THE IMPACT OF COVID 19 ON SMES – A CASE STUDY OF NIGERIA

THE IMPACT OF COVID 19 ON SMES – A CASE STUDY OF NIGERIA

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

Recently, many small and medium-sized enterprises ( SMEs) have suffered dramatic losses due to the Corona Virus (Covid – 19) pandemic in the world as well as in Nigeria in particular. The Covid-19 pandemic triggered unparalleled chaos, damage and devastation to both the public and private sectors. The crisis is seen as an existential threat to the global economy, with governments and corporations struggling with the consequences. There has been increasing apprehension of the potential impact of the pandemic, particularly on small and medium-sized enterprises ( SMEs). Although the health impact of the crisis is significant, the economic impacts are no less devastating, particularly for businesses (Falokun, 2020).

In December 2019, Covid-19 was first identified in Wuhan, China, and caused colossal deaths and spread to almost all parts of the world (Akanni and Gabriel, 2020). On February 27, 2020, the first case of Covid-19 was identified in Nigeria. According to the WHO (2020), the total number of confirmed cases worldwide as of 1 pm on 28 July 2020 (GMT+1) was 16,301,736, whereas there were confirmed deaths of 650, 069 in 216 countries , regions or territories. As of July 28, 2020, 41,804 cases, 18,704 discharged patients, and 868 deaths were reported by the Nigerian Centre for Disease Control (NCDC) and the number of tests in Nigeria was 267,842 (in a population of about 200 million people). No company was likely to have prepared for COVID-19, irrespective of business size. Public Health Research has informed business owners to always make for this type of emergency, but in the real sense, only big businesses often have formalized plans (Rebmann, Wang, Swick, Reddick and Delrosano, 2013). From the early spring of 1918 until the late spring of 1919, the 1918 pandemic killed about 40 million people worldwide (Turner and Akinremi, 2020). Goldman Sachs economists estimated that due to the virus, the United States is likely to have a gross domestic decrease of 3.8% by 2020 (Hatzius, Phillips, Mericle, Hill, Struyven, Choi, Briggs, Taylor and Walker, 2020). Igwe (2020) noted that because of the Covid-19 outbreak, the world economy is facing the worstever economic recession. The global economy is expected to account for economic losses via three transmission channels: supply chain, demand, and the financial market. These channels will negatively impact businesses, household consumption, and international trade. Covid-19 Pandemic has put pressure on policymakers and supervisory institutions across the globe, sparking off several mitigating initiatives by Government agencies to combat the potential negative social-economic impacts on households and businesses (KPMG, 2020). A pandemic impacts both supply and demand (Swift 2009). The Covid-19 Pandemic, most negative, will impact all companies, some positively. The Pandemic is still ongoing; therefore, it is not easy to estimate its long-term economic, behavioural, or societal consequences as this aspect has not been done with past Pandemic (Donthum, and Gustafsson, 2020). The COVID-19 outbreak is likely to cause bankruptcy for many well-known brands in many industries as consumers stay at home, and economies are shutdown (Tucker, 2020). The impact of Covid-19 on the global economy is likely to be unprecedented since the 1930s Great Depression (Euronews, 2020). The short term impact of Covid-19 is immediately and effortlessly felt, due to the widespread lockdown and social distancing measures globally (He and Harris, 2020). SMEs play a vital part in social inclusion, innovation in rural areas, and local employment (Auzzir et al . , 2018). SMEs suffer most in times of crisis and are the least prepared for all organizations. SMEs also lack business continuity plans. Having a strong business continuity plans may help minimize any negative impact on business during a pandemic (Turner and Akinremi, 2020). Covid19 has created severe challenges for SMEs all over the world. Adverse effects include supply chain interruptions, cash flow problems, weaker demand for imported goods and services, failure to meet delivery dates, and increased financial market risk aversion. (2020, OECD). By ensuring that goods are delivered during and after public emergencies, SMEs are essential to the smooth functioning of any economy (Burton, Confield, Gasner, and Weisfuse, 2011). As a result of Covid-19, the Nigerian economy has experienced devastating effects; this includes a sharp drop in oil prices, borrowers’ inability to service loans, disruption of the global supply chain, drop in revenue and also the pullout of Nigerian stock market investor funds (Ozili, 2020).

