In combination with foreign exchange and credit crunch, coronavirus has pushed millions of small businesses to the brink, with many now unable to continue operations.
In the last two weeks in Lagos, Nigeria’s commercial nerve centre, at least two micro business owners have told BusinessDay about their plans to shut down and move into paid employment due to lack of funds to continue.
Sales have dropped monumentally with many entrepreneurs seeing over 50 percent drop in their margins. Barbara Ndugbu, chief executive officer of Oven Secret Limited, who makes cakes, said her production has dropped by 73 percent due to low demand occasioned by the virus and worsening economy.
“The recent surge in the prices of key inputs such as sugar and flour has shot up our production cost, thus making it more difficult to make profit. The purchasing power is still low as sales have not picked up like before, “Ndugbu said.
Babajide Esho, founder, Edustripe.com, an online education platform, said though online education has gained traction in this period, his revenue has dropped 40 percent due to low responses from parents complaining of data cost.
“Many of the activities we had planned for the year couldn’t hold anymore such as our Parent Meetups, Tech Company Tours and Summer Camp Programme,” he said.
On his part, Young Ukpong, co-founder, Bridge Hospitality Consult, a consultant in the hospitality industry, said co-businesses have reduced their staff strength in a bid to survive.
“Even now that the economy is re-opening gradually, many are still not requesting for our services. They want the economy to fully re-open before they would request for the services of a consultant. This has made business really difficult for us as we are just trying to stay afloat.”
COVID-19 has infected more than 50,000 Nigerians and killed over 1,000. It has dislocated global supply chains and led to job losses and shutdowns. MSMEs are the worst hit with credit and FX crunch, including poor infrastructure, hitting them hard.
MSMEs contribute 50 percent to Nigeria’s GDP and accounts for 86.3 percent of jobs (59.6million jobs in 2017), according to a report by the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).
The foreign exchange scarcity means many MSMEs cannot import inputs and machines. The Monetary Policy Rate is 12.5 percent, with deposit money banks charging 20-30 percent interest rate per annum. The CBN launched a N50 billion facility in April to the impact of the coronavirus pandemic on small businesses, manufacturers , among others, but some MSMEs say they cannot access it.
“We need to emulate the USA in the disbursement of palliatives to small businesses. Every SMEs operator I know that applied for the COVID-19 SMEs palliative did not get anything, then you begin to wonder who is accessing the funds,” John Kachikwu, managing director and CEO of Jon Tudy Interbiz Nigeria Limited.
“In the USA, even without applying for the stimulus package as an MSME operator, you will still get it as the government is accessing small businesses through their tax identification. But in Nigeria, the wrong people are the ones benefitting from palliatives for small businesses,” Kachikwu alleged, calling for a single-digit interest rate to help reduce the burden of small businesses and ensure they survive post-pandemic.
Nigeria does not have the fiscal space to fund the 41.5 million MSMEs, and experts say small businesses need more than money to survive the pandemic.
Femi Egbesola, national president, Association of Small Business Owners (ASBON), told BusinessDay that uplifting MSMEs to create jobs and spur growth is beyond palliatives.
“No matter the level of palliatives, without the right environment it will amount to nothing,” he said.
“We need to fix our infrastructure and address issues around FX volatility. Most small businesses send 70-80 percent of their cost on generating power alone” Egbesola said.
He said the FX volatility and huge logistics cost are also major problems for operators of small businesses as they have doubled their operation cost since the outbreak.
Despite the compelling potential of SMEs, running small business in Nigeria is tough. Energy and bad road network remain big infrastructural challenges in Nigeria, increasing operational costs for small businesses especially with the recent hike in electricity tariffs and fuel.
Similarly, foreign exchange volatility has also played a major role in hampering the growth of small businesses as the country remains import-dependent.
Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said that SMEs operators in the country have continued to remain uncompetitive owing to the huge infrastructural challenges they continue to encounter.
“Insecurity is also a big issue that has led to the collapse of many small businesses especially in some parts of the country. How can SMEs operate if there is a high rate of insecurity in their environment of operation,” Yusuf asked.
“The government has tried in the area of finance, but the gap is still very huge. Lots of MSMEs operators did not benefit from the government COVID-19 stimulus package despite severely hit by the outbreak,” he said.
Since the country imposed the initial lockdown in late March, there has been cloud of a crisis on livelihood as millions of MSMEs operators were forced to shut down operation leading to job losses.
Experts believe that many MSMEs businesses will be revived as the economy gradually reopens, as a large number of them operate in the service and informal sectors.
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