Against his wish, Matthew Ade, a father of three who lives in Festac Town, Lagos, has withdrawn his last child from the private primary school he attended. The little boy now attends 4th Avenue Primary School on 401 Road, Festac, a public school where he does not have to pay any fees at all. Likewise he has pulled out his second child from a high profile private secondary school to a cheaper one. Only the first child, who is preparing to write the May/June Senior Secondary School Certificate Examinations, is left in a private school.
Just last month, the courier services company where he has worked for 10 years announced that it was facing financial challenges. As a cost-cutting measure, the company decided to compulsorily retire staff who had served for 20 years and above. Other staff apart from senior management who earned above N200,000 were given an option of voluntary resignation or a 40 percent salary cut. The company planned to replace exiting staff with contract staff who would earn as low as N60,000. That was how Ade found his monthly pay short by N80,000. But he counts himself even lucky.
“My salary is now just about N120,000. But it is better than outright loss of job. My wife was not so lucky. The manufacturing firm where she earned N80,000 monthly gave her the sack in December. So, our family income has reduced by N160,000. We have to adjust until things improve,” Ade says.
Both Ade and his company are responding to the current economic realities in the country, just as every other Nigerian. Amid steady fall in oil prices, foreign exchange crisis, falling naira, rising inflation (9.6 percent for December) and other economic headwinds, coupled with a government that has as yet shown no sense of economic direction after nine months in power, analysts predict that tougher times lie ahead of Nigeria in the months ahead.
Bismarck Rewane, renowned economist and managing director/CEO of Financial Derivatives Company (FDC) Limited, only recently described 2016 as “a year of economic turbulence”.
“In layman’s language, we can say that most Nigerians should fasten their seatbelts in anticipation of the rough tide ahead,” said Rewane.
How firms are responding
For many firms, they are following the conventional wisdom that it is better to throw all heavy weight overboard to keep the ship afloat than retain the heavy weights and watch the ship sink. As such, they have resorted to all sorts of cost-cutting measures including voluntary retirement, salary cuts, outright sack, or, to borrow a technical term they like to use, “restructuring”, while those can no longer cope have closed shop.
The manufacturing sector seems to be worst hit. According to the Lagos Chamber of Commerce and Industry (LCCI), CBN’s forex restrictions caused Nigerian manufacturers a total loss of N1.46 trillion in stalled business activities between June and December 2015.
“Private operators across several sectors (Fast Moving Consumer Goods, steel, furniture, pharmaceuticals and manufacturing) lost about N1.46 trillion in stalled business activities resulting from paucity of forex over the last six months,” Muda Yusuf, director-general of the chamber, said in a statement.
Yusuf said available data showed that Nigeria Customs Service’s revenue contracted in 2015 relative to 2014 owing to the phenomenon, adding that in 2015, unfriendly business environment undermined the capacity of investors to maximise abundant business opportunities in Nigeria.
He stressed that sectors such as manufacturing and the services slipped into recession after recording successive declines over the last three quarters in 2015.
“The successful democratic transition that ushered in a new political administration presented a new wave of optimism on the back of the inherent goodwill of the administration at the federal level. However, business activities were largely slow for a better part of the year due to uncertainties around the general economic policy direction of the present administration,” he said.
Owing to the fact that over 50 percent of raw materials used in factories are imported, some factories that cannot access forex have shed hundreds of jobs while a number of plants have shut down.
In the oil sector, the steady fall in crude prices from more than $100 a barrel 18 months ago to around $30 a barrel now has driven many firms into desperate measures.
“When the price of crude oil began to fall in mid-2014, our MD told us that even if the price of the commodity fell to $10 a barrel he would not downsize. But just last month, as at the time the crude oil price hovered around $30/barrel, with some of our projects stalled owing to cash-related issues, the MD called an emergency meeting and asked for suggestions on the way forward, and some people suggested voluntary retirement for staff who are nearing their retirement,” says Modestus Awotu, who works in a highly rated oil servicing firm in Warri, Delta State.
“Already, about three or four very senior people have voluntarily retired, but these are big people who have other businesses in full operation. The impasse remains unsolved. You could perceive the tension in the air within the office. We all know something must give, and very soon too,” he adds.
Royal Dutch Shell just recently confirmed it would cut 10,000 jobs as it recorded its steepest fall in full-year earnings in 13 years, from $19bn in 2014 to $3.8bn last year. The company said it made $1.8bn (£1.23bn) for the fourth quarter of 2015, compared with a $4.2bn profit for the same period the year before.
“We are making substantial changes in the company … and reducing costs and capital investment, as we refocus Shell, and respond to lower oil prices,” Ben van Beurden, the company’s chief executive, said in a statement on Thursday.
“In 2015, we significantly curtailed spending by reducing the number of new investment decisions and designing lower-cost development solutions,” he added.
In the banking sector, many jobs have been lost since last year, and with analysts projecting that macroeconomic and regulatory challenges resulting in banks’ weak revenue and poor assets quality, among other factors, may trigger Mergers and Acquisition (M&A) in the industry in the near term, many more jobs may have to go.
According to the analysts, the erosion of capital buffers and higher cost of funds as a result of disappearance of cheap sources of funds following some recent measures by the Central Bank of Nigeria (CBN) may lead to the swallowing up of the smaller banks by the big ones, thereby reducing the number of existing banks and possibly impact negatively on the financial inclusion and cashless policies of the CBN.