As well as an economic slowdown, the coronavirus pandemic is causing a global health emergency. Investment, employment, trade and economic growth are all adversely affected by the crisis, and the achievement of a country’s financial objectives is bound to be negative. As movement restrictions have increased, there has been a growing concern among stakeholders about the consequences for small and medium-sized enterprises (SMEs ) in Nigeria. It has become extremely clear that, as the health-centric response to coronavirus increases, small and medium-sized enterprises in Nigeria will face significant difficulties in their operations, ranging from higher production and distribution costs to supply chain pressures. Even if COVID-19 eventually fades away, the impact on enterprises will last longer than anticipated; it is therefore necessary to investigate the impacts and formulate viable responses to enable enterprises in Nigeria to be stable and sustainable.

In support of the above view, Ajose (2010) argues that the center of economic development and the first point of touch for the business world is small and medium-sized enterprises, but Covid-19 has had a major effect on business operations. Small and medium-sized enterprises are helping to drive savings in investment and encourage the use of local raw materials. We help to diversify economic development and make a major contribution to exports and trade. Small and medium-sized enterprises are also critical for poverty reduction, as they tend to employ poor and low-income employees and are often the source of jobs in rural areas and poor regions. In addition, by manufacturing intermediate goods for use in large enterprises, small and medium-sized enterprises are contributing to the strengthening of industrial relations. This explains the growing interest shown by developed countries in supporting small and medium-sized enterprises since the 1970s (Ekpenyong and Nyong, 1992). According to Bonga (2010), many economies have lagged behind in promoting small and medium-sized enterprises and missed the benefits they bring to a nation due to Covid-19.

1.2    Statement of the Problem

The Covid-19 pandemic affected the global economy in two ways: one, the spread of the virus promoted social distancing that led to the shutdown of financial markets, corporate offices, businesses and events, two, the rate of spread of the virus and the increased uncertainty about how bad the situation could lead to a consumer and investment flight to safety In many countries, the travel restrictions imposed on the movement of people led to massive losses for businesses in the events industry, the entertainment industry, the hospitality industry, and the sports industry. Globally, the combined loss has been estimated at over $4 trillion (Ozili, 2020). Due to cashflow concerns, some SMEs do not live beyond one month (Farrel and Wheat, 2016). SMEs are therefore at high risk of permanent closure after large-scale disasters, partly because while they are shut down, they can not pay for their expenses (Schrank, Marshall, Hall-Phillips, Wiatt, and Jones, 2013). Whether or not they can continue their operations, the coronavirus (Covid19) pandemic has created major disruptions in the economy and the lives of companies worldwide. These disruptions have a wide range of effects on businesses and many of them are financially struggling (OECD, 2020). In many major advanced economies, the overall direct initial hit to the level of GDP is typically between 20-50 percent (OECD, 2020). Several businesses had to lay off workers, while others had to decrease their working hours (Edgecliffe-Johnson, 2020). The pandemic has led to severe global socio-economic disruption, sporting, religious, political, and cultural events being postponed or cancelled, and widespread supply shortages (Turner and Akinremi, 2020). In China, global supply chains affecting companies around the world have been disrupted by a drop in consumption combined with production interruptions (Fernades, 2020). A great deal of industry has been shut down by the Covid-19 pandemic outbreak, leading to a monumental loss to commerce and commerce in many manufacturing sectors. In terms of workforce, health and safety, cash flow, supply chain, consumer demand, sales, and marketing, retailers and brands face many short-term challenges. There are no longer many markets, particularly in hospitality and tourism, while online shopping, internet communication, and online entertainment have seen unprecedented growth (Donthum, and Gustafsson, 2020). In addition, during the lockdown, there was an increase in social media use and the internet (Donthum and Gustafsson, 2020). This is a result of loneliness associated with lockdown as people even prefer social media over physical interaction (Newland, Necka, Cacippo, 2018). Larger firms may be able to survive shocks more than the SMEs because large firms have significant financial resources more than the SMEs (Verbano and Venturi, 2013). Environmental jolt or risk of an extreme event (Neyer,1982) exposes an SME to higher levels of strategic uncertainty, which impacts upon its everyday activities and may, in some cases, threaten its survival (Sullivan-Taylor and Branicki, 2011). Like many countries across the world are facing unprecedented challenges as a result of the Covid19 Pandemic (UNDP, 2020). Nigeria and her people are no exception. Like Albert Einstein famously proclaimed: “Amid every crisis lies great opportunity” for managers, the Covid-19 crisis creates an opportunity to foster transiliency and thus better cope with the next Pandemic (Craighead, Ketchen, and Darby, 2020).

