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IMPACT OF CORONA VIRUS (COVID-19 PANDEMIC) ON SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA

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 Aug 08, 2021 |  10:24 pm |  166

CHAPTER ONE

INTRODUCTION

1.1  Background to the Study

Small and medium scale enterprises undeniably critical to the growth and development of the global economy. The SMEs subsector becomes a good source of job creation, aid in the development of local technology and source of development to indigenous entrepreneurs (Alaye-Ogan, 2012; Erdem, 2011), and enormously contributed to nation-building (Aderemi, Olu-Young, Taiwo, & Adejumo, 2019; Tehseen & Ramayah, 2015). The SMEs sector contributed more than 90% of all economic activities and more than 50% of all employment opportunities globally and also, accounted for more than 40% of GDP in developing nations (Garba, 2020). SMEs sub-sector in Nigeria, as obtains in other parts of the globe, performs a key role in the economic development of the country. They accounted for 90% of all businesses in Nigeria (Gbandi & Amissah, 2014).

Although, according to World Bank SMEs are businesses with a maximum of 300 employees. In Nigeria, SMEs are regarded as businesses with less than 50 employees and capital which includes; the cost of machinery and equipment less or equal to ₦600,000 ($1,600) which is owned independently with the hope of generating profit and meeting sales standard (CBN, 2018). Statistics from the National Bureau of Statistics indicated that the number of SMEs in Nigeria was estimated to be 41.1 million (ILO, 2017). The distinctive nature of SMEs was a result of the use of local raw-materials, employment generation, promotion of rural development, nurture entrepreneurial activities, mobilization of savings locally, and opportunity for self-employment (Aderemi, Ojo, Ifeanyi, & Efunbajo, 2020).

However, Covid-19 Pandemic has a devastating effect on human and material resources and it is one of the greatest events that history will continue to remember. The pandemic spread across the globe without obstacles and the worst that affected the global economy since the great depression (Erdem, 2011; IMF, 2020; WHO, 2020). The case first emerged in Wuhan, China, in 2019 which result in a toll of death that extends to almost all countries of the world (Akanni & Gabriel, 2020). The total number of confirmed cases across the globe was 16, 301,736 as of 28th July 2020, whereas casualties stood at 650,069. In trying to control the spread of the pandemic factories, markets, places of worship were closed, as well as restrictions of movement of people, goods, and service. This always echoed its effect on the activities of SMEs globally.

Business organizations were not prepared for the pandemic, despite the call by the Public Health Research Institute to adopt precautionary measures on the emergency of such type of events, except big firms were able to take a bold step plan against the pandemic (Rebmann, Wang, Swick, Reddick, & del Rosario, 2013). It is anticipated that the US GDP will likely decrease to 3.8 percent for 2020 due to the pandemic (Hatzius, Philips, Mericle, & Struyven, 2020). Furthermore, Igwe (2020), stressed that the global economy will witness the worst economic recession as a result of the pandemic. The global economy is predicted to record economic losses through three outlets: supply chain, demand, and the financial market. These outlets hurt businesses, household consumption, and international trade.

In Nigeria, the case of the pandemic was first discovered on 27th February 2020. The Nigerian Centre for Disease Control (NCDC) recorded 41,804 cases as of 28th July 2020, out of this number 18,704 were discharged and 868 deaths. The SMEs sector in Nigeria has been seen as a tool that propelled the economy because of its ability to promote productivity, generate employment as well as improving the welfare of the people (Abosede & Onakoya, 2013). In an attempt to halt the spread of the pandemic, the government take various measures ranging from the closure of borders, restrict the movement of people, goods, and services, as well as the closure of markets and worship places. Therefore, on 29th March 2020, the government declared a total lockdown in three states, thus; Lagos, Ogun, and the Federal Capital Territory, Abuja, preventing all activities that are not essential in all those states. Afterward, the remaining states were also lockdown as well as banned on interstate movement except for essential services. This is one of the major reasons why many studies on the effect of COVID19 on SMEs in Nigeria cannot be overlooked in the time of this global pandemic.

However, many analysts have predicted a decrease in aggregate demand and supply, declining in exports, and an increase in government expenditure due to the negative effects of lockdown among various sectors of the Nigerian economy. Furthermore, this lockdown will probably make the situation terrible for SMEs in the country. As rightly indicated SMEs form the larger businesses in Nigeria with 141.1 million SMEs spread across the country, which employed more than 70% of the working population in the country (ILO, 2017). This indicates that large proportions of people in Nigeria are involved either directly or indirectly in SMEs. Then, any adverse economic tremors echoed by the COVID-19 pandemic on these sub-sectors put more than 70% of the working populace exposed to the unique virus.

1.2  Statement of the Problem

In Nigeria, there are 41, 543, 028 enterprises designated as Micro, Small and Medium Enterprises (MSMEs) accounting for 99.8%, 0.17%, and 0.004% respectively with Lagos, Osun, and Oyo as the top states with the highest number of SMEs (NBS, 2017). SMEs contribute 48% of national GDP, account for 96% of businesses, and 84% of employment. Micro-enterprises are small businesses with less than 10 employees and have less than 5 million Naira in assets excluding lands and buildings. Unsurprisingly, a large majority of micro-businesses are sole proprietorships. SMEs, however, have more distributed ownerships with 65% as sole proprietorships, 21% as private limited liability companies, 6% as faith-based ownerships, and 5% as partnerships (NBS, 2017). With the larger number of enterprises in Nigeria being a micro-enterprises, any business and economic shocks will unavoidably affect various sectors and livelihoods of many citizens.

