Nigeria’s economic landscape has taken a big hit in light of the coronavirus crisis. This is consistent with the rest of the world. The International Monetary Fund (IMF) predicted that over the coming months in 2020, the world would face the worst recession since the Great Depression of the 1930s. This is seemingly becoming more of a reality with each passing day. Businesses, as well as individuals, have to live and think on their feet to survive. The struggle to get back to a familiar business climate is very essential right now.
The tourism, hospitality, travel, and events industries were the first to feel the weight of forced inactivity. The lockdown and forced isolation measures were put in place by authorities around the world to stop the spread of the virus. Though these measures were a necessary response, they had severe effects on business activity. World economies would subsequently slip into a global recession of epic proportions.
Businesses around the world were put on notice with the global stock market crash that took place on the 20th of February. Businesses were forced into cautionary deals and investments also slowed down significantly. In Nigeria, this was especially noteworthy.
In August 2020, the UK officially entered into its first technical recession – defined as two consecutive quarters of economic decline – since 2009. Reacting on Twitter to the news of recession in the UK, Tunji Andrews, an economist and business analyst said: “Nigeria will join soon as will most of the world. Recessions hardly ever happen in a vacuum. One event may be the catalyst but there are usually events unfolding up to it. For the UK, it was BREXIT then Covid-19. For Nigeria, it was the madness in the oil market and then Covid-19.”
The Naspire 2020 Half-year Business Insights reported that Foreign Direct Investment only accounted for 3.66 percent ($214.25 million) of the total capital inflows; this was representative of a decline of 16.72 percent in FDI from Q4 2019. The Nigerian Stock market also experienced effects first hand. It was reported that investors lost over NGN2.3 trillion (US$5.9bn). This was within three weeks of the announcement of the first case of coronavirus in Nigeria on January 28, 2020.
In the wake of the crisis, banks and other lending institutions were not able to properly service loans because their overall earnings were affected. Borrowers were also not able to pay back loans with the reduced circulation of income. As a result, institutions halted the dispensing of loans, actions that trickled down to business owners across the country.
The Nigerian market in general has seen an upsurge in the costs of doing business. The market is highly reliant on imports. This has led to serious restocking issues. A lot of businesses procure their stock from large export markets like China. The restrictions on the transportation of goods across the globe have led many retailers and wholesalers to source their products locally. The new adjustments have brought with them several unprecedented costs and have given rise to more creative approaches towards carrying out operations.
In a virtual meeting with Chief Executive Officers (CEOs) of conglomerates in May, Central Bank of Nigeria (CBN) Governor, Godwin Emefiele explained that the CBN, in line with President Muhammadu Buhari’s desire, was determined to return the Nigerian economy to the period when the manufacturing and agricultural sectors formed the base of the economy.
“As Nigeria continues the process of the full reopening of its economy due to the lockdown over Coronavirus (Covid-19), the nation needs industrial conglomerates to support efforts aimed at growing the Nigerian economy,” he said.
While acknowledging the challenge Nigeria faces with low crude oil prices, Emefiele expressed confidence that the price of crude would not remain at low levels for a long period. According to him, Nigeria’s foreign reserves of about $37 billion remained robust to support the economy. However, beyond the CBN governor’s statements, reduced crude oil prices and reduced demand have greatly affected the health of the Nigerian economy.
Parallel and Importers & Exporters (I&E) Window noted that sales from crude oil make up more than half of Nigeria’s total exports and 60 percent of foreign exchange. Right now, the pandemic, and the on-going price war between Russia and Saudi Arabia, have driven down oil prices to less than US$18 per barrel since April.
The Central Bank of Nigeria, in an attempt to stabilise the Naira’s valuation against the Dollar, adjusted the exchange rate from N306 to N360. The exchange rate under the investors and exporters (I&E) window was also adjusted from N360 to N380, to unify the collective exchange rates across the I&E, Bureau de Change, and retailer-wholesaler businesses.
The Pay TV industry’s struggles are also noteworthy. Companies around the world, and in Nigeria, in this space, have been forced to make adjustments in business dealings. Sky UK increased the price of its satellite television packages, writing to subscribers to inform them of the price adjustment. These changes took effect on April 1, 2020. Customers on the Original Bundle were to see prices increase by £2.20 per month. Sky stated that increase was in line with the effort to continue to bring its customers entertainment and innovative products that they could enjoy, 365 days a year.
In Nigeria, Startimes raised the prices of its subscriber packages. The company stated that this was due to the fact that the Federal Government increased Value Added Tax (VAT) from 5 percent to 7.5 percent. Startimes had previously chosen to bear the cost of the increased tax and could no longer continue to do so.
“Our business is not exempted from the effect of the Naira depreciation affecting all businesses in the country. All of our foreign content is bought in dollars and to continually serve our subscribers the best content, the subscription price has to be reviewed upwards,” the company’s Brand and Marketing Manager, Viki Liu said.
Analysts say it is likely that MultiChoice, the market leader in Nigeria’s Pay TV sector, will have to make price adjustments if things do not improve.
Transportation costs have also increased. In Lagos, the Lagos Metropolitan Area Transport Authority (LAMATA) increased the prices of bus fares in July. According to the organisation, the price change was the only way to prevent the transport business from going under. Abiodun Dabiri, LAMATA MD, noