Small businesses hate national strikes, elections and anything that means they won’t have to trade or do business. It’s easy to understand why.
Owners of these businesses rely on every single working day to survive. They need to make sales, pay their bills, pay suppliers, pay salaries and even pay the government. Add the pressure of growing customer/user base, exponential revenue growth especially If you are a burgeoning tech startup and you realise why every working day matters. The Coronavirus induced shut down is posing an existential threat to the survival of Startups and SME’s in Nigeria.
Last Friday, the central bank devalued the naira from N307/$1 to $360/$1 while it instructed BDC’s to sell dollars at the retail end at N380/$1. The decision became imperative after oil prices crashed below $30 as the oil war between Saudi Arabia and Russia raged on. It’s going to get bloodier. The last time Nigeria faced a crash in oil prices, the economy went into a recession. Economic naysayers already believe another recession is inevitable especially if the government goes ahead with its planned shut-down.
The global pandemic caused by the Covid-19 virus has also brought the global economy on its knees. Nigeria is not exempted, with confirmed cases topping 50 including one death. State government have decided to take drastic decisions to contain the spread. Anambra State government announced a state-wide shut down while Lagos State is reportedly shutting down the state by Thursday. Nigeria Federal Executive Council has suspended its weekly meetings just as it reported that the president’s chief of staff Abba Kyari had contracted the virus. None of this bodes well for the Nigerian economy, especially for startups.
Most Nigerian tech startups face a dire future and how they manage through this unprecedented crisis could determine whether to survive or die. The odds of dying seem to stack high and above survival and the reasons are obvious. For businesses who rely on daily sales to survive a partial or total shut down of the economy will be devastating to their bottom line. Sales will plummet for the period of a likely shut down as Nigerians spend of food and medical supplies cutting off every other thing which they deem non-essential. Employees can’t come work and even if they work remotely customers will not be available to purchase. Nigeria’s consumption expenditure will probably take a major hit as wages and salaries dry up assuming a countrywide shut down is implemented.
As more Nigerians stay at home, so will their ability to spend on goods and services sold by Startups and SMEs. While they rack up unsold inventories they still need to deal with pending and recurring expenditures. Salaries must get paid, rent obligations will be due and bills outstanding will have to be cleared. Supply chains are also reportedly cut off with countries around the world shutting down airports and their borders. Reports suggest most major markets like Alaba are fast running out of stock. Startups who rely on these supply chains will suffer immense losses induced by their inability to stock inventory and compete with sales.
With the exchange rate effectively devalued, Startups will see their cost shoot up while they figure out how to soften the blow through price increases. Very few will survive the effect of a devaluation. Accessing forex will be daunting making it difficult for them to pay for services crucial to their existence.
Most startups will run out of cash and could go bust if they don’t get the needed help. The central bank promised a bailout of N50 billion for startups but fell short of providing details. Without some sort of financial support from the CBN or development banks many will be victims of a twin war they know nothing of. But it’s not all gloom and doom. Crisis like these will also epiphanic moments for some entrepreneurs. It will present an opportunity for them to adapt their business models and seize market share. Those who are able to pivot quickly to take advantage of the situation will come out winners. But for the others, they will be lucky if they are still in business.
Nigeria is dealing with a global pandemic but the aftermath of it could just be the start of another pandemic for Startups.