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An overview of the economic impact of COVID-19 pandemic on Nigeria

The novel Coronavirus or COVID-19 has infected more than 1.3million people globally. Perhaps for the first time in several decades, the world is witnessing a type of disease that does not discriminate based on age, gender or even race. The virus emanated from the Wuhan province of China and has since spread to every part of the world. The disease has been categorized as infectious and contagious by health experts. As a result, the World Health Organization (WHO) and Governments alike, have advised their citizens to practice good hygiene by washing their hands with soap and water or even alcoholbased hand sanitizer while keeping their nose and mouth covered with a mask.

As the news continued to spread and more information was learned about the disease, governments all over the world led by the WHO, impressed on the populace to practice social distancing and the advice culminated in mass self-isolation and a grinding halt in economic activities. Governments all over the world commenced mandating all non-essential persons to remain in their respective homes. To be sure, this wise counsel if heeded, has the potential to reduce the spread of the disease and save lives in the process. Unfortunately, developing countries such as Nigeria already face immense pressure with lack of affordable housing for millions of Nigerians, a broken healthcare system with inadequate facilities to cater for the growing population, epileptic power supply among a host of other challenges. The purpose of the exposé is to examine the impact of the COVID-19 pandemic on the Nigerian economy in the short run and discuss some of the actions taken by the private sector and Government towards ending the pandemic and ushering people back to normalcy.

Read also: Start-ups must go digital, diversify to succeed in post-coronavirus economy — Fashanu

Governments Response to the Pandemic

Like other crises such as the Global Financial Crisis of 2008, governments responded through regulations, fiscal stimulus and monetary policy initiatives. For instance, in the United States, funds have been earmarked to reach every tax paying household in the range of $1,000 – $1,200 or so. The aim of this stimulus check is to spur aggregate demand and supply forces since businesses in every sector have been mandated to stop working. This implies countless job losses as was recently reported by the US Department of Labor; a total of 6 million claims were filed, the highest jobless claim yet! Other than stimulus checks to households, regulations such as the (Corona Virus Bill) are currently going through the legislature. On the monetary side, the Federal Reserve Bank has been unleashed! The Fed has cut rates to 0% and launched a $700 billion quantitative easing program.

In other parts of the Western world, the same techniques and strategies are being deployed to ensure maximum impact. In the Eurozone, the European Central Bank attempted to combine fiscal measures amongst its member countries, however, some countries felt the agreement did not go far enough. Consequently, there was a breakdown in negotiations sending the two major players in the region (Germany and France) into recession territory. To be sure, if Germany sneezes, virtually every country in the zone will catch a cold. On the other hand, in developing countries where liquidity is often constrained, the same instruments are being deployed in addition to using multiple approaches such as requesting for loans from Multilateral agencies such as the World Bank and the International Monetary Fund to augment developing country budgets to enable them to fight the pandemic and emerge much stronger. The Nigerian government has made it clear that households will receive a stipend during this period of great uncertainty. Although the intention is well meaning, like most countries globally, the mechanism for implementation might be slow to reach the citizens that are most at risk.

Grace Under Pressure: The Nigerian Private Sector’s Response

The response of the Nigerian private sector to the COVID-19 pandemic has been graciously large and beyond the normal boundaries of what corporate social responsibility is. For a section of the economy that will be inevitably worse off POST-COVID-19 due to the loss in demand and decreased spending power, supply chain disruptions, job losses across the board and the general hard hitting effects of an economic shock such as the one COVID-19 will induce, the private sector has rallied to the call and has donated billions of naira in cash, medical equipment and facilities. The tally currently stands at N15.325 billion with more pledges being made daily. This, under the auspices of the Private Sector Coalition Against COVID-19 (CACOVID) set up by the Central Bank of Nigeria (CBN) and Africa’s richest man, Aliko Dangote, aims to provide equipment, training, treatment, testing and isolation centers across the country.

