Lockdown: Unemployment rate may hit 45 per cent by December 2020 ― LCCI

The Lagos Chamber of Commerce & Industry (LCCI), in its report on the impacts of the lockdown on businesses, has revealed that 81 per cent of business has been severely affected due to the lockdown imposed in the aftermath of the COVID-19 outbreak. This is even as the Chamber said unemployment rate may surge to 40 per cent – 45 per cent by end-2020 from 23.1 per cent as at Q3-2018.

In a report on Sunday titled ‘Lockdown And It’s Impact On Businesses: LCCI Survey Report’, the Chamber explained that Lagos State was used as a case study for the report due to its commercial and economic importance to Nigeria.

The survey captured business operators across various sectors of the economy including food processing, agriculture, financial services, professional services, ICT, exports, trade and freight forwarding.

According to the report which was signed by the LCCI Director-General, Muda Yusuf, “Classifying the sectors into three broad categories, 72 per cent of our respondents operate in the services sector, 18 per cent in the industrial sector and the other 10 per cent in agricultural space.

“The dominance of services in the sectoral distribution could be attributed to the fact that services currently has the largest percentage contribution to Nigeria’s GDP (Full Year 2019: Agriculture: 25 per cent; Industry: 22 per cent; Services: 53 per cent).

“The findings of our survey are enumerated as follows: A significant fraction of sampled businesses, precisely 81 per cent, were ‘severely’ affected by the lockdown with 17 per cent indicated a moderate impact on their business.

Additionally, the lockdown had a severe impact on over 50 per cent of businesses in the services sector. The profound impact on the services sector is as a result of lower demand for services by individual and corporate clients. During the lockdown, clients prioritized food and essential items ahead of ‘relatively less important’ services, and corporate clients ran skeletal operations, which depressed demand for {non-essential} services.

“On revenue loss, majority of the respondents (64 per cent) reported a loss of N500, 000 and below daily during the lockdown while 16 per cent indicated a loss of between N 1million – N2million. About 20% of businesses indicated a loss of N2 million and above daily during the lockdown.

“A conservative assumption that sampled business operators lost an average N500, 000 each day during the lockdown suggests that each operator lost N17.5 million within the five-week lockdown (March 31-May 3, 2020). This modest estimation indicates that about N2.7 billion was lost in revenue by sampled businesses (n=153) to the lockdown. This translates to trillions of naira losses for thousands of businesses operating in Lagos.

“On cost optimisation, our findings showed that selected business operators are weighing different cost-cutting strategies to help minimise losses and stay afloat in the post-pandemic era. Majority of the respondents (63 per cent), plans to downsize operations to minimise losses. This is unsurprising as businesses have not generated income over a 5 weeks period and have lost trillions of naira in profit due to lockdown. This suggests that the unemployment rate is expected to increase drastically post-lockdown except government takes urgent steps to support business owners towards surviving and ensuring business continuity.

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“Most of the respondents (46 per cent) intend to slash salary and reduce the workforce as a joint measure, 24% plan to cut personnel cost only. Thirteen per cent intends to trim staff strength only while 17 per cent are proposed no salary payment.

“Cost-cutting strategies particularly downsizing has implications for the economy from unemployment and productivity perspectives. First, it will exacerbate the already-high level of unemployment as more and more workers risk impending job losses. This may see the unemployment rate surge to 40 per cent – 45 per cent by end-2020 from 23.1 per cent as at Q3-2018.

Additionally, the potential risk of huge job losses will aggravate the magnitude of stagflation (high unemployment + high inflation + low growth) in the economy. This has a ripple effect on the Gross Domestic Product (GDP) given that private consumption by households accounts for about 60 per cent of national output.

“On palliatives for businesses, business operators indicated they would want to see government support their respective businesses. Most of the respondents (41 per cent) requested a reduction in interest on loans; 29% want tax waivers; 17 per cent want to import/demurrage waivers and 13 per cent indicated extension on loan repayment.

“Some of the palliatives requested by sampled businesses have already been provided for by recent actions of the Central Bank of Nigeria and Federal Government. The CBN did announce a reduction in the interest rate on all its facilities and gave a 12-month moratorium. The Federal Government equally gave three months extension on its loans and social welfare schemes. However, this finding shows that businesses would need a reprieve from both commercial banks as well as government agencies that collect one form of tax or levies from businesses. It is critical for financial institutions to offer a reprieve to their corporate customers through loan restructuring, either by cutting lending rates or extending the repayment period. The government on its part would also need to do more to help keep many businesses afloat going forward.

“On specific business support using thematic analysis, the Chamber classified desired business support into four areas – finance, power, taxes and foreign exchange.

FINANCE: Access to credit facilities at concessionary terms; Setting up a special support scheme for MSMEs; Liberalization of SMEs loans across various sectors of the economy; Relaxing the collateral requirements for MSMEs loans.

TAXES/WAIVERS: Suspension of current tax liabilities/ tax waivers; Reversal of the 50 per cent increment in VAT from 5 per cent to 7.5 per cent to support aggregate demand and minimize operating costs.

FOREIGN EXCHANGE: Access to foreign exchange at a unified rate

POWER: Addressing the humongous costs incurred on the self-generated power supply, majorly responsible for the high operating and production costs faced by enterprises in the business environment.

“On the way forward, it is imperative to have a strategy aimed at enabling businesses to navigate through the current storm caused by the pandemic and jumpstarting the economy in general. The following actions or measures for the business community and for the economy is hereby listed for considerations both by the government and the organised private sector:

“The consensus deduced from the discussions and recommendations for actions are as follows.

“Holistic but negotiated response. A national plan of action coordinated collaboratively is critical and urgent.

“Public and private sector must make concerted efforts to protect businesses, jobs and income. It is imperative to finetune HR policy and strategy with a view to reorganise work and make production adapt to the new reality.

“Joint actions to sustain output and commitment to cooperate and protect the market from significant damages are needed.

“Government should redesign or develop a national policy to protect jobs and income. This must be done in collaboration with private sector operator.

“Substitute debts with equity. Valuation of national assets and make a strong attempt to attract equity into assets to boost foreign exchange liquidity. This will eliminate the intractable burden of debt services and avail government more resources to build infrastructure and provide necessary public goods.

“Implement reforms to enhance governance capacity and leverage private sector expertise and experience for efficiency in allocating resources.

“A year tax break for healthcare & pharmaceutical companies, airlines, manufacturers, agro-processors, SMEs and hospitality players.

“Suspension of the implementation of the new VAT regime rate till year-end.

“Solution-focused coordinated advocacy. The private sector should develop a platform to harmonise initiatives and actions. The platform should support the government, in policy design, implementation, and evaluation of effectiveness of responses.”

NIGERIAN TRIBUNE