By FOSTER OBI

From available indices, Nigerian businesses will be directly hit by the spread of COVID-19, and many more would be affected by the partial shutdown of the Nigerian economy. To worsen matters, most of the 40 million estimated small businesses in the country are ill-equipped to handle a crisis of this magnitude as recently highlighted by CNBC Africa.

Before now, Nigerian small businesses are plagued by a plethora of problems which cannot all be listed here because of space. The greatest discouragement any entrepreneur can face is the inability to fully execute his intended business plan due to insufficient funds. In Nigeria this is a familiar route as start-ups and small businesses hardly have enough funds to draw from.

A major challenge is poor power supply. This problem has a great impact on financing. The cost of starting and running a small business in Nigeria could be reduced greatly, in the presence of constant power supply. This is because 90% of small businesses in Nigeria are run on alternative energy sources and this increases their running costs by over 70%. This is a major reason why mortality rate of small business is high.

Another gnawing challenge is that the system of taxing employed in Nigeria for small businesses remains unfavorable. Aside from the taxes imposed on small businesses, other regulatory bodies such as Standard Organization of Nigeria (SON), Consumer Protection Commission (CPC), the Economic and Financial Crime Commission (EFCC), National Agency for Food and Drug Administration Control (NAFDAC), Corporate Affairs Commission (CAC) and other environmental protection agencies come up with exorbitant and highly unreasonable laws and demands that weaken and eventually cripple growth.

Again businesses are faced with the problem of getting the right personnel, and staff to manage the entity and this affects growth.

With the economy already stressed, one can only imagine how small businesses will survive post COVID-19. With the outbreak of the pandemic, price of oil hit its lowest level in 17 years, declining from $59 to $28 per barrel within a month as a result of lower demand and a lack of coordination between the Organization of Petroleum Exporting Countries (OPEC) and Russia to reduce supply.

For Nigeria, where revenue from oil production is 31% of the year's budget revenue and oil accounts for 90% of foreign exchange – the effect of the sharp and persistent fall in oil price will lead to cuts in government spending and net exports, two critical components of economic output.

The Minister of Finance has already announced that there will be cuts to non-critical capital expenditure. If oil prices don’t stabilize soon enough, critical expenditure like roads could also take a hit. On the private sector end, fewer dollars – normally earned from oil sales - will be available for Nigerians to import goods and services. This is particularly worrisome given the lack of foreign reserves to supply the system. The dollar reserves at the Central Bank of Nigeria (CBN) dropped from $45 billion last year to $35 billion this March.

As a result of the shortage in foreign exchange earnings, the CBN has “devalued” the naira from an official rate of ₦307 to ₦360 per dollar. This, obviously, will put serious pressure on funds available to these businesses as it a lot of them may close shop.

However, to shore up these business entities, the central bank retroactively lowered interest rates from 9% to 5% as of March 1 for one year. It also announced credit relief of above $136 million to businesses affected by the Coronavirus pandemic, including petty traders and small enterprises although experts have criticised the amount as too small to make a difference.

Tax relief is also available and the government is to introduce a scheme to encourage people to retain staff, nevertheless, one is won’t to say that in a population of almost 200 million people, the government hasn't done enough.

The CBN hopes to avert the economic impact of the pandemic by loaning money to the individuals, businesses and industries that are most affected and those that are in the front line of fighting the pandemic. The total stimulus package is ₦3.5 trillion. This includes 5% interest loans of up to ₦50 billion to households, airline service providers and hoteliers, ₦150 billion to the pharmaceutical and healthcare sector and ₦1 trillion for the manufacturing sector. It is also delaying repayments from SMEs under its many intervention funds.

The CBN hopes that the money can be used to keep vital sectors afloat. It particularly wants the manufacturing and pharmaceutical sectors to boost local production, reducing their reliance on foreign exchange for imports.

Since the Federal Government is yet to announce any major plans for businesses, the question is whether the CBN loans will be enough to stop the economy from grinding to a halt and employees being laid off.

A major concern here is that the CBN, through its agency, NIRSAL Microfinance Bank, is demanding a N10,000 fee from small business owners impacted by COVID-19 as a prerequisite for accessing the intervention loans.

Those eligible, according to the apex bank, must prove that their livelihood and business operations have been adversely affected by the spread of the virus.

Businesses eligible for the scheme are agricultural value chain activities, hospitality, health (pharmaceuticals and medical supplies), airline service providers, manufacturing and value addition, and trading.

The maximum amount to be received depending on proof of cash flow of investment size is N25m while households can access N3m with an interest rate of five per cent per annum for a maximum period of one year.

However, the designated administrator for the facility, NISRAL Microfinance Bank, has insisted that in order to process loan applications of struggling small businesses, applicants have to pay N10,000.

NISRAL, in email to applicants insisted that payment of the compulsory fee for a “business plan link” was the only way it would review applications of businesses in dire need of support.

This question is why the CBN would want to toe this route for businesses that are struggling. In the past, fraudsters have used this strategy to fleece unsuspecting citizens. This latest attempt to extort money from struggling businesses in the name of loan casts a slur on the proposed project. How are we sure that at the end of the day, this proposed fee will not be collected from millions of businesses while the so called loans will disbursed among cronies, family and party members. It certainly creates suspicion and the CBN has a lot of explaining to do to avoid gathering doubts.

•Foster Obi is Deputy Editor of News Express Media Group

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