Nigerian President Muhammadu Buhari, last week announced the extension of the 2 weeks long lockdown for an extra two weeks, as the country fights to keep the toll from the coronavirus pandemic low, through social distancing measures.
The economic fallout from these and other measures around the globe is forecast to be particularly dire.
The coronavirus outbreak could affect a third of the 440 million formal and informal jobs in Africa as lockdowns across the continent deprive people of the means to make a living, according to McKinsey & Co.
Between 9 million and 18 million of the continent’s 140 million formal jobs could be lost as a result of the crisis, McKinsey said in its Finding Africa’s Path report.
A further 30 million to 35 million could see a reduction in wages and working hours. One hundred million of the 300 million informal jobs on the continent are at risk, it said.
In major sectors such as manufacturing, retail and wholesale, tourism, and construction, the jobs of more than half the workforce could be affected, McKinsey said.
For companies and individuals caught up in this storm it is indeed sobering. So what financial lessons can be learnt from the lockdown so far?
Always have liquid assets
Firms globally have been scrambling to shore up their cash and preserve lines of credit with banks, amid the disruptions that have happened.
One report suggested that companies are turning to bank loans because their preferred source of cash — the corporate bond market — has all but ground to a halt.
Analysts are looking at bank deposits for strain on the system as stressed companies may withdraw money, prompting lenders to rely more on other forms of short-term funding.
In Nigeria, the overnight interbank rates or NIBOR traded at 3.31 percent on Friday, a sign that there is not much stress on the system as yet.
Another reason to have a percentage of your assets in cash or cash equivalent liquid assets is that a time of crises is not the time to begin to look who to sell non liquid assets like property or to expect rental income as some tenants are sure to default or delay payments.
Have a 6 – 12 month emergency fund
For individuals the usual benchmark for sound personal finance, is to have the equivalent of at least 6 months of one’s salary saved up in a rainy day fund.
The uncertainty thrown up by the current crises means that no one is sure when it will end and any such rainy day fund will surely come in handy for a lot of people.
For companies this may also be handy as working capital funding sources may dry up abruptly in a time of crises, leaving them unable to pay salaries or fund operations.
Digital commerce is a must
One major lesson that the coronavirus crises has taught most firms is the need to have operations that can run seamlessly online even without physically being on ground.
Traditional e-commerce firms had long learnt this lesson, however other firms have been slow to adapt.
The social distancing measures mean that digital offerings should be a major part of all businesses.
This includes digital/online after sales support as well as robust digital payment systems.
Importance of risk management
Analysts say risk management is not just about investing but about unexpected things such as the current pandemic the world currently faces and the uncertain future businesses and workers face globally.
As such a firms risk management processes are very important. How exposed were banks in terms of loans given out just before the pandemic hit? What about indigenous oil companies? How leveraged were their balance sheets as Brent crude collapsed and are we expected to see another round of distressed energy firms and loans tied to them?
For individuals risk management is also vital. Taking on too much projects at the same time, or being over leveraged would not have been a good situation to be in right now.
While the epidemic has been slow to take off in Africa, the fallout from the disease has decimated the economies of the continent.
Shutdowns across many countries have curbing activity while the slowing of global supply chains has depressed the prices of the commodities many countries export. The World Bank now projects the region will have its first recession in 25 years.
Coming out of such a recession for Nigeria and getting back to the previous growth curve will require resilience by its firms, businesses and individuals.
The lessons from the coronavirus if learnt and applied by companies and individuals alike should help build better balance sheets and a stronger economy going forward.