 

As the world is currently being ravaged by the COVID-19 pandemic, nations are grappling with how to contain the spread and limit its effect within their borders (Obiakor, 2020). The government has used different measures to control the spread of the virus and these include the closure of airports, schools, market places, and worship centers among others. The closure by the Federal Government of Nigeria started on 30 March 2020 with Federal Capital Territory, Lagos, and Ogun States having the first share being the first states with the COVID-19 cases in the country (Presidential Task Force on COVID-19, 2020).

 

These closures, while essential, are having negative ripple effects across all sectors and segments of the country (Obiakor, 2020). Micro and small businesses experienced a larger decline in business activity compared to medium and large firms (Lakuma et al., 2020). This may be because a number of the micro and small businesses in the country stopped operations for a while due to their helplessness to undertake preventive health measures like ensuring physical distancing, providing sanitizers, water, and soap for customers’ use. (Lakuma et al., 2020). The economic deceleration in Nigeria was caused by a mixture of falling oil prices in the world market and the ripple economic effect from the COVID-19 pandemic, which not only led to a fall in the demand for oil products but also stopped economic activities from taking place when social distancing policies were enforced (Ozili, 2020). According to Adenomon et al. 2020, who studied the effects of the COVID-19 outbreak on the Nigerian Stock Exchange’s performance using Evidence from GARCH Models covering the period of 2nd January 2020 to 16th April 2020, the results revealed that profits nosedived during the COVID-19 period under study in Nigeria as against the normal pre-COVID-19 results. The work of Chukwuka and Ekeruche (2020) on the impact of the COVID-19 outbreak on the Nigerian economy, shows that Nigeria economy that was projected to experience 2.5% GDP growth, has been truncated by the pandemic leading to a higher increase of the nation’s debt servicing to revenue ratio at 60% amid the falling prices of oil. In the same vein, FATE Foundation and BudgIT (2020) studied the impact of COVID-19 on 1,943 Micro, Small, and Medium Enterprises (MSMEs) across the 36 states in Nigeria including the FCT. The result revealed that 94.3% of respondent businesses recorded negative results during the pandemic principally in the areas of Cashflow, Sales, and Revenue. AfDB’s African Economic Outlook 2020 report revealed that real GDP in Africa will contract by 1.7 percent in 2020, plummeting by 5.6 percentage points from January 2020 pre-COVID–19 projection, if the virus has a significant impact but lasts for a brief period. If the spread of the virus continues till after the second quarter of 2020, a deeper GDP contraction of 3.4 percent is projected, down by 7.3 percentage points from the growth projected before the outbreak of COVID–19 (AfDB, 2020). Nigeria has been severely hit by the spread of COVID-19 and the associated sharp decline in oil prices (IMF, 2020). According to World Bank, 2020), the swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe economic contraction and the global economy is expected to shrink by 5.2% in 2020. While economic activity among advanced economies is anticipated to shrink 7% in 2020 as domestic demand and supply, trade, and finance have been severely disrupted, emerging market and developing economies (EMDEs) are expected to shrink by 2.5% in the same year (Worldbank 2020). For Nigeria, it is forecasted that the economy will shrink by 3.2% but is expected to recover in 2021 to 1.7% (Worldbank 2020).

1.3  Research objectives

The broad objective of this study is to assess impact of corona virus on small and medium scale enterprises. However, the study was guided by the following specific objectives:

i.          To determine the effect of COVID-19  pandemic on small businesses in Nigeria

ii.         To examine the negative effect of the lockdown policy on the small business performance.

iii.        To assess the impact of coronavirus on the operations of SMEs

1.4  Research questions

        i.            What is the effect of COVID-19 on small businesses in Nigeria?

      ii.            What negative factor affecting SMEs arose as a result of the lockdown policy?

    iii.            What is the effect of the coronavirus on the operations of SMEs?

1.5  Research Hypothesis

·         Small businesses in Nigeria were affected by COVID-19 pandemic in Nigeria

·         The lockdown gave rise to negative factors which affected SMEs in Nigeria

·         Coronavirus affected the operations of SMEs in Nigeria

1.6   Scope and limitation of the study

This study which is titled the impact of infectious epidemic on small and medium scale enterprises in Nigeria is focused on assessing the effect of coronavirus on SMEs. This study was focused on the effect of this pandemic on the essential commodities: drugs, food and oil. The study was limited to Osun state. The researcher was limited by time majorly during the course of this research.

 

1.7    Definition of terms

Coronavirus: Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus. The virus that causes COVID-19 is mainly transmitted through droplets generated when an infected person coughs, sneezes, or exhales. These droplets are too heavy to hang in the air, and quickly fall on floors or surfaces.

Epidemic: An epidemic is the rapid spread of disease to a large number of people in a given population within a short period of time. For example, in meningococcal infections, an attack rate in excess of 15 cases per 100,000 people for two consecutive weeks is considered an epidemic.

SMEs: Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel numbers are more than 30 and below 250.

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