1.3 Objective of the Study

1. To examine the effect of covid-19 on the sales volume of small on small and medium scale enterprises
2. To examine the effect of covid-19 on the profit margin of small on small and medium scale enterprises
3. To examine the effect of covid-19 on production output of small on small and medium scale enterprises
4. To examine the effect of covid-19 on market share of small on small and medium scale enterprises
5. To examine the effect of covid-19 on supply chain of small on small and medium scale enterprises

1.4 Research Questions

1. What is the effect of covid-19 on the profit margin of small on small and medium scale enterprises?
2. What is the effect of covid-19 on production output of small on small and medium scale enterprises?
3. What is the effect of covid-19 on market share of small on small and medium scale enterprises?
4. What is the effect of covid-19 on supply chain of small on small and medium scale enterprises?
5. What is the effect of covid-19 on supply chain of small on small and medium scale enterprises?

1.5 Hypotheses

1. There is no significant effect of covid-19 on the profit margin of small on small and medium scale enterprises
2. There is no significant effect of covid-19 on production output of small on small and medium scale enterprises
3. There is no significant effect of covid-19 on market share of small on small and medium scale enterprises
4. There is no significant effect of covid-19 on supply chain of small on small and medium scale enterprises
5. There is significant effect of covid-19 on supply chain of small on small and medium scale enterprises

1.6    Significance of the Study

It is possible to interpret the relevance of this analysis from the following viewpoints. The important importance of this research is that it will act as a bridge for the distance created between where past studies ended on this subject area and today when finished.

This thesis is important in the sense that its results will act as a basis and foundation for further studies in the field of expertise under review to be carried out by future researchers.

The work understudy will support academics and government at various levels and their departments and non-governmental organisations during the post-covid-19 era in their engagement and decisions on small enterprises and entrepreneurship growth initiatives and related topics.

 

Small business owners may find this study’s results valuable for successful control of SMEs. This research will provide information to understand the potential threat to business operators posed by covid-19.

The importance of this analysis would include all those who, such as academics or students of organizational behavior, performance management, competitiveness, human resources and business administration, would benefit from and use the analysis knowledge.

1.7    Delimitation of the Study

The study was delimited to the effect of corona virus covid-19 on small on small and medium scale enterprises in Obio Okpor local government area of Rivers State

1.8 Limitation of the Study

The drawback of this research was the reluctance of management to reveal such details that they deem to be confidential and afraid of publication that could affect their activity.

Also, one of the drawbacks of the sample is the outright failure of certain respondents to complete and return the questionnaire to the researcher. For the researcher to visit them in their offices and for potential return of the questionnaire, another drawback to the analysis was traffic congestion.

Finally , to make knowledge accessible to her, the researcher noticed the non-cooperative behaviour of certain company staff.

 

THE IMPACT OF COVID 19 ON SMES – A CASE STUDY OF NIGERIA

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