel for Brent Crude.

The over 20 percent drop in oil, which accounts for almost 90 percent of foreign exchange earnings, as well as about half of federal government revenue, has implications for the economy which could result in another recession and even stronger implications for manufacturers and traders that need Forex for their business activities.

Concurrently, due to the increased VAT and high production cost, businesses will be forced to pass on the cost to already cash strapped consumers. This could be worsened by a looming pressure on inflation.

The manufacturing sector is also entering into a crisis mode as China, India and other countries where it imports tools, machinery, raw materials, and foreign personnel as well shut down due to the Coronavirus outbreak.

About 43 percent of the medium scale enterprises engage in manufacturing activities and this has threated their business as some of them are forced to suspend production activities due to the lack of basic production tools.

A statement about the impact of coronavirus on the economy from the Lagos Chamber of Commerce and Industry (LCCI), states that the spread of the virus and the drop in oil prices gives a gloomy outlook for the global economy and foresees economic hiccups like the increased cost of production, heightened inflationary pressures, etc.

Bongo Adi, Lagos-based economic analyst said this is a bleak period for many companies especially the MSMEs.

“MSMEs will experience a bad period because no one has been spared from the hit of the virus, it is going to cause a vicious cycle as people are apprehensive and very soon will refrain from buying, and this will affect the sales of these businesses and their revenue as well,” Adi said.

He added that the impact of the pandemic is beyond what the MSMEs can handle and said it is left for the government to create palliative measures.

“The MSMEs cannot solve this because this is not a normal challenge. Their supply and logistics have been cut off from various sources so there is nothing they can do. However, the federal government can take a cue from other countries and implement soothing policies that will adequately address the needs of the MSMEs as well as citizens of the country.”

 However, the CBN recently announced a N1.1 trillion stimulus package that would include loans to support the manufacturing sector, among other palliative measures for businesses to recover from the impact of the virus, although the concern on currency stability and disruption to global supply chains remains critical despite the slowdown in the spread of the disease in China which might improve the latter.

 

Faminu Gbemi