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Economic effect of COVID-19 killing us more than the pandemic itself — Small business owners

Jesusegun Alagbe

One bright morning in early March, a Lagos-based real estate agent, Mr John Adewale, got a call from a potential client wanting to buy a property worth N15m at Oribanwa in the Ibeju Lekki area of Lagos. The deal was to be finalised by the end of the month and Adewale’s firm was to make at least 10 per cent of the property value – that is, N1.5m – in commission.

A day after he received the call, another potential client seeking to buy a four-bedroomed terraced duplex in the same area called Adewale. Without hesitation, the real estate agent gave the value of the property as N23m, hoping to make a decent commission of N2.3m. But the buyer postponed the property tour and possible purchase till April.

However, Adewale got disheartening calls from his two potential clients earlier during the week as they informed him of disinterest in the property. “I had been expecting the bad news, though,” he said. “But I was still praying and hoping the deals would go through.”

Unsurprisingly, Adewale’s potential clients attributed their refusal to buy the property again to the coronavirus pandemic and the attendant shutdown of businesses in Nigeria.

“They said their companies could not afford to make big purchases for now as they were not making income due to the lockdown,” Adewale said low-spiritedly as he spoke to our correspondent via the telephone.

Although his potential clients said they might still consider buying the property again when commercial activities resumed, Adewale said he could not depend on such promises again.

“The past few months had been bad before the potential buyers called, and I was hoping my firm could make some money to ease the pain. I had spent a lot on marketing and salaries and I was hoping to recoup expenses with the sales, then I got the bad news. Everything is down now due to the coronavirus pandemic,” he lamented.

Also, the chief executive officer of a real estate company in Ogun State, Mr Kazeem Ganiyu, complained that the lockdown had wreaked havoc on his business.

Clients who had booked property tours before cancelled their appointments, a development which meant that no money would be made until the resumption of commercial activities in the property market.

Ganiyu said, “There is not much money in circulation right now. Though there’s property but clients have put inspections on hold for now. Those who intended to buy property before are now drawing back. They don’t want to spend the money now.

“Even those who wanted to rent houses have suspended house tour and payment. The situation is really affecting us.”

Ganiyu also said some property owners had started putting up their property for sale so they could have some money in case the pandemic and the lockdown continued.

“Yes, some are selling their property in distress. A property worth N20m is now being valued at N12m or less,” he said.

Although Ganiyu said these developments were expected, they were saddening because of their economic effects.

“As it is, it’s bad times for us. We have salaries to pay, but you know it’s when we make profit that we can pay. We are also incurring expenses,” he said.

Coronavirus and the economy

It’s been trying times for the world since coronavirus (COVID-19) broke out in Wuhan in the Hubei Province of China on December 31, 2019.

From China, the virus had spread to other countries of the world, infecting at least 1.6 million people with 90,000 deaths and 366,000 recoveries as of Friday. On January 30, 2020, the World Health Organisation declared the disease a public health emergency. On March 11, 2020, the WHO declared it a pandemic.

As of April 10, the virus had spread to 210 countries and territories around the world as well as two international conveyances, namely the Diamond Princess cruise ship and the Holland America’s MS Zaandam cruise ship, as well as the United States aircraft carrier, USS Theodore Roosevelt, where over 400 sailors out of about 5,000 crew members tested positive.

The US was the worst hit globally with over 469,000 cases and over 16,000 deaths as of Friday. Spain followed with 157,000 cases and 15,000 deaths. Italy had 143,000 cases and 18,000.

As the pandemic spreads across the globe with no vaccine yet, cities had been locked down, human traffic restricted, schools shut, religious houses closed, airports shut, public facilities closed down, international travel bans enforced.

Markets, except those selling essential commodities, had also been closed. International and national events in every sector of the economy either postponed or cancelled. Meanwhile, Nigeria recorded its first coronavirus case on February 27 when a 44-year-old Italian entered the country on a business trip.

As of Friday, there were 288 cases. While 51 had recovered, seven deaths were recorded, according to the Nigeria Centre for Disease Control.

