By Dr. Charles Omorodion

There can be no doubt that Covid-19 is having a phenomenal impact on the world economy – as a result, governments across the world are grappling with Covid-19 pandemic effects. In Nigeria, the presidency recently announced a two-week lockdown of the country, as part of the policy measure to contain the spread of the deadly Coronavirus.

Businesses in both the formal and informal sectors in Edo State and Nigeria has closed during the lockdown period. We are not sure about the duration of the lockdown. Though the long term impact of the Covid-19 on micro, small and medium scale (MSMEs) industries is still unclear, nonetheless the threat to business survival generally is real and significant in the short to medium term.

The pandemic has closed state economic activities. Some businesses may collapse altogether given that many survive on daily sales takings. Staying at home could result in entrepreneurs using their capital to fund their feeding and upkeep. In regards to large businesses, the impact is already felt on the stock market, the travel restrictions is also taking a heavy toll on travel, tourism, restaurants, hotels, events and different supply chain businesses and industries.

This means Covid-19 pandemic is negatively impacting the economy of Nigeria.  Governments in many developed countries are taking measures, such as using three years prorated profits to payment to self-employed to cover the lockdown period, making payment of at least 80% of salaries to staff during the lockdown period and paying unemployment benefits to people who become unemployed during this difficult period.

Since Edo State and Nigeria does not have social benefits measures, the onus falls on the individuals who may become unemployed to fend for themselves and their families during this difficult time. The longer this lockdown, the more severe the financial burdens on individuals, families, and firms. Worse of all, some traders that deal in perishable farm or agricultural produce are already facing ruin or stock spoilage during the lockdown.

This is further exacerbating their economic loss and predicaments.  Operation fixed costs, including rent and salaries, will still be incurred by many businesses, while their employees are forced to stay at home. These factors are further worsening the cash flow predicament of many MSMEs.

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The evidence from The Presidential Economic Advisory Council (PEAC) suggests there is a fear of economic recession.  Nigerian government may be compelled to take tough economic measures quickly, including the devaluation of the Naira, the local currency. The Central Bank of Nigeria may also be forced to succumb to exchange rate realignment to mitigate the impact of Covid-19 on the economy. The evidence also suggests the coronavirus outbreak will gradually spread to all businesses in the economy depending on the length and duration of the pandemic. This is why federal and state governments must ensure they prepare and take both macro and microeconomic measures to curtail the short to medium-term impacts of the pandemic of firms.

Despite the federal government’s recent reduction in fuel pump price, the evidence shows prices of staple food and essential commodities have increased exponentially, fueling fear of hyperinflationary pressure.  These occurrences require Edo State government to develop a proactive business plan and clear guidance to enable local businesses to maintain their operations and prevent the total collapse of the supply chain system.

The Nigerian economy is principally dependent on the proceeds from crude oil and evidence from “the 2020 projections based on the COVID-19 challenge, suggests if the benchmark for oil remains 30 US dollar per barrel, the Federal Government will receive about N1.5 trillion, as against N3 trillion it received in 2019”.

This means there will be less money going to the state to meet both recurrent and capital expenditure. Consequently, the government must embark on an aggressive taxation drive, delay, reduce or retrench some none essential public spending. Edo State government can also renegotiate its debt servicing to help cushion the pressure on the state economy and public spending.

The federal government of Nigeria has disbursed enormous funds to state governments across the country to relieve the Covid-19 crisis. Unfortunately, many states including Edo State lack the necessary systems to distribute these relief materials and make cash transfers in a manner that is deemed transparent and accountable.  Nonetheless, the reality on the ground suggests Edo State Government has no bold and systematic economic stimulus package to deal with post Covid-19 economic crisis.

The aforementioned factors compelled the economic team of Pastor Ize-Iyamu Support Organisation, an APC leading aspirant in Edo State 2020 gubernatorial elections to explore innovative public policy that the government can use to intervene in post Covid-19 epidemic.

The fundamental objective was to identify practical measures, which can be used to mitigate the sufferings of MSMEs in particular. Having consulted widely, the team submits, it is imperative that Edo State government restructured its policy stance by using this crisis as an opportunity to mobilize both its human capabilities and financial resources.

This includes reaching out to creditors, financial institutions and national donors to help provide debt relief to MSMEs in particular.  Edo State is predominantly an MSME industrial-based economy. The majority of the businesses are in the informal sector of the economy. The government is obligated to find ways to cushion the sufferings and impacts of Covid -19 on the MSME sector in particular.

According to the United Nations, “the COVID-19 pandemic is a crisis like no other. It feels like a war, and in many ways it is. People are dying. Medical professionals are on the front lines. Those in essential services, food distribution, delivery, and public utilities work overtime to support the effort. And then there are the hidden soldiers: those who fight the epidemic confined in their homes, unable to fully contribute to production.

In a war, massive spending on armaments stimulates economic activity and special provisions ensure essential services. In this crisis, things are more complicated, but a common feature is an increased role for the public sector”. This means promoting the recovery will have its own challenges, including higher levels of public debt and possibly new swaths of the economy under government control.

But relative success in the initial phase will ensure that economic policy can go back to its normal operation. Fiscal measures to boost demand will become increasingly effective as more people are allowed to leave their homes and go back to work.

For example, part of the economic stimulus package could include Edo State government postponing the daily tax levy on transporters for a month. It can also include postponing the daily levy on market traders for the same period to boost their cashflow.

Edo State government can work with banks and financial institutions in the state to negotiate relaxing MSME’s debts repayment terms and periods. This can include spreading out debt repayments over a longer period of time. The state government can also look into suspending VAT on sales for a month to help boost businesses’ cashflow.

For large businesses, particularly those that might be facing imminent collapse due to cashflow problems, Edo State government can look into providing credit guarantee schemes on a case by case merit and viability basis. For example, rather than supplying Indomie noodles, which are none perishable groceries as food relief to vulnerable Edo state people, Edo state government can mass purchase perishable agricultural and agro-based products and distribute same as part of its Covid-19 food relief materials.

In order to prevent excessive economic disruption, there is a need for government policies to safeguard the web of relations among workers and employers, producers and consumers, lenders and borrowers, so that businesses can resume in earnest when the medical emergency abates.

Company closures would cause loss of organizational know-how and termination of productive long-term projects. Disruptions in the financial sector would also amplify economic distress.

The United Nations advised that Governments should provide exceptional support to private firms, including wage subsidies, with appropriate conditions. Large programs of loans and guarantees should be put in place (with the risks ultimately borne by taxpayers), and government should facilitate direct capital injections into companies. If the crisis worsens, one could imagine the establishment or expansion of large state holding companies to take over distressed private firms, as in the United States and Europe during the Great Depression.

The aforementioned facts further underscore the need for Edo State Government to set up a Post Covid-19 business advice team within the Department of Trade and Industry to provide business support and guidance to enable Edo State businesses to manage or deal with the aftermath of the pandemic.

The Post Covid-19 business advisory service should be handled by seasoned accountants, business advisors and management consultants with proven track records in business enterprise management, crisis management, and corporate turnaround management.

The main goal of the Post Covid-19 business advisory team is to help local businesses in the state to stop any cashflow bleeding or hemorrhaging and to put together a financial rescue package that would reposition these firms for recovery and growth.

The United Nations also suggests that policies in support of households, businesses, and the financial sector will involve a mix of liquidity measures (provision of credit, postponement of financial obligations) and solvency measures (transfers of real resources).

Dr. Charles Omorodion is Doctor of Transformational Leadership and Strategic Management – London South Bank University.

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