Insight

Lockdown: Pushing the informal sector to the precipice

The informal sector of the Nigerian economy, which has been at the receiving end since the outbreak of the coronavirus pandemic, is still facing some challenges despite the Federal Government’s promise of low interest loans as a stimulus to ease hardship, reports TAIWO HASSAN

Before the outbreak of the coronavirus pandemic, the Nigerian business environment was already categorised as ‘turbulent’ because of the myriad of challenges the business owners in the Micro Small and Medium Scale Enterprises (MSMEs) were facing daily in the country. Such challenges include the high inventory of unsold finished products, inadequate electricity supply, frequent increases in electricity tariff in the face of poor services from distribution companies and abnormally high interest rates. Also, high excise duties on some products, inadequate trade infrastructure, expensive price of natural gas, unfriendly port environment, multiplicity of taxes/levies/fees, exorbitant cost of haulage, congestion at the Lagos seaports arising from the non-functionality of other seaports in the country, high incidence of smuggling and counterfeiting of locally manufactured products among others as government failed to address the infrastructure, poor policies and regulations to businesses which could have made businesses to operate smoothly in the sector to boost the economy. Consequently, many businesses have been incapacitated and grappling for survival as they could not withstand the torrid environment that had not been conducive for businesses.

Nigeria’s informal sector at a glance

The Nigerian informal sector, also known as underground, black or shadow economy, is part of the country’s economy that is neither taxed nor monitored by the government. The spectrum ranges from self-employed individuals to unpaid family labour, mechanics, tailors, petty traders, street vendors, hairdressing, chemists, food sellers, barbers’ shops, restaurants, beer parlours, carwashes, hotels and reservations, among others. According to a survey on Nigerian MSMEs conducted by the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS), the total number of microenterprises in Nigeria stood at 41.4 million in 2017 and accounted for 99.8 per cent of MSMEs in Nigeria. Besides, the microbusinesses also account for 95 per cent of employment in the MSMEs space. These numbers underscore the strategic importance of the informal economy in Nigeria, from an employment perspective. The sector has helped many individuals who were unable to get formal employment to earn a living. The survey report also revealed that wholesale/retail trade, agriculture and other services’ activities make up 76 per cent of micro-businesses in Nigeria due to the fact that the sub-sectors require little skilled labour.

COVID-19

impacts However, the initial implications of COVID-19, which was declared a pandemic by the World Health Organisation (WHO), had severe impact on selected informal businesses performance indicators in form of lockdown, border closures, offering of stimulus packages, provision of food items for the vulnerable, multifarious medical and financial supports. Clearly, Nigeria, like other countries, has been confronted with basically two COVID-19 issues; one is the threat to lives of citizens and the other is the negative impacts of the virus on all facets of the economy. In response, the focus of the government has been on how to save lives, sustain production of essential products and establish stimulus packages to support the productive sector, while the promoters of businesses and leaders of private sector organisations have equally been challenged by unexpected business disruption.

Lockdown

The rapid spread of the COVID-19 pandemic propelled the Federal and several state governments to impose lockdown in almost all parts of the country as part of measures to arrest the virus. Meanwhile, the lockdown dealt a severe blow on the informal businesses, given their lack of adequate cash buffers. Essentially, the order for the lockdown was first mooted by the Lagos State government from March 26 in an attempt to halt the spread of the dreaded coronavirus, followed by the Federal Government’s pronouncement of an extended lockdown to cover Lagos and Ogun states as well as the Federal Capital Territory (FCT). The flip sides of many businesses have been impacted significantly as micro-business owners struggled to stay afloat with their businesses, which experienced a downward trend mostly disrupting supply and demand chains of distribution network. A data, which emanated from the Lagos Chamber of Commerce and In-dustry (LCCI), indicated that 81 per cent, mostly in the informal sector, were severely affected by the lockdown with 17 per cent indicated moderate impact on their businesses. According to the research data, Nigerians prioritised food and essential items ahead of ‘relatively less important’ services, as many businesses in the informal sector ran skeletal operations, which depressed demand for (non-essential) services. The LCCI noted that a conservative sampled business operator lost an average N500,000 each day during the lockdown, suggesting that each operator lost N17.5 million within the fiveweek period between March 31 and May 3, 2020. This modest estimation indicates that about N2.7 billion was lost in revenue by 153 sampled businesses to the lockdown. This translates to trillions of naira losses for thousands of businesses operating in Lagos.