Data from the NCDC showed that the top three states worst hit by the coronavirus were Lagos, with 158 cases; the Federal Capital Territory, 54; and Osun, 20.

To curb the virus spread, the President, Major General Muhammadu Buhari (retd), on March 29 ordered the lockdown of the FCT, Lagos and Ogun states. Some state governors had also adopted measures to curb the virus.

Counting the cost

Due to the lockdown amid low oil price and a cut in the 2020 budget by 20 per cent on capital project across ministries, small and medium business owners have already started counting their losses.

Businessman and owner of Lagos-based Club Uno, Mike Nwogu, popularly known as Pretty Mike, said it had not been easy since the shutdown previously announced by the state government started.

He said, “This is the third week that we’ve been closed since the Lagos State Government asked us to close to check the spread of coronavirus. And it’s not been easy. I don’t think it’s been easy for any business, whether in Lagos or anywhere in the world.

“Many workers depend on daily tips from customers, so it’s not been easy for them too. I had a meeting with my workers and I told them to stay alive. When we’re alive, we can return to business.”

Estimating that the entertainment industry had lost huge money in the past few weeks of shutdown in Lagos, Nwogu said what was most important now was for the crisis to be over.

“That’s our wish for now. We are asking – is this crisis going to be for two months, or three, or six? In many countries like Dubai, (United Arab Emirates), United States of America and others, business shutdown is going to around two months now. We are just starting in Nigeria, so we are scared. We wish that this coronavirus could be eradicated from the world,” he said.

Also, the Proprietress of a school in the Agege area of Lagos, Mrs Victoria Ajibola, said the pandemic had really taken a toll on school owners.

She said, “In many schools like ours, some parents pay their children’s tuition fees when the term is over, and because we had yet to finish the term when the lockdown was announced, we had a lot of money being owed us. Understandably, many parents can’t pay now. What is on the mind of most people now is how to survive this crisis.

“Meanwhile, we have expenses to incur such as salaries and utility bills. We are praying this crisis go soon so we can resume because we will keep incurring these expenses whether the school is operating or not.”

Ajibola added that businesses like schools usually depended on bank loans to operate, lamenting how difficult it might be to repay such loans if the lockdown continued because of COVID-19.

“Even if banks give us more time to pay, it doesn’t take away the fact that we would still pay. In fact, we would still need to pay accumulated interests on loans. These are the areas the coronavirus pandemic is hitting us,” she said.

Also speaking to Saturday PUNCH, a logistics business owner in Abeokuta, Ogun State, Mrs Kemi Omigbodun, said it was sad the pandemic surfaced about a year when she started her company.

“We have 30 delivery men in the company and we have to pay their salaries whether we like it or not. You can’t just abandon your workers in a crisis. We took a bank loan at the beginning of the year and we are expected to be repaying. It was a bad time to take the loan, perhaps,” she lamented to our correspondent on the phone.

Despite the setback, the entrepreneur said it was not a time to blame anyone.

“Sometimes you just want to blame China for causing the world this mess or even the Federal Government for not banning international flights into Nigeria on time to check the coronavirus spread, but it won’t do any good. The best solution right now is to pray and hope,” she said.

Owner of a fitness club in the FCT, Mrs Hadiza Kareem, said the coronavirus lockdown would affect her company’s income in April and beyond if the pandemic continued.

“Many trainees had already cancelled their subscription for this month. Most of them said they would need a lot of money this time round to stock up household essentials like foodstuff.

“Their plight is reasonable and the development will surely affect the company. We have since shut down as the President directed and the problem with most companies like ours is that some expenses like salaries and rent are still going to be incurred whether we open or not,” she said.

Mrs Funmilola Olukoga-Adu, who runs a confectionery business from her home in the Arepo area of Ogun State, said before the lockdown, she used to bake up to 20 cakes for clients per week, aside from other confectionery products.

“However, I could do only five this week,” she said.

The entrepreneur said even though she was getting orders from clients outside her location, her major challenge was delivering the products to them.

