COVID-19 and Startups; The Realities in Nigeria.

May 8, 2020

The outbreak of COVID-19 — in December 2019, the city of Wuhan in China became the centre of the novel corona-virus outbreak — which, as at 7th May 2020, more than 3.8 million cases and 271,732 deaths have been recorded across 187 countries according to John Hopkins data, this presents an alarming health crisis that the world is grappling with. Not only the global health crisis, but global economies are also in a state of emergency.

For Nigeria, a country whose economy is mainly hinged on oil and gas export, which as of 7th May 2020 have recorded 3,526 COVID-19 cases in addition to 601 recoveries and 107 deaths within 71 days of the discovery of the index case, significant economic, business and commercial impact of the virus is being felt. While the impact of the virus is evident on the free-fall on the global crude oil price — through the virus-induced oil glut and the Russia-Saudi Arabia price war, which has led to a significant reduction in government’s oil revenue and oil and gas export, which accounts for about 40 per cent of total government revenue and more than 90 per cent of total export respectively, the Nigerian stock market, exchange rate, foreign reserve, money market, industrial sector, service sector, economic output, income and consumer spending among others were also badly hit as a result of the virus.

Unfortunately, given the already existing issues of funding, low patronage, insecurity, erratic power supply, poor infrastructure, and unfavorable government policies, among others, the 41.5 million Small and Medium Scale Enterprises (SMEs- include startups nos) and thousand startups in Nigeria were not spared either by the ravaging virus. Perhaps, the most direct impact of the virus on the SMEs will specifically come from the restrictions on movement around the world and in Nigeria, and the partial shutdown of the Nigerian economy. Apparently, the shutdown of offices and non-essential businesses, due to this pandemic is unarguably a recipe for drastic fall in the productive effort and output of startups and SMEs, nonetheless the continuous decrease in the demand and spending on non-essential goods and services resulting from the uncertainties which come with a pandemic. Moreover, even with the gradually eased up on the restrictions on the 4th of May 2020, with the inter-state ban on travels and movement of non-essential goods still in place, startups, especially those not in the agricultural or food value chain or providing non-essential products and services, will still be likely to be faced with the issues of low output and patronage, due to the inability to get raw materials or finished goods, as well as transporting their outputs.

Again, due to the drop in the global oil price and the low demand for crude oil in the global market, which has made up largely the foreign reserve or the foreign exchange earned in Nigerian exports — lack of this FOREX activities has affected the import of goods to shrink, also with the shut-down on production in most countries, it will be most unlikely for startups, especially those dependent on raw materials or finished products from foreign countries in their production process, albeit non-essential, to get either dollar for importation or even the products. Most SMEs will also, despite lockdown, restriction of movements and halt in production, push into incurring unnecessary debts, such as utility bills (Nepa), rentals etc., as well as bad debts. Although a painful decision to take, most startups and existing SMEs will be forced to reduce their staff strength to cut cost and save funds, thus forcing individuals and households into extreme and harsh conditions.

But then again, the apex bank of Nigeria — CBN on its part is already making efforts to avert the impact of the pandemic by giving loans to individuals, businesses, and most affected industries and those that are in the front line of fighting the pandemic, as well as delaying the repayments from SMEs under its many interventions funds, to keep the economy afloat and sustain production, though, the failure of the federal government to announce any major plans to stop the economy from grinding is worrisome. While the interventions of the CBN may be very unlikely to sustain production and avert the possible lay-off of employees by startups, it may also be unable to induce the already low demand and patronage of products and services of existing SMEs, due to the continuous surge in the number of COVID-19 cases in the country.

Regardless of the reaction of the policymakers to the effect of the pandemic on startups/SMEs, it is important to first note that COVID-19 is a public health emergency. And without complying with the guidelines of relevant health organizations and agencies in the fight against this common enemy (COVID-19), the central and state governments adopting strong and effective policies and strategies, the economy will continue to crumble and contracts, even though the current crisis has demonstrated the value of the entrepreneurial capacity and innovative-ness of many startups, SMEs, corporate businesses and the importance of ecosystems they operate in. I will just simply put it that, the distinct possibility of a global recession has become concrete and maybe worse than the 2008 global financial crisis.

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