Findings

Also, the New Telegraph findings among selected business owners revealed that they were weighing different cost-cutting strategies to help minimise losses and stay afloat post-pandemic era. In particular, the majority of the respondents (63 per cent) in the informal sector, who spoke to our correspondent, said that they had planned to downsize operations to minimize losses as businesses have not generated income over a five weeks period and have lost trillions of naira in profit to lockdown. Consequently, this suggests that the unemployment rate is expected to increase drastically in post-lockdown except that the government takes urgent steps to support business owners towards surviving and ensuring business continuity. Further, the findings indicated that about 46 per cent of them intend to slash salary and reduce workforce as a joint measure, 24 per cent plan to cut personnel cost only, while 13 per cent intend to trim staff strength as 17 per cent are proposing no salary payment.

Lamentations

An investigation conducted by our correspondent around Lagos and environs on the impacts of the COVID-19 lockdown on the country’s informal business revealed that most business owners have been laying-off workers or reducing their workforce secretly as they battled to remain in business amid the hash operating environment. For instance, some businesses such as hairdressing, food selling joints,barbers’ shops, restaurants, cobbling businesses, beer parlours, carwashes, hotels and reservations and many others have relieved workers of their jobs since they could not cope with the COVID- 19 pandemic as profits nosedived to lowest levels. They said that it was unfortunate they had to tell some of their workers to go home from their jobs since nothing profitable is happening in their businesses.

A certified pharmacist and the Managing Director (MD) of Hadex Patent Medicine Shop and Stores, Halimat Adeyemo, operating at Bucknor, Ijegun- Isolo Road, Lagos, recounted that the COVID-19 lockdown had affected the health sector severely despite government declaring it as essential service during the lockdown. Adeyemo noted that the COVID-19 lockdown impacted her business and also her profit as there was significant drop in sales of drugs as customers complained bitterly of low purchasing power, inability of companies to pay salaries and job losses.

According to her, she was forced to reduce her workforce as she could not cope with paying their salaries since she was not making the desired profits like before the pandemic. As a medical expert, she explained that the decision by the Federal Government to impose the COVID-19 lockdown was good from the health-saving life angle but it was also a bad omen for informal businesses in the country.

She said: “I lost about N2 million in profit to the government’s five weeks lockdown in my pharmaceutical business and I know that the loss also extended to our members in this line of business because we could not cope as there were low sales and patronage despite the Federal Government given us immunity by allowing us to trade.

“I cannot stock my shop as most of the drugs and other items are very expensive to buy at that period as the drug manufacturers and suppliers put high price tags on medicines to make it unaffordable for us but preferred to sell to government’s general hospitals and isolation centres at the detriment of the pharmacists. So, we lost millions of naira to COVID-19 lockdown in our drug business.” Also, the owner of AdeShade Beauty Hairdressing Salon on Ire-Akari Road, Isolo, Lagos, Mrs. Adeshade Oreoluwa, complained that the lockdown had a negative impact on her business and line of trade.

She said the lockdown was a turbulent period for owners of hairdressing salons in the country as it severely affected their businesses in all ramifications. Oreoluwa added that there was a lull in business as no customer came to her salon during that period. According to her, it was a period she recorded the lowest sales and profit since she opened her beauty salon business five years ago. In particular, the hairdresser lamented that she had to send apprentices and stylists away because of lack of business and patronage.

Oreoluwa added that she lost about N500,000 to the lockdown imposed by the Federal Government in Lagos and Ogun states as well as the FCT. Speaking on the lifting of the lockdown following the gradual re-opening of the economy, Oreoluwa said despite that, hairdressing business is still at its lowest ebb because customers are not patronising them yet. According to her, the sacking of workers by companies during the lockdown has affected many hairdressing businesses in the country. She said: “In hairdressing business from Monday to Thursday, we don’t always records large turnout of customers.

But on Friday, we usually have a lot of customers till Sunday. Sunday is usually the peak when we realise about N50,000 and above. But when the Federal Government imposed the lockdown and even extended it again, about five weeks in total, everything changed in our business in terms of customers’ turnout and sales.

This significantly reduced our profits beyond our imagination. In fact, we didn’t record any sales. We had to lock our shops since we belong to the categories of businesses which government banned.” Oreoluwa added that she had about 15 workers, including the stylists, in her salon but had no other choice than to tell them to go as she had no money to pay them, while the apprentices too stopped paying for their apprenticeship. Similarly, the eatery and food business was not also spared the challenges of the five-week lockdown period.