These contributions are also meant to be channelled to increasing capacity and services in the health sector across the country and creating more channels to disseminate information on safe habits during this period. Furthermore, the mainstay of the Nigerian economy, the oil and gas industry has also answered the rallying call and has donated N21 billion to the fight against COVID-19. This industry initiative coordinated by the Nigerian National Petroleum Corporation (NNPC) has also donated a 250-bed space facility and several ambulances to the government. This impressive show of kindness and the never-ending spate of donations is sure to help in the fight against COVID-19 in the country. However, questions of transparency and accountability are bound to arise as the average citizen wonders where these donations are going, what they are being spent on and who manages these funds. Yes, the CBN has set up a dedicated COVID-19 treasury single account (TSA) to collate all donations in one place, but what happens down the line?

Do MSMES Sink or Swim?

Micro, Small and Medium Enterprises (MSMES) face a challenge like no other during and after (supposing the pandemic is controlled, or a vaccine/ cure is discovered) the COVID-19 pandemic. MSMES are especially prone to economic shocks due to their relatively low savings capacity and will have to sink or swim in the current climate of pandemic induced economic shock and artificial (but necessary) restrictions on the movement of goods and people. A majority of MSMES depend to a large extent on the free movement of goods and people to keep their supply chains and ultimately their businesses running profitably.

These same MSMES are enslaved to their daily cash flow transactions i.e. they have virtually no savings as 90% of their income is plowed back into the business as re-invested capital, labor costs and operating expenses. To be sure, when an economic shock induced by a global health pandemic such as the one we are currently experiencing hits MSMES, they are left to fight for their survival. They either swim with the current economic tide and adapt their businesses to the realities on ground or sink under the weight of reduced orders/demand, increased cost of inputs and a non-enabling environment where a huge chunk of your operating expense is channeled towards providing electricity supply. Perhaps the most at risk MSMES are those that operate businesses that deal in perishables; the farmer who is unable to transport his produce to a neighboring state, the fresh fruits and vegetables seller who depends on daily turnover, the food vendor who caters to workers in nearby office blocks, and the restaurant owner who cant get any customers due to the restrictions in movement and has to suddenly invest scarce resources into an impromptu online order and delivery service.

These are the kind of MSMES that will be hit hard and will ultimately sink if this pandemic induced economic shock persists and no helping hand is offered to aid them swim above the waters of low demand, high input costs, huge operating expenses and a movement lockdown that is by all means simultaneously draconian and life-saving. To help alleviate some of the threats faced by MSMES during this period, the Central Bank of Nigeria (CBN) has intervened with a N50 billion targeted credit facility that aims to help households and MSMES that have been particularity hard hit.

While the targeted credit facility with a single digit interest rate of 5% is applaudable, many MSMES already struggle with the burdens of loans taken from family networks, cooperatives, micro- finance and commercial banks, and may not harken to this intervention fund. What at-risk MSMES need is a lightening of the load, some liquidity relief; a moratorium on loan repayments, complete or partial debt relief for some hard hit MSMES, reduced rates on already existing loans, innovative means of financing especially those accessible through the internet and mobile phones, increased access to working capital loans at concessional terms, and grants to enable them meet short-term obligations during this trying period. Some of these measures have already been implemented in other parts of the world where MSMES are not as financially excluded as they are here in Nigeria. However, this line of action must not be seen as a way to make profit for concerned institutions but as a way to support the economy in trying times, spur the wheels of economic growth and create sustainable development in a climate of uncertainty, shock and upheaval.

Concluding Remarks

There is no gainsaying that MSMES are the backbone of any economy globally. This theme has been echoed all over the world! The time is now to step up and do what we all know is the appropriate course of action. Please let’s all SUPPORT MSMES NOW! Simply put, this segment of the economy is the largest and believe it or not, they are one of the highest employers of labor in the country. Consider this, if the MSME segment of the economy collapses, in other words, say, 25% of MSME’S cannot recover from the COVID-19 pandemic, then we are inches away from perpetual social and perhaps economic unrest due to a spike in the general unemployment levels especially among the youth.

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