She said, “The advantage of working from home has helped. I do my job from my kitchen and I still get orders. The major issue I have is in terms of product delivery due to the lockdown.

“But within my community in Arepo, Ogun State, I have been making confectionery products, which my clients come to pick up. It’s unfortunate I can’t deliver outside my location due to coronavirus fears and logistics problem.”

Nevertheless, the entrepreneur said she had added more staple products like bread to her product line.

“I now bake bread and through this idea, I’ve been able to get more clients within my area who need bread during this lockdown. Many of them are not comfortable going to stores to buy bread; they prefer to come to a less rowdy place like a home to get it,” she said.

Similarly, the owner of a phone retail company in Ikeja Computer Village, Lagos, Mr Ken Asukwo, said the economic effect of the coronavirus pandemic and the resultant lockdown had been biting.

“Closing the shop for about three weeks now has brought some hardship, especially when you think of paying staff salaries. No one saw this coming. This year has been bad.

“Many of us looked forward to having a good time in 2020; we thought it’s a significant year. It’s significant, but in a bad way. My goods are stuck in China. Sales are not there again for now. It’s really bad times,” he said.

‘Many small, medium businesses will collapse’

The National President of the Association of Small Business Owners of Nigeria, Dr Femi Egbesola, said many small and medium businesses might not be able to survive the coronavirus crisis.

“In these trying times, small and medium businesses will be the worst hit. We are the most vulnerable when a crisis like this happens and I can assure you that quite a number of small and medium businesses will go under after this crisis,” he said.

Egbesola said the small and medium business sector had already started losing N9bn every week due to the lockdown.

He added that in the past three weeks when the Lagos State Government announced business shutdown, before the Federal Government’s lockdown directive, the sector had lost an estimated N27bn.

He said, “Big businesses have a higher chance to survive than us. You can see banks and big manufacturing companies are still operating (even though not on a full scale). But look at the shops around you, most of them are all locked up. Agricultural and agricultural value chain businesses are going to be worst hit, as well as the manufacturing SMEs, which rely heavily on imported raw materials and exchange rate, which has since crashed.

“For instance, when we talk of the bottled and table water sub-sector in the SMEs industry, the bottle they use is made from resin. Now, the price of resin has risen by about 600 per cent within the past 10 days and if manufacturers add that amount to the unit sale price of bottled water, nobody would buy.

“The artisans are also suffering seriously because it’s when people are comfortable that they think of building houses and calling on artisans like electricians, builders, bricklayers and the rest. They are all jobless now. The economic effect of this coronavirus is killing people more than the pandemic itself.”

Although the Central Bank of Nigeria recently introduced a N50bn stimulus package for households as well as micro, small and medium enterprises badly affected by the COVID-19 pandemic, Egbesola said the package was ambiguous, saying the government ought to give a breakdown of the percentage targeted for each sub-sector.

He said, “If you are giving out N1bn, for example, you should have a breakdown of the percentage targeted at each sub-sector of the SMEs sector.

“Ideally, we should know what percentage is for the micro business sub-sector, the percentage for the small business sub-sector, and the percentage for the medium business sub-sector. Breaking down the funds will allow for targeted growth.”

The apex bank had recently unveiled the N50bn relief fund in response to the pandemic, which had led to unprecedented disruptions to global supply chains, drop in global crude oil price, turmoil in global stock and financial markets, restriction of movement of persons in many countries, among others.

The CBN explained that those who qualified for the fund were households with verifiable evidence of livelihood adversely impacted by COVID-19; existing enterprises with verifiable evidence of business activities adversely affected as a result of the pandemic and enterprises with bankable plans.

According to the CBN guidelines, businesses covered under the scheme included agricultural value chain activities; hospitality (accommodation and food services); health (pharmaceuticals and medical supplies); and airline service providers.

Others were the manufacturing/value addition; trading and any other income-generating activities as may be prescribed by the CBN.