The Sales Manager, Richmond Foods at Ijesha, Lagos, Mr. Seun Arowolo, told New Telegraph that the lockdown was a very challenging period for the eatery and food business in the country as it took a sizable chunk of most of their sales. Workers, he said, laid off following low patronage owing to the imposed ban on eatery and food business in the country. Arowolo said that his company, Richmond Foods, lost over N100 million across all its branches nationwide to the lockdown. He said: “For us in this food business, the lockdown policy of the Federal Government, put in place to checkmate the spread of the coronavirus for health purpose, was not good for the economy and business in general.

Billions of Naira were lost to the lockdown in the country’s eatery and food chain business in terms of profits. “For instance, in my organisation, we lost about N100 million to the five weeks’ lockdown imposed by the Federal Government in all our branches nationwide in terms of revenue since we couldn’t open for business and our business remained shut.

In addition to this, hundreds of workers were laid off and sent to the labour market since there are no businesses to do as we are under lock and keys with our company still shut. So it is going to take time, let us say next year, hopefully, before I can say things we start looking up in the country’s food business. For now, whether post COVID-19 or lockdown,the purchasing power of many Nigerians ise low and every sector in the economy is feeling the pulse of the lockdown right now.”

Also, in the hotel and hospitality business, a top management official of Cynergy Hotels at Amuwo-Odofin, Mile 2, Festac Town, Lagos, who does not want his name in print, said that the lockdown has disrupted hotels business nationwide. According to him, many hotels cannot cope again and are being put up for sale currently following the damage done by the lockdown. The official added that hotels businesses are one of the most hit sectors in the economy considering the revenue the sector contributes to the country’s economy annually. According to him, there will be need for government to support the hotels sector with bailout of about N20 billion if there is going to be a positive change and a turnaround in the sector in the foreseeable future.

He pointed out that thousands of workers in the hospitality sector have been sacked since there is no business for them following the closure of hotels amid the COVID-19 lockdown. According to him, at Cynergy Hotels, about N200 million was lost to the lockdown.

He said: “I can categorically tell you that our sector is one of the most sectors hit today when you look at the critical role in terms of contribution to the Nigerian Gross Domestic Product (GDP). Hotels’ operators in Nigeria have lost billions of naira to this COVID-19 lockdown and it is time the government considered us for bailout to revitalise our business.

We will need about N20 billion as a bailout fund from the Federal Government or the Central Bank of Nigeria (CBN) for us to salvage the hotel sector of the economy post-lockdown. This pandemic has disrupted our business holistically currently. “Do you know how many hotels which are now up for sale in the market because of the lockdown? Many of our members in the hotel business are groaning for survival currently and it will take massive funds to jump-start their businesses.”

OPS’ views

Already, the Vice-President, Prof. Yemi Osinbajo, has said that the provision of ample support for the informal sector through low interest loans and by easing procedures for registration, licensing, obtaining permits, etc, is very key post-lockdown. By the assurance, urban and informal business people like mechanics, tailors, and petty traders, will be encouraged to improve their services post-lockdown. The President of the Lagos Chamber of Commerce and Industry (LCCI), Mrs. Toki Mabogunje, admitted the negative impact of the COVID- 19 on the country’s informal sector.

She said: “The lockdown has significantly destabilised business and economic activities, especially in the informal and MSMEs sectors, given their lack of adequate cash buffers to withstand the shock. “Although government has rolled out a raft of relief measures to support businesses, we observe that these packages are tilted more towards formal establishments while micro- and small-scale enterprises as well as informal businesses have been largely left out.

The palliatives given by the various governments, though laudable, were not sufficient to address the social fall-outs of the lockdown. We note that the palliatives were poorly articulated and failed to adequately capture a significant fraction of lowincome households who rely on daily income for livelihood.” The LCCI president added that the inevitable mandatory lockdown and social distancing measures put in place to curb the spread of COVID-19 have had a severe negative impact on farms and factories, as well as on trade, transport and tourism. For the President of the Manufacturers Association of Nigeria (MAN), Mr. Mansur Ahmed, the rapid spread of the pandemic propelled the Federal and several state governments to impose lockdown in almost all parts of the country as part of measures to arrest the virus.

Ahmed added that the directive has dealt a severe blow on the economy and especially informal businesses, given their lack of adequate cash buffer to withstand shocks precipitated by the novel coronavirus. He said: “However, while the efforts of policymakers in protecting households and businesses are commendable, the interventions have largely been tilted more towards formal establishments. The relief largely excluded businesses that needed it most – informal sector participants, whose activities account for up to 65 per cent of Nigeria’s GDP.

Informal businesses bore the major brunt of the stay-at-home directive. “This is worsened by their inability to sell their products virtually. A large chunk of informal participants survives on daily income to meet basic life needs even as their bottom-line has been severely impacted by containment measures.”

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