Recovery 103: Translating public financial packages to liquidity

SMEs

There has been robust discussion of the fact that we can fast-track post-COCID 19 recovery by putting money in the hands of SMEs and households. While it would help the former to resume their production and services activities and restore some level of the vaporised cash flows, it would also assist in stemming the challenge of vanishing consumer spending. We are also mostly in agreement with the fact that the government and its key financing institutions, especially public or development banks, should spearhead this recovery financing. This agreement is evidenced by the steps taken by governments across the world to provide financing packages to assist the most impacted economic agents. It is however, equally important to ensure that such financial provisions do indeed get to the target segments of the society and not remain in the vaults of public banks. We have seen cases where funds “earmarked” for SMEs were never “eye marked” by them, apologies to some Nigeria complaining about public finances in the country.

In some domains, the role of public banks, and special financing institutions, have been strengthened by law to enable them take serious steps to put money into the system. Many cases, legislatures have made laws to permit special funding activities targeting the SME sector and households. In the United States, the CARES Act provides approximately $2 trillion to help individuals and businesses that may be impacted by the pandemic. It made provision for a number of initiatives, which aim to provide urgently needed financial assistance to small businesses and their employees, and for non-profit organisations as well. Some of the channels provided to direct funds to the target beneficiaries include the fact that small businesses in America can access the lending programmes of the Small Business Administration (SBA), and enjoy debt relief programs. Temporary tax breaks and deadline extensions for both individuals and businesses, and improved unemployment benefits to individuals impacted by the COVID-10 are also included.

While these funding support opportunities may sound quite good, especially to the potential beneficiaries, we do not expect the Nigerian authorities to just copy what they do in America or elsewhere and transplant to our system. We need to think about our own peculiarities and design appropriate responses, keeping the objective of getting cash out of the vaults to the people. It is not right to pass tax-payers’ money to individuals without regard to equity and a sense of natural justice, more so when such monies are going to individuals who are ordinarily engaged in private business. This is the realistic part of the story. Transfer payments need to be properly thought out and managed, not only with regard to equity, since recipients give no real value, but also for accountability because it could be a source of major scandals, especially in environments of endemic corruption, like most developing countries. This challenge of carefully managing transfer payments was clearly reflected recently in Nigeria, when cash palliatives were allegedly hauled by certain public officials to places of interest to them, and physically handed out to alleged relatives and friends, to the exclusion of many others, raising quite some commotion.

What SMEs need most right now is to continue to run their businesses and pay the staff, and that calls for cash injection. The criteria for accessing the facilities meant for them may profit from strict resort to the official definition of SMEs in Nigeria, which takes into account the number of employees and capitalisation

Some of the measures announced by the Nigerian Central Bank, which has been playing an extensive development role in recent times, include the ₦50 billion credit facility for both SMEs and households. Not only is the amount too small, relative to certain costs considered even unnecessary in the present circumstances, its operational modalities do not reflect much insight that ought to have been gained from earlier financial packages made available by the government but remained largely undisbursed. Perhaps, we may achieve more, and reduce the tendency to poor implementation, if we get more specific particularly with regard to procedures for disbursement.

What SMEs need most right now is to continue to run their businesses and pay the staff, and that calls for cash injection. The criteria for accessing the facilities meant for them may profit from strict resort to the official definition of SMEs in Nigeria, which takes into account the number of employees and capitalisation. These are verifiable facts that will obviate misdirection of financial assistance to reflate the economy and avoid distress. Specific payroll loans with clear repayment terms may be better than grants handed out at the whim of privileged officials. This will be better if the government adds its guarantees to private bank loans, while also using public banks to push the ball. The Bank of Industry and the big five microfinance banks have some experience in dealing with the economically active poor and households. They may be more effective in certain public funding programmes.

While development banks and indeed, the usual funding channels for SMEs and the economically active poor, should play leading roles, operators in the SME space must take steps to complement such financing. There is still a lot they could do for themselves to promote the much-needed rapid transition to digitalism. The first thing is to embrace the new normal – anything that can be transited to the digital space must not wait a moment longer. Anything that can go online should do so now. This is especially so for service firms providing such services as foods. Providers of in-person services must not allow the expected lethargy to drown them. It is time to migrate to online services. Doctors should begin to see their patients online, while cakes and birthday gifts should be sent and not brought in person. Drones are doing it in China and some other places. Investment is needed here and that is the kind of loan we are talking about. Indeed, a packaging industry to take care of should be kicking off right now because of this transition to the digital space.

Second, this is the era of the virtual market place. Everyone that has anything to sell now has a stall in the virtual market place to rent and populate with goods. Look out. Your hop is waiting to be occupied. Get on a platform; make your own marketing materials and hit the road. Advertising is the way to go and there are limitless opportunities to show off your product or service. E-commerce has come to make everyone rich. Get going, while the government adds the tonic to your business by translating its financial packages to real cash in the economy.

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