Nigeria confirmed its first COVID-19 case on 27 February 2020 in the state of Lagos. The federal government of Nigeria reacted fast, restricting movement within the region. By the end of March 2020, this directive was later extended to the state of Ogun and the federal capital territory of Abuja. Similar restrictions on entry and exit as well as movement within the remaining 33 states followed by the end of April 2020.
The nationwide lockdown was in full effect by the beginning of May 2020, which in turn led to disturbances in the business. Still in the process of recovering from the 2016 recession, with the COVID-19 pandemic the country’s economic activities had come to a halt. This plunged the Nigerian economy back into a new recession. According to the National Bureau of Statistics (NBS), this is Nigeria’s deepest recession in over four decades with the real GDP decreasing for two consecutive quarters in 2020: by 6.1% and 3.6% in Q2 and Q3 respectively .
Several key sectors of the economy witnessed a significant decline. The service industry experienced negative growth rates in Q2 of 2020 at -6.78% and -12.05% respectively. Over the course of the year, the service industry decreased by 2.2% and 5.9% respectively . Meanwhile, the agricultural sector experienced a relatively low impact, shrinking by only 0.14% against its performance in 2019.
The COVID-19 pandemic has caused a significant downturn in business activities and resulted in an income fall, which has adversely affected micro, small and medium enterprises (MSMEs). Larger enterprises saw a decline in their profits and turnover of goods as well. Consequently, as businesses across the country responded with staff layoffs to stay afloat in the new environment, the unemployment rate increased to 33% in Q4 of 2020 from 27% in Q2.
In this article, we look at the impact of the COVID-19 pandemic on small businesses in Nigeria, the challenges they faced, and possible steps to overcome the situation. The data is based on the Lockdown Economy, the field research by Think Tank AlterContacts where small business owners shared their journey through the pandemic in open interviews.
Lack of financial resources
Small businesses providing non-essential services and goods suffered from the pandemic and decline in demand. Some were unable to pay salaries to their workers and had to find new strategies to cover the costs, including paying half of the salary every month or paying at the end of two months. The owner of a fashion business in Benin in Edo state, had to partner with freelance designers and tailors in order to ease off staff salary payment .
Many businesses struggled to pay the rent for the workspace as they had exhausted most of their personal savings trying to sustain the business and pay salaries.
Call to Action
In order to support the country’s economy, the Nigerian government set up a credit fund of 50 billion nairas through the Central Bank of Nigeria. This fund was targeted at households and small enterprises.
Although the government did set up some credit funds for small enterprises, not all such enterprises had access to these funds. Some of them were simply not aware that it was available. It is paramount that the government provides access to credit or loans, and possibly targeted funds to support enterprises in struggling sectors. This will help boost the country’s economy.
According to the owner of a paint manufacturing business in the state of Ondo, one of the challenges he faced during the lockdown was a lack of financial resources to sustain the business. When asked what he needed for his business to continue, he simply said “money” . The government and other agencies need to come up with new ways in which these small businesses can access soft relief loans. Special attention should be given to publicizing the availability of these funds.
In Lagos and some other parts of Nigeria, small businesses suffered a dip in the demand for their products. Many small business owners ended up with no sales. According to the entrepreneur selling makeup and beauty products, nobody requested her products and services during the lockdown. The owner had to use the lockdown period to rest and continue learning .
Another example of low demand was in the state of Lagos. This region has some of the largest markets in the country, and people travel down to these markets from across the country. However, as a result of the restrictions, there was a significant reduction in the demand for goods.
According to a report by Private Enterprise Development in Low-Income Countries (PEDL), Lagos traders serve the demand from throughout Nigeria and were heavily impacted by the ban on interstate travel that was in place until July 2020. Traders reported having fewer customers from outside Lagos in 2020 as compared to 2019 .
Call to Action
By the first week of June 2020, the government had eased the lockdown and interstate travel ban but imposed a curfew that would start from 8 pm to 6 am daily, thereby making it easier to transport goods and products across the country. Unfortunately, this was not completely effective.
Some ways to tackle this situation could include:
Providing logistical support for small businesses in order to move their products across the country and overseas with ease.
Investing in new technologies that make it easy to transport goods and products across the nation, thereby limiting human movement. A good example of this is the use of drones for delivering items.
Helping small business owners move their products and services online. The pandemic has shown us that businesses need to leverage the power of social media and be able to reach a wider range of customers online.
Temporary business closures
Many small businesses had to temporarily close down their business operations as a result of the COVID-19 pandemic. The decline in demand for products and services was one of the main reasons for the closure of these businesses. A beauty and spa business owner had to close down operations during the lockdown because her products and services were no longer in demand as no one would go out due to the movement restriction .
Half of the small business owners in Nigeria interviewed by Think Tank AlterContacts were not operating their businesses during the lockdown due to low demand. 15% were somewhat operational, posting content on social media and engaging their customers. Others used the time away to gain new skills online in order to have a competitive advantage as soon as the lockdown was over.
Call to Action
On the first of April, the Nigerian Electricity Regulatory Commission (NERC) suspended the payment of new electricity tariffs scheduled to commence on the second of the month, citing poor electricity supply, wide metering gap, and the impact of the pandemic. This eased operational costs on electricity for businesses and households.
Alternative actions to mitigate the effects of the pandemic could be
Nigeria’s economy has suffered due to the COVID-19 pandemic. The country was thrown into the worst recession in four decades. While GDP indicators revealed the impact of the pandemic in the aggregate numbers, they did little to inform policymakers, business leaders, and international partners on the pandemic’s impact at the ground level, especially on the small businesses and micro-enterprises that make up the Nigerian economy. A more nuanced and granular understanding of the business environment in the country is necessary. Particularly, of the effects of the downturn on small businesses.
The article highlights some of the primary challenges that small businesses faced during the lockdown. This included the lack of access to financial support, inability to pay the staff, temporary business closures, lack of demand, and a decrease in the production of goods and services. In addition, enterprises have been affected by restrictions of movement, which disrupted supply chains, leading to a decline in exports and lack of access to raw materials.
Targeted interventions to alleviate the suffering caused by the pandemic will be necessary in order to shield small businesses from the worse effects of this unprecedented event. Addressing these challenges will help accelerate the economic recovery and create a business environment that is more equitable and in line with the Sustainable Development Goals (SDGs) of the United Nations.
Written by Afolabi Ajala
Edited by Steffi George Manavalan
Editor-in-Chief - Julia Skupchenko
1 - National Bureau of Statistics (NBS). Available at https://nigerianstat.gov.ng/elibrary/read/1241076
2 - Think Tank AlterContacts, Lockdown Economy Nigeria in a fashion business. Available at https://www.youtube.com/watch?v=nASAineCVWA&ab_channel=AlterContacts
3 - Think Tank AlterContacts, Lockdown Economy Nigeria in a paint company. Available at https://www.youtube.com/watch?v=qfF6HAsr1oQ&ab_channel=AlterContacts
4 - Think Tank AlterContacts, Lockdown Economy Nigeria in a Makeup Brand with Zainab Adebayo. Available at https://youtu.be/2Q8viAiR3tM
5 - Private Enterprise Development in Low-Income Countries (PEDL). Available at https://pedl.cepr.org/
6 - Think Tank AlterContacts, Lockdown Economy Nigeria in spa and beauty business. Available at https://www.youtube.com/watch?v=qbI9WFyv2nk&ab_channel=AlterContacts
3 - How COVID-19 has affected Lagos traders. Available at https://pedl.cepr.org/publications/how-covid-19-has-affected-lagos-traders-findings-high-frequency-phone-surveys