Policies, technology and Nigerian MSMEs’ battle for survival in a pandemic
Policies, technology and Nigerian MSMEs’ battle for survival in a pandemic
It's pretty difficult to miss small stores selling everything from cookware to clothing and electronics on the streets of Nigeria. In some buildings, shops are stacked to the rafters with merchandise. The pandemic's arrival appears to have altered the perspective of some small business owners.
According to the Ministry of Industry, Trade, and Investment, there are 37 million MSMEs in Nigeria, and according to the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), they account for 96 percent of businesses in the country.
In the last five years, this sector has contributed up to 50% of the country's Gross Domestic Product (GDP) and employs up to 80% of the workforce.
These figures are not unique to Nigeria; the United Nations (UN) reports that MSMEs account for 90% of businesses worldwide and provide 60–70% of employment.
Despite their importance, MSMEs in Nigeria have been plagued by significant problems. Though the government has attempted to implement relief policies and business incentives, few businesses are likely to benefit, as the majority of MSMEs operate in the informal sector.
To put this in context, these are businesses that are not registered with the government or are not protected by government regulations. As these academic researchers discovered, determining the size of Nigeria's informal economy is difficult.
According to the NBS, 99.8 percent of MSMEs are informal, and only 10% are registered with the Corporate Affairs Commission (CAC) — primarily as business names.
According to academic researchers Roberto Dell'Anno and Omobola Adu, the rise of informal businesses in Nigeria is a result of Nigeria's employment uncertainty and rapid urban migration.
(Un)foreseen side effects
While the number of unregistered MSMEs may not appear to be a significant problem at first glance, a closer examination reveals that these businesses may be missing out on significant fiscal benefits and evading taxes.
For example, Nigeria's Finance Act exempts businesses with an annual revenue of less than N25 million ($61k) from income tax. On the other hand, it appears as though widespread government distrust prevents microbusinesses from registering and paying taxes.
However, the pandemic's arrival created a slew of additional problems for MSMEs worldwide, and Nigerian business owners faced systemic and infrastructural challenges.
Peter*, a small business owner in Lagos, Nigeria who operates a logistics and haulage service, explains that he began this venture as a side hustle during his National Youth Service Corps (NYSC) in 2018.
“Because finding work following service was uncertain, I needed to focus on growing my business to make ends meet. Even after I obtained employment, I continued to operate my business,” Peter explains.
Peter, who is an avid follower of business news in the media, claims that none of the government incentives that have been widely publicized have ever piqued his interest. For him, the objective was to "hammer" (make a fortune with his business) while avoiding prying government eyes.
However, the pandemic's arrival and the subsequent lockdown altered Peter's perspective.
“I began to doubt my entire business model, and I wished I could access the Central Bank loans I kept seeing advertised on television,” he muses.
Recall that the Nigerian Central Bank set aside a 50 billion COVID-19 relief fund, which it reportedly disbursed to qualified SMEs following some strange delays.
With government incentives met with widespread skepticism, some Nigerian businesses were forced to adapt.
The struggle for survival
Ope Adeoye, CEO of Nigerian fintech OnePipe, argued in an interview with Techpoint Africa that a typical trader who leaves home with $100 in his pocket would make enough for the day and consume it all on the same day.
Nigeria is considered one of the world's poorest countries by the World Bank, with 40% (83 million people) living below the poverty line. The informal economy has historically been a significant source of income, but lockdown enforcement in the country's major cities in 2020 threatens these livelihoods.
For the majority of people, the outcome was quite different. Fortunately, for some vendors of essential goods and services such as food and groceries, business continued as usual. However, this was not the case for others.
“For weeks, we were confined to our homes, unsure how long the food we had stocked would last until the lockdown was lifted,” recalls Efosa, a small-scale Lagos-based fashion designer. “Naturally, clothing ranked low on the scale of personal preference for the majority of people.”
Efosa claims that his son assisted him in selling his old printers on the classifieds website Jiji during the partial lockdown. He soon realized that business continued to thrive, just not in traditional markets.
“I began watching a lot of YouTube videos in search of tips on how to improve my skills. I was no longer required to generate ideas for fashion styles that I observed on the market. A substantial number of them were already online.”
Due to his aversion to visiting government offices, Efosa eventually discovered that he could register his business online, a necessary condition for obtaining the loans he sought.
Cynthia, an artisan soap maker based in Delta State, Nigeria, explains that her business remained largely unaffected by the lockdown. Orders, if anything, increased.
“However, I discovered that I could accomplish more with my business by enhancing my online presence. I wanted it to be more than just my WhatsApp status,” she explains.
Perhaps the most significant change we observed during our various interviews concerned Peter's logistics and haulage service.
“When I first started, I had only a business card and could only be reached via phone. Following my reflection, I hired someone to assist me in developing a website where people can simply use the tools and filters to place an order and obtain quotes,” he explains.
Peter's responsibilities expanded to include running ad campaigns on Google and Facebook and gaining an understanding of how other established businesses in his field operate. Peter began by registering his business name and assembling a team for his venture.
“It feels as if I'm starting a new business from scratch, but I'm looking forward to this new adventure.”
While neither Efosa, Cynthia, or Peter expressed much interest in government incentives, they unanimously agreed that several small businesses require the maximum amount of government support possible.
Charting a way forward
Today is World MSME Day, with the theme "MSMEs: Critical to an inclusive and sustainable recovery." According to the UN, achieving the Sustainable Development Goals (SDGs) and creating a more sustainable and equitable economy will require resilient and flourishing MSMEs worldwide.
According to the UN, pandemic recovery efforts are being framed as a chance to "rebuild better," with a particular emphasis on sustainability, resilience, and inclusiveness.
The Nigerian government has dominated headlines thus far with discussions of assisting businesses with relief funds, but this may not be the best approach.
“It has to be something more than money and tax breaks. Power, road, and security issues, as well as other adverse business conditions, will almost certainly eat up the money in a blink of an eye,” says Efosa.
Additionally, he claims that several people lack access to information about how to digitize their services, which could be a significant impediment to MSME-driven economic recovery.
To commemorate this day, we can all take a moment to recognize the importance of these businesses and the hardships they have faced during the pandemic.
*Upon request, the actual names of these business owners have been withheld. You may contact us if you wish to speak with any of them.
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