“Excessively weak risk asset quality and devaluation of the NGN against the USD are more likely to trigger M&A in the sector. Tier 3 banks appear more likely to be acquired in this regard,” said Tajudeen Ibrahim, head of research, Chapel Hill Denham Securities Limited.
The analysts add that Nigerian lenders are currently operating under credit risk environment occasioned by prolonged drop in oil prices, phase-out of Commission on Turnover (COT), implementation of Treasury Single Account and foreign exchange scarcity.
“Nigerian banking sector is in a state of flux, making the near-to-medium term outlook very uncertain,” said Adesoji Solanke, banking analyst at Renaissance Capital, adding that most of the banks are now trading below historical P/B valuations.
The media industry is also not left out as many firms have cut their media budget for the year.
Families bear the brunt
Simeso Amachree, acting secretary general of the Trade Union Congress of Nigeria (TUC), says an average Nigerian is bleeding under the economic crunch the nation has slipped into.
According to him, falling oil prices, rising inflation, naira devaluation and increasing retrenchment in the economy have combined to make an average Nigerian family a laughing stock.
Amachree says with plummeted purchasing power and absence of increase in salary and allowances, it is sorry situation for Nigerians, stressing that the N18,000 national minimum wage was negotiated since 2011.
“If you critically examine what is happening in the country today, you will see that Nigerians are living like walking corpses. What’s life really when an average worker can’t pay his or her children’s school fees or does not know where the next meal is coming from?” says Amachree.
“As if this is not enough pain already, we’re hearing and seeing state governments threatening to sack workers not minding that millions are in the streets already searching for jobs. They want to further compound the already bad situation. These are the woes an average Nigerian family faces in our economy today. That’s why we in the labour believe that the government should take concrete actions to salvage this situation,” he adds.
Ife Azih, a medical laboratory scientist in Onitsha, Anambra State, complains that many of his patients cannot afford to buy drugs because the prices of the drugs rise almost every week.
“When you buy this week and return to buy next week, you won’t find them in the market because the sellers will tell you that they cannot bring them into the country again,” Azih says.
“If you see them at all, then you have to pay through the nose. When people do not see such essential drugs to buy, they are in danger. Moreover, this will encourage some unscrupulous people to look for how to manufacture sub-standard ones here,” he adds.
Ike Ibeabuchi, who has a factory where water purifier is produced in Enugu, says the current economic lull is impacting negatively on his business.
“I buy chemical with which to make the products. But right now, the price of chemical has increased by 300 percent. Again, the price of labels I use has risen by 500 percent. I am now finding it difficult to convince people that the price of my products has changed,” Ibeabuchi says.
He points out that another challenge he faces is that people complain that they do not have money to buy.
“For the first time, I see the real meaning of ‘life is hard’,” he adds.
Eric Biapalu who lives at NNPC, Ejigbo, and works in one of the ministries in Lagos State government, tells BDSunday that the school fees of his two children increased by 50 percent in the new term.
“I had to borrow from my boss who lives at Ajao Estate to pay for my children. When I tried to find out from the school proprietor, he told me that teachers demanded new pay, the rent was increased by the landlord in January and the cost of everything they used in that school had doubled,” he says.
Walter Kayode (not real name) tells BDSunday that his drug-making firm gave him an option of leaving the company or having a pay-cut last month.
“I used to earn N55,000 as a graduate there, but my company said in January that they were going through hard times. They gave me this option but I chose a pay-cut. I now earn N46,550,” Kayode says.
Uju Ibeamalu, who manages Beauty Rise Salon, says she used to make upwards of N50,000 before mid-2015 but now struggles to make N25,000.
“What it means is that people now keep their hair longer than they used to,” she says, adding, “We were three here before, but I had to beg my friend to engage one of my staff here. I took the decision because if I kept her here, I might not be able to pay her.”
A pastor in one of the Pentecostal churches in Lagos, who does not want his name in print,tells BDSunday that bread, the commonest staple food, has been priced out of many Nigerian families.
“I used to buy up to three loaves each week when the price of big bread was between N200 and N220, but I now buy two because the price is N250 now,” says the pastor.
A change that never was?
Meanwhile, Nigerians lament that they have been conned by the All Progressives Congress (APC) which rode to the presidency on a change mantra but which has so far not shown that it even understands what to do about the economy which is clearly in tatters.
“They promised us change, but our mistake was that we did not bother to ask them whether it was positive or negative change. Now we have change, but alas, it’s all negative change; there is nothing positive about this change,” says Ade.
Pat Utomi, renowned political economist, in a recent interview with BDSunday expressed regrets that the APC government has failed to utilize the mandate given to it by Nigerians to turn things around for the better.
“My biggest lamentation of this moment is that I thought the overthrow of the old order that the election of last year provided us an opportunity for would yield a sense for new beginning in the political class, in which true leadership emerges to say this is when to bring everybody together, chart a new course, a new vision for our country, and drive everybody towards that focus. Unfortunately, it didn’t happen and that’s very sad; it’s a big missed opportunity for our country,” said Utomi.
For Rewane, “The APC has not shown a proper understanding of economics and is still trying to figure out what the problem is. It has run out of time, because the honeymoon is over. Now the government has to reignite the economy to life and simultaneously convert economic wealth into economic wellbeing for the people.”
CHUKS OLUIGBO, JOSHUA BASSEY & ODINAKA ANUDU
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
