22m SMEs Gasping for Breath

Despite efforts of the Federal Government to wrestle the economy from the jaws of recession, about 22 million Micro, Small and Medium enterprises (MSMEs) in Nigeria are now facing extinction due to insufficiency of the stimulus package dispensed to the private sector.

Government had planned to spend about N2.3 trillion to support cash-flow in the private sector which has been battered by the impact of COVID-19, but some research reports and the organized private sector, OPS, groups have indicated that the various financial stimulus disbursements have not reached the targeted businesses.

Findings show that most of the disbursements are yet to be made, a situation that may have created anxiety amongst targeted recipients.

Some OPS leaders said that even the disbursements already made did not get to a significant number of the businesses they were meant to support. Consequently, OPS fears that in addition to millions of businesses that have already failed in the first half of this year, several million more may collapse before the end of the year.

The survey reports by Fate Foundation, a non-governmental, enterprise development organization, and BudgIT, a public sector-focused information house, show that about 53% of the nation’s estimated 41 million MSMEs are presently on the verge of collapse.

Specifically, the reports noted that 22.8% of businesses surveyed said they were not sure they will survive the pandemic, while 30% were emphatic that their businesses will not survive, making a total of about 52.8% under threat of extinction post-COVID-19. Only 47.1% of respondents in the survey were positive that their businesses will survive.

MSME sector stakeholders are lamenting the neglect of the sector which, according to them, was already contending with many challenges before the pandemic.

Prince Degun Agboade, President of National Association of Small and Medium Enterprises (NASME), said many MSMEs are going into oblivion, while Mr Muda Yusuf, Director-General, Lagos Chamber of Commerce and Industry (LCCI), said government needs to ramp up intervention support for the sector if it hopes to head-off the looming recession.

According to the survey report by Fate Foundation and BudgIT, most of the entrepreneurs (94.2%) surveyed reported that they did not receive any form of support, while a total of 94.3% reported being negatively impacted by the pandemic, particularly in the areas of cash-flow, sales, revenue, salaries, and wages.

The report stated: “A large number of the respondents were entrepreneurs operating in the agricultural sector (21.8%), fashion (14.3%), service (12.3%) and manufacturing (6.6%t). 44.7% of the respondents were young people aged 18 to 35 years.”

Government’s recent economic stimulus package from the Central Bank of Nigeria, CBN, and the newly launched National Economic Sustainability Plan, NESP, have targeted to channel resources to the MSME sector especially the young entrepreneurs under the Youth Investment Fund, YIF, for which N75 billion has been earmarked.

Financial impact Continuing, the survey reports stated: “About 74 per cent of the businesses reported their cash-flow being significantly affected.

Only 13 percent of the respondents stated they had enough cash-flow to survive for one to three months; 33 percent had enough cash-flow for one to four weeks and 27 per cent for one to seven days.

“A good number of these entrepreneurs reported that they would leverage savings and reserves (53.7%), others were looking to access loans (13.8%) or turn to family and friends (9.7%).

“The inability of most businesses (76.4%) to offer their products or services virtually may have contributed to worsening the tight cash-flow situation.

“About 80% of the businesses reported that they were likely to lay off staff, citing prolonged period of the pandemic (24.4%), inability to pay staff (22.6%), poor sales (18.2%) and restricted movement (17.1%) as top reasons influencing their decision to lay off staff. 82.8% of the businesses indicated that they will likely lay off one to five employees.” Areas of supporting the respondents in the survey are all eager to access the government’s intervention facilities in many forms.

According to the survey report, “Most businesses reported needing support with cash-flow (72.1%) and sales (67.7%) and will like the government to provide support in the area of funding (89.4%) and access to markets (33.8%).

“Similarly, 74% of the businesses will like the private sector/enterprise support organizations to provide funding and business support (62.9%).” Stakeholders react.

Meanwhile the private sector groups who spoke to Financial Vanguard against the backdrop of the survey report and the COVID-19 business impacts expressed concern that government is not doing enough yet to stem the slide in business fortunes and help the economy pick-up faster from the slump.

NASME President, Agboade, agreed with the findings of the survey, noting that the figure on the impact of COVID-19 on MSMEs was correct.

Speaking to Financial Vanguard on this, he stated: “It should even be more than 94.3% by now. Many MSMEs are going into oblivion because they cannot even afford to keep the facility where they are operating from.

“From the survey which showed that 30 percent MSME operators said they were certain their businesses will not survive the pandemic and 22.8 % noted they were unsure, this means that, in total, about 53%t of them may not survive the pandemic. The impact is substantial.” Agboade also said that the report of 94.2 % of respondents not receiving any support from the government to mitigate the impact of the pandemic is true.

He said: “NASME has members in 33 states of the federation including FCT. About 400 of our members applied, but only 16 were given, with some getting as low as N50,000 and some N100,000, out of the maximum peg of N20 million per MSME.

“When I asked the Managing Director of NIRSAL Microfinance Bank (the channel for the disbursement of the government’s COVID-19 N50 billion MSME support fund) at a forum, how many people received the fund, he said it was about 95,000 beneficiaries nationwide. This comes to an average of less than N530,000 per beneficiary.”

Recall that CBN in March 2020 introduced a N50 billion Targeted Credit Facility for households and SMEs as palliatives, which analysts contend is insufficient to support the over 41 million MSMEs in the country. Also commenting on the survey report, LCCI’s D-G, Yusuf, stated:

“We have to reckon with the fact that we have over 40 million MSMEs in the country. It is almost impossible to reach a significant percentage of this number. It is therefore about the materiality of this intervention. “Perhaps, the government needs to do a lot more in deepening the interventions to ensure more impact.”

Opportunities despite the depressing data from the survey, many entrepreneurs surveyed were able to identify opportunities despite the negative impacts of the pandemic such as the creation of new products/services (49.7 percent), expansion/diversification (42.3%), innovation/disruption (39.3%) and partnerships (34.8%).

 Recommendation Against the ray of optimism outlined in the survey, Fate Foundation and BudgIT made recommendations for the government and key entrepreneurship ecosystem stakeholders who are designing policies and business support programmes to build and enable resilience for Nigerian entrepreneurs.

They stated: “Governments at the federal and state level will need to establish more COVID-19 MSME funds including: setting up grant programs in partnership with private and development sector partners targeted at vulnerable MSME segments and; Low-interest financing to support essential sectors and industries significantly impacted by the crisis and attendant lockdown.

 “Provide non-financial support through deferrals on tax payments, delay collection of licenses and permit fees and implement tax filing extensions for business related taxes.

“Given that MSMEs provide up to 70% of employment support, a payroll support incentive particularly targeted at MSMEs who have been compliant with remitting their Personal Income Tax would be a welcome incentive for businesses to try to retain their employees and keep them on the payroll.

“In addition to concerns about the sufficiency of the established COVID-19 Intervention Funds for MSMEs, easing accessibility to financing programmes has to be a key criterion for success. For instance, a major application criterion for accessing the TCF fund is the “BVN number” and this might be an impediment for unregistered micro businesses that do not have bank accounts and BVN numbers.

“Funds must be designed in such a way that it takes into consideration the dynamics of the different types of MSMEs particularly those within the micro segment who operate in the informal sector; may not speak English as their first language; have limited digital literacy and internet capabilities to access the online funds and; be unaware of the different policy programs and opportunities to support them at this time.”

Ayooluwa Joshua