According to findings, the apex bank’s gesture was in line with what obtains in some countries of the world also hit by the coronavirus pandemic amid the International Monetary Fund’s announcement that the global economy had slipped into recession.

For instance, in Germany, the government has provided $1.1bn in credit for businesses and companies of all sizes. The government had a week earlier said the KfW had around $543bn to help support its economy.

Spanish Prime Minister, Pedro Sanchez, had also announced measures worth $219bn to help companies and protect workers and other vulnerable groups affected by the coronavirus.

Portugal also unveiled a $10bn aid stimulus package, which included state-backed credit worth $3.3bn to help companies in sectors like tourism, hospitality, textiles, wood, micro and small enterprises.

The Portuguese government added that the country might implement a moratorium on loan repayment and that talks were underway with several banks.

France also pledged a $50bn aid package for small businesses in addition to tens of billions already promised for French workers forced to stop working because of shop and restaurant closures and strict new quarantine measures.

The Chancellor of Exchequer in the United Kingdom, Rishi Sunak, also announced a $14.5bn emergency fiscal stimulus package to tackle the coronavirus pandemic.

The UK is also offering state-backed loans worth $400bn for businesses in the retail and hospitality industries struggling as a result of the coronavirus-induced lockdown.

Canada’s Prime Minister, Justin Trudeau, also unveiled an aid stimulus package worth $56bn to support businesses and provide temporary tax relief.

The US President Donald Trump also recently signed a $2tn coronavirus relief bill after the Congress passed it. The package would see thousands of businesses and millions of workers being placed on federally funded life support.

Experts offer survival tips for affected small businesses

The CEO of Cowry Asset Management Limited, Mr Johnson Chukwu, said when the lockdown was over, small businesses needed to restructure to survive.

He said, “The options available are very few. When the shutdown is over, the basic thing every business should do is to restructure their operations to reduce the variable cost to the lowest level. The challenge is that if you’re a high-cost producer, economic downturn affects you severely.

“So the concept of sustainable business is to make sure the cost structure is quite low. For small and medium businesses, they should have a cost-sharing arrangement with other business operators that are close to them.

“For instance, if possible, small businesses within the same area could decide to share energy expenses by having a single generator and sharing the cost of operating it, instead of having separate generators.”

Stating that there was no guaranty that commercial activities would pick up immediately when this crisis was over, especially as the price of crude oil had crashed as well as high inflation, Chukwu said only businesses with low operational cost would survive.

“Cost containment and resource sharing are the key factors for survival for any business after this lockdown,” he said.

Chukwu added, “Meanwhile, the CBN has set aside N50bn for small and medium businesses that are verifiable and are affected by COVID-19. So businesses should look at the guidelines to apply for such funding.”

A Lagos-based economist, Mr Babatunde Abrahams, also noted that small business owners trying to weather the pandemic would face a financial blow afterwards.

However, he advised that such businesses could apply for disaster loans or relief funds from the government.

“Small businesses also need to renegotiate their terms of contracts and debt. For example, they could ask their landlords for more time to pay their rent. They should also ask banks to temporarily defer interest payments on outstanding debt,” he said.

Also, an entrepreneur and business development expert based in Lagos, Mrs Bunmi Thomson, advised small business owners to seek innovative ways to survive the lockdown.

She said by most accounts, small business owners would suffer the pandemic, hence they needed to make drastic moves to survive.

To get their businesses into survival mode, Thomson said small business owners must prepare for tough times ahead.

“Even after this crisis, the economy will take time before recovering. The global economy has entered recession and recovery won’t happen overnight.

“So like their customers are doing right now, small business owners also need to be cutting down expenses. They should reduce and slow down cash outflows while they increase and speed up cash inflows,” she said.

Thomson said SMEs should get their teams to be more productive than ever before.

She, however, warned against cutting much business expenses that could affect the way they could service their customers.

“Now is the time you should remind your customers why they chose you in the first place. Consumers spend differently in a crisis. They want to get more value for their money. If you can position your business as offering great value, you will outlive this crisis,” she said.

Culled from Punch

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