The Impact of COVID-19 on SMEs in Nigeria


This pandemic has given virtually every one of us more than enough challenges to grapple with. Schools have been closed for nearly four months now and on top of the financial strain they currently shoulder, parents have been forced to either homeschool their kids or watch them idle away the days. And even as some countries have begun to ease the lockdown, the ripple effects of this crisis have jolted us all jarringly.

Ours is one of the largest economies in Sub-Saharan Africa and even though Nigeria relies majorly on oil, her economy is also sustained largely by small and medium scale enterprises (SMEs). SMEs in Nigeria are non-subsidiary, independent firms/organizations which employ fewer numbers of employees with an annual turnover not exceeding Five Hundred Thousand Naira (N500,000). The attraction to the owners of SMEs in Nigeria lies in the fact that these kinds of businesses are less capital intensive as well as highly flexible in filling the need in various niche markets.

As much as these small businesses are often neglected by the bigger dogs in the game, they are quite literally the backbone of practically all developed economies because they contribute immensely to employment, economic and export growth in these nations. You might not know this but SMEs in Nigeria contribute a whopping 48% of our national GDP, account for 96% of businesses and provide for 84% of employment of our citizens. With a total number of about 17.4 million, they account for about 50% of industrial jobs and nearly 90% of the manufacturing sector, in terms of the number of enterprises.

According to the 2010 Survey report on SMEs in Nigeria conducted by the National Bureau of Statistics, the SME sector in Nigeria is strategically positioned to absorb up to 80 percent of jobs, improve per capita income, increase value addition to raw materials supply, improve export earnings, enhance capacity utilisation in key industries and unlock massive economic expansion and GDP growth.

These SMEs also play an important role in the political economy because they help to promote and strengthen reforms. They sum up the commercial activities in our country regardless of the sector involved because they produce what we need, transport them to consumers all over the country and do all the other necessary tasks in between. They perform all these tasks despite challenges such as inadequate working capital, stiff competition from larger companies, difficulties in sourcing raw materials, low capacity utilization, lack of management strategies and the poor educational background of operators.

The point I’m trying to make here is that despite the significant contribution of SMEs to the Nigerian economy, these many challenges still persist and hinder the massive development of this sector. When bank loans are given, most of them find it hard to access the funds as a result of insufficient collateral, or due to the category of funding the opportunities belong to. And all these challenges were before the current pandemic brought us all to our knees.

Back in 2017, the National Bureau of Statistics (NBS) reported that Nigeria’s unemployment rate rose to 23.1% and underemployment rose to 16.6%, with over 20 million Nigerians currently unemployed. Well, when you consider that SMEs in Nigeria play pivotal roles in the provision of employment, you are bound to surmise that this figure is likely to increase because these businesses have been hard hit as a result of the pandemic.

With domestic and international restrictions on movement hampering trade and travel, most of these businesses have had to stop, reduce or alter their operations. Productivity has become even challenging, and even though we are a resilient people, the effects of this pandemic will likely linger long after the crisis has been averted, especially on SMEs and the labour market.

Since the lockdown became our new normal, most of these SMEs have been unable to lay their hands on the raw materials they need. Some are already shutting down since there is no material for production.  Lots of containers have been delayed at the seaports and shipping dates have been repeatedly postponed on account of COVID 19. Even micro businesses that buy and sell cannot get supply of the goods they buy because most of them are majorly imported from China.

Most of these SMEs operate on a day to day level and so this entire pandemic situation has been nothing short of a nightmare for them. Their investments for the first half of this year have all but washed down the drain in one failed swoop. In the manufacturing sector, as factories and cities have been shut down and a large portion of the labour force demobilised.

Perishable products have gone to waste in warehouses or been sold off at pittances. Distribution of non-perishable goods is practically at a halt and transportation businesses are stuck with vehicles in their parks all day long. As if all these aren’t enough, there are increasing reports of looting in various states and as much as this development affects us all as a nation, it makes an already bad financial situation worse for the SMEs in this country.

Most of these small businesses are understandably ill-equipped to handle a crisis of this scale, and so for many the focus has rapidly switched from profit-making to survival mode. It’s a downright depressing situation but what else can they do?

The solution to this current predicament of SMEs in Nigeria can be broadly classified in two major tiers. On the one hand is the best approach for these businesses going forward while on the other hand, we must examine how the Nigerian government and necessary agencies can help. For SMEs businesses already in distress, the priority should be survival, and all business goals and actions taken from now till further notice must be geared towards that. Post-COVID-19 recovery priorities in every aspect of the business value-chain must be centred around revitalizing the enterprises first because consumer needs are bound to change.

On the part of the Nigerian government, a coordinated and highly intentional response is expedient and long overdue. In this regard, I should probably point out here that as a means of encouraging SMEs businesses and other enterprises to retain their employees at this time, the government has come forth with an Emergency Economic Stimulus Bill 2020.

This bill, more or less states that any company that does not retrench staff between the 31st of March 2020 and the 31st of December 2020 (except for reasons related to a breach of Labour Act) will receive a 50% tax refund. This is a positive step and may encourage businesses to retain their employees and stay in business but at times like this SMEs and their owners really need to start looking at options for alternative sources of income.  

The government should be keen to keep SMEs in Nigeria afloat because, given their significance to the Nigerian economy, support for these businesses can not be overemphasised. Their contribution to the growth of the Nigerian economy cannot be understated as they drive the economic and industrial transformation of the country. They are the foundation of our commercial life as a nation and they have been some of Nigeria’s strongest footholds all these years. 

If we are to make any real headway after this pandemic, it is crucial that the SMEs business sector receive all the help it may need.

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