Protecting Nigeria’s Entrepreneurial Future
by Eloho Gihan-Mbelu (Managing Director & CEO, Endeavor Nigeria)
We all want a swift end to this crisis. In the midst of a global pandemic, there is, of course, the immediate task of securing public health, and supporting the most vulnerable in society. The second urgent task is securing private enterprise, specifically the SMEs, high-growth start-ups and scaleup companies that are the custodians of Nigeria’s economic future.
42 million MSMEs underpin around 60 million jobs, at last count by the NBS and SMEDAN. By some estimates, 30 percent of those jobs could be wiped out by business failures due to COVID-19. 99 percent of MSMEs are sole proprietorships, often with no employees and little formality. They can be supported through the existing conditional cash transfer system for households. However, the most productive of the MSME segment, the employer firms, cannot. Employer firms are critical, not just for the capacity of our nation’s response to the immediate health crisis, but also for the pace of our economic recovery on the other side. In a moving recent diary article for the Financial Times, Ken-Ofori Attah, Ghana’s finance minister, described the coming recession as a “long winter, even a mini ice age”, with two to three years of downward momentum before a recovery.
The significance of the private sector’s capacity to respond to the COVID-19 challenge is evident in big business initiatives like the CACOVID fund, but also in start-ups like Lifebank, that crowdfunded donations to pilot our nation’s first COVID-19 mass testing centre with NIMR. Through the COVID-19 Innovation Challenge, seven tech start-ups are now working with the NCDC to support its efforts to contain the virus.
Nigeria cannot afford to lose a generation of thriving small businesses, high growth start-ups and scaleups…75,000 SMEs, high-growth start-ups and scaleup companies make a disproportionate contribution to our economy…Their companies are nimble enough to adapt quickly, and their ambition is audacious enough that they will not give up. They only need a fighting chance.
Nigeria cannot afford to lose a generation of thriving small businesses, high growth start-ups and scaleups to COVID-19. NITDA has already constituted an advisory committee to make recommendations to cushion the impact for tech and tech-enabled businesses. There is concern that 80 percent may not survive. 75,000 SMEs, high-growth start-ups and scaleup companies make a disproportionate contribution to our economy. They are drivers of innovation and capital accumulation, growth engines for high-quality jobs, and wealth creators. They inspire millions of young people to consider meaningful futures as high-impact entrepreneurs, and COVID-19 threatens their existence.
These entrepreneurs will face cost pressures, liquidity issues, supply chain challenges, bankruptcies, closures and job losses. Their companies are nimble enough to adapt quickly, and their ambition is audacious enough that they will not give up. They only need a fighting chance.
Three things are critical: preserving business liquidity, protecting their employees, and stimulating demand. Their businesses will need to shore up their balance sheets and build enough resilience into their teams and operations to bounce back quickly in the recovery.
In the entrepreneurship ecosystem, we (rightly) make distinctions between the financial profiles of traditional SMEs, on the one hand, and high-growth start-ups and scaleups, on the other. Tech start-ups and scaleups are sometimes growing their revenues so quickly that they are yet to make a profit, but they are the key to Nigeria’s digital future. A smart stimulus package must consider their very different financial profiles, and complementary roles, in a vibrant economy. A healthy stimulus for 75,000 small businesses would run into hundreds of billions of Naira. The CBN has announced a N50 billion credit facility for SMEs and households, but this isn’t wide enough or deep enough. In times of crisis, the stimulus toolkit should include a mix of grants, debt & equity, loan forgiveness, government guarantees, and tax incentives & write-offs.
If we are to save as many small businesses as possible, this urgent imperative goes beyond the government.
As our central bank and finance ministry negotiate fiscal support with the IMF, World Bank, multilaterals and other governments, it will be important to keep issues affecting this community firmly on the agenda. There will be opportunities not only to raise cash, but to seek concessions that favour them. With a limited purse, support must also first go to those businesses facing direct disruption to revenues and cash-flows due to COVID-19, and which were otherwise healthy.
If we are to save as many small businesses as possible, this urgent imperative goes beyond the government. It extends to big business, and private sector custodians of capital, including banks, large corporate, institutional investors, HNIs, family offices, philanthropies and non-profits, that share a common interest in securing the vibrancy of our future economy.
The business community needs to organise to provide a structured support program for SMEs, start-ups and scaleups, including liquidity loans, small grants, bridge financing to stalled equity raises, and hybrid instruments. They will also need experienced business advisory and mediation support. We must act quickly to protect a generation of Nigerian businesses.
This article originally appeared in BusinessDay.
