Moderating COVID-19 Shock

Nume Ekeghe writes on the effect of the COVID-19 on small businesses and steps being taken to mitigate it

For some weeks now, most businesses in the country, especially in Lagos and Abuja, have been running skeletal operations and some have shut down, as part of measures to prevent the spread of the COVID-19.

The COVID-19 pandemic has dire effects and consequences on economic activities and businesses in the country. The major effects of COVID-19 will be the uncertainty and unpredictability of events in the business environment. The biggest factor leading to uncertainty around COVIOD-19 is the lack of a vaccine and drugs for the treatment of the ailment.

This has led to divergent opinions amongst global health experts.
In Nigeria, President Muhammadu Buhari had directed the lockdown of Lagos and the Federal Capital Territory.
A latest survey by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) conducted in conjunction with the National Bureau of Statistics, had estimated about 42 million MSMEs nationwide, which is pivotal to the livelihood of the greater chunk of the workforce.
With the present lockdown, big and small businesses this would be hurt in terms of their profitability.

The Head of Research, Afrinvest West Africa, Mr. Abiodun Keripe, said: ‘Business activities are reducing and businesses are cutting off activities because of the stay at home order and that would impact on the level of activities.

“For small businesses, there would be a shrink in turnover of revenue and they would struggle to maintain profitability. Also, if revenue is down, then profit numbers wouldn’t be looking very healthy.”

Government’s Response
The Central Bank of Nigeria had taken the first step in platform to cushion the effect of the pandemic on small businesses with several intervention policies and low interest funds.
The funds according to the CBN governor will be for those sectors that are most impacted by the pandemic and those whose survival is critical to fighting the Covid-19.

On his part, President Buhari, had listed palliative measures that is targeted at micro and small businesses. The president had directed that a three-month repayment moratorium for all TraderMoni, MarketMoni and FarmerMoni loans be implemented with immediate effect.
“I have also directed that a similar moratorium be given to all Federal Government funded loans issued by the Bank of Industry, Bank of Agriculture and the Nigeria Export Import Bank.

“For on-lending facilities using capital from international and multilateral development partners, I have directed our development financial institutions to engage these development partners and negotiate concessions to ease the pains of the borrowers.
“For the most vulnerable in our society, I have directed that the conditional cash transfers for the next two months be paid immediately. Our Internally displaced persons will also receive two months of food rations in the coming weeks.

“We are very grateful to see the emerging support of the private sector and individuals to the response as well as our development partners. 60. At this point, I will ask that all contributions and donations be coordinated and centralised to ensure efficient and impactful spending. The Presidential Task Force remains the central coordinating body on the COVID-19 response.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, also said the federal government had already applied for the release of its contributions to IMF totalling $3.4 billion under the Fund’s Rapid Credit Facility. The country, she added, was also seeking a $2.5 billion loan from the World Bank, $1 billion from the AfDB as well as an undisclosed amount from the Islamic Development Bank.

The minister explained that $150 million would be drawn from the Stabilisation Fund of NSIA to augment the June allocation to be shared by the Federation Account Allocation Committee (FAAC) due to dwindling accruals into the Federation Account.

Explaining the moves towards seeking external interventions from multilateral institutions, the minister said: “Nigeria has a contribution of $3.4 billion with IMF and we are entitled to draw up to the whole of that $3.4 billion or less. We have in the first instance applied for that maximum amount; then in the process when we negotiate, we might get the maximum amount or less but that is the amount of our contribution with IMF and this is the provision that IMF has made for every member-country that you can apply for between 50 to 100 per cent of your contribution to IMF.
“Again, this is a programme that has no conditions attached to IMF programmes and this is not an IMF programme.”

Impact on the Economy
There are already signs that there would be a rise in unemployment and even salary cuts as small businesses struggle for survival. Already some businesses have asked some of their workers to take a pay cut or keep their jobs on the ‘no work no pay’ basis.
Commenting on this, the Head of Research, United Capital, Mr. Wale Olusi said: “In terms of job security, big firms might be able to take the hit without laying off their staff, but the small and medium scale businesses have already started taking steps.

“Smaller firms that can’t survive with daily revenue to maintain cost are already taking actions so there is no doubt that job losses would happen.”
He also said this trend could possibly go as high up to the presidency if Nigeria’s revenue continues to depletes.

Olusi said: “Recently ministers donated 50 per cent of their salary and ultimately that might be signaling. If oil revenue is weaker, even the federal government might be forced to start paying half salary. They might pay later but for now because they are so many demands.

“If this goes on beyond what we can manage, layoff would happen or companies would impose a situation whereby salaries would not be paid during those months where there was no work. The next two months is going to be though if we don’t get this over with on time.”
To him, government should try to be more aggressive with their intervention, as he said they need to declare that some of those small businesses can access these intervention funds.

To the Head of Research at Agusto Consulting, Jimi Ogbobine, “we have defined the Nigerian economy as one that largely stands on the tripod of the Lagos, Abuja, Port Harcourt economies. We have defined this tripod as the ‘LAP-market.’

“The LAP markets have unique roles in the Nigerian economy. Lagos is the commercial capital housing the headquarters of major corporates and also serving as the port gateway (airports, sea ports and land ports) into the country. Abuja is the political and administrative capital of the country.

“While Port-Harcourt is the oil and gas capital of the country. The lock-down of Lagos and Abuja effectively cramps two of the largest economies in the country. The lockdown of Lagos will have a spiral effect across the country.

“We believe that supply chains across the country will be materially affected by the lockdown in Lagos. While the two-week lockdown of Lagos has granted material flexibility for the movement of essential goods and services, we believe that there will be other negative effects on supply chains.

Analysts’ Position
Speaking further on measures the government should take to alleviate the impact of the pandemic on Nigerians, analysts said the fiscal authority ought to review its tax laws and give more tax breaks this year.
On what can be done for small businesses, Olusi said: “The federal government can cut back on VAT which was recently increased from five per cent to 7.5 per cent. They could cut back on it or maybe postpone implementation which would help boost some of these businesses.

“Fine-tune the framework for their intervention funding so that small businesses can actually access the intervention funds.
“Majorly how government can impact on businesses is through policies, framework and tax laws. The tax laws should be a bit relaxed for now. VAT should be reduced and maybe exempt small businesses from even paying tax this year.”
He further noted that most of the intervention has been from the monetary side and however urged the fiscal authorities to act swiftly.