The Covid-19 pandemic has thrown most affected countries into economic challenges of varying degrees. In Nigeria, as it is in other countries hit by the virus, businesses have been closed except for those providing essential services. While it may be argued that skeletal operations are still being carried out with the leverage of technology, there is evidence suggesting that output and revenues have shrunk. Infact, many small businesses have laid off their staff. The worst hit industries such as aviation, entertainment and hospitality are experiencing major setbacks.
Some studies including those of Morgan Stanley and Goldman Sachs Group project that the GDP growth rate for the US could drop by over 30% and possibly as much as 50% while James Bullard of the Federal Reserve Bank of St. Louis estimates that unemployment could rise by as much as 30%. China has reported the worst contraction of its GDP in decades with a shrink by 6.8%. It is not surprising as many factories and businesses were shutdown to deal with the ravaging virus.
In Africa, even though we have not recorded as many cases of the covid-19 infection, there is already a significant impact on the economy of African countries. McKinsey & Co. project that the pandemic could, infact, “tip Africa into its first recession in 25 years”. By their analysis, as many as 33% of all employment in Africa may be impacted.
As many as 33% of all employment in Africa may be impacted
Bringing it home, Nigeria which had recorded a GDP growth rate barely 2% in 2019 had expected to reach 2.5% in 2020, before the pandemic. With the covid-19, economic growth is expected to plummet. According to the International Monetary Fund (IMF), the decline may not be less than 12%. Some of the contributing factors include:
- Drop in consumption caused by restrictions on movement of people, drop in expected future income, etc
- Decline in exports caused by disruptions within the related supply chain, border closure and fall in global demand
In the face of this pandemic within the Nigerian context, prices of commodities have risen, unemployment has increased especially for those in the hospitality, entertainment and aviation industries. Small and medium sized businesses have also been forced to scale down operations and layoff staff. To worsen the situation, oil prices slumped dramatically since the beginning of 2020 as a result in reduced global demand caused by the pandemic as well as the price war between Russia and Saudi Arabia in early March.
Notwithstanding the current gloom in the economy, like everything else in life, whatever has a beginning should surely have an end. Someday, hopefully soon, the pandemic will be over and the question will be what will be done to stimulate the economy back to recovery. Government and indeed, every citizen should not wait till the pandemic is over to start considering the lines of action post-pandemic. It is wisdom to start planning now.
The Federal Government of Nigeria, through the Central Bank of Nigeria (CBN) has rolled out some fiscal stimulus packages including the 50 billion Naira (approximately $128 million) credit facility to households and small and medium enterprises (SMEs) severely affected by the pandemic, initial intervention fund of 500 billion Naira (approximately $1.3 billion) for the manufacturing industry, downward revision of interest rates on all CBN intervention programs from 9% to 5% and a one-year moratorium on CBN intervention facilities. Other intervention programs introduced include those targeting the health sector, infrastructural development and prioritization of foreign exchange availability for the importation of machinery and critical raw materials required to foster a self-sufficient economy.
Post pandemic, we are likely to witness a surge in the number of micro and small enterprises as the demand for labor drops and the unemployed venture into businesses, some for the first time.
These efforts are commendable but are they enough? How quickly will they impact the SMEs? Can more be done? I believe that there are still more options which the government could explore especially to support the micro, small and medium sized enterprises (MSMEs). Research across the globe indicate that MSMEs contribute significantly to the growth of every country’s economy. Post pandemic, we are likely to witness a surge in the number of micro and small enterprises as the demand for labor drops and the unemployed venture into businesses, some for the first time. Therefore, the need to jumpstart the economy through the stimulation of MSMEs cannot be overemphasized. Some of the options which the government may consider include:
- Tax waivers to large corporations to motivate them to set aside funds to be used as grants to support MSMEs
- Emergency Intervention funds for the entertainment, aviation and hospitality industries. For example, an emergency wage subsidy could be put in place for this sector.
- Ramp up intervention funds for women entrepreneurs, young entrepreneurs, innovative and early-stage businesses
- Introduce temporary wage subsidy for SMEs to discourage them from laying off more staff
- Increase the liquidity ratio of commercial banks and mandate them to increase their lending activities
- Drop investment rates (treasury bills rate) to facilitate lower lending rates by commercial banks to the real sector as well as encourage more spending than saving
- Ensure there is ease of access to the loan facilities from the intervention funds
- Ramp up technology infrastructure in the country to foster digital transformation across businesses
- Leverage technology to improve the ease of doing business
The Nigerian government should take advantage of the debt relief offered by China and the financial support offered by the World Bank and the African Development Bank to fund some of these interventions.
What would these mean for an entrepreneur seeking business funding?
With more options of grants available through large corporations, chances of financing success is increased. In addition, lower interest rates mean that the burden of the cost of borrowing for new and growing businesses is reduced. Moreover, with lower interest rates for investments, investors may become more willing to take more risks in promising ventures.
Business ventures with significant use of technology and perhaps, affordable artificial intelligence are likely to stand a good chance of winning the hearts of investors, provided all other economic viability factors are met.
In the nearest future, entrepreneurs may, however, be required by investors and lenders to demonstrate their incorporation of the use of technology and digitalization in running their operations. In fact, investors may become quite interested in assessing business continuity plans in their decision-making process. Business ventures with significant use of technology and perhaps, affordable artificial intelligence are likely to stand a good chance of winning the hearts of investors, provided all other economic viability factors are met. Indeed, the future is digital and Nigeria will not be left out.
Culled from LinkedIn