Small businesses (MSMEs) represent about 90% of businesses worldwide and in Nigeria, they account for 84% of the country’s employment.
The global economy was greatly affected by the COVID-19 pandemic, and from the data, it is clear that small businesses must drive the global economy to recovery.
Oil prices in the global market crashed to about $30 per barrel in Q1 of 2020 and about 90% of Nigeria’s export is Crude Oil. This decrease in demand for Oil in the global market has greatly affected the Nigerian economy as seen in the negative plunge of the GDP in Q2 of 2020.
The government in response has setup various intervention plans to support small businesses in cushioning the overall effect of the downturn on the economy and give room for diversification. This Report seeks to examine the effects of these proposed interventions.
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Impact of Covid-19 on the global economy and forecasts on its impact on the Nigerian economy
The COVID-19 pandemic resulted in a severe economic shock, which the world has yet to experience in decades. According to a recent report by the World Bank, forecasts envision a 5.2% contraction in global GDP in 2020. It has been projected that Nigeria’s unemployment rate could rise to 33.6% (a third of our population) by the end of the year if urgent steps are not taken.
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Nigeria’s post-Covid-19 recovery plan
To avert the drastic decline in economic growth, the government responded by introducing various intervention programs to cushion the effect of the pandemic on the economy. Thankfully, many of the interventions were targeted at MSMEs.
- A 1-year extension of moratorium on principal repayments for CBN intervention facilities.
- The reduction of the interest rate on intervention loans from 9 percent to 5 percent.
- Creation of N50billion target credit facility for affected households and MSMEs.
- N1trillion in loans to boost local manufacturing and production across critical sectors.
- The N75billion Nigeria Youth Investment Funds (NYIF) floated by the Federal Ministry of Youth and Sport.
- N75bn MSME survival Fund Ministry of Investment.
- The Lagos State Employment Trust Fund (LSETF) 3billion loans for MSMEs.
- The Bank of Industry (BOI), African Export–Import Bank and other organizations has served as available funding pools for MSMEs.
Regulatory bottlenecks affecting the growth of the MSMEs in Nigeria
- Nigerian MSMEs are subjected to multiple taxes by the different tiers of government, each with its own rigorous process and significant costs.
- Credit schemes are seasonal, and they often have an insignificant per capita impact, as obligor limits are often pegged below N5 million.
- The government has very few policies aimed at de-risking investments in the start-up ecosystem.
- MSMEs need constant access to funding as it’s a key factor to their growth.
- Government should create an investor/MSME-friendly environment. An example is Israel, where the government encourages institutional investors to invest in tech companies by providing guarantees.
- Financial literacy should be made compulsory at the primary and post-primary level.
- The government should summon the political will to solve the perennial problem of power supply.
- The CBN should pursue policies aimed at stabilizing inflation to single digit, while also targeting single-digit interest rates.
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Capitalfield Attorneys is a Lagos-based business advisory law firm targeted at fast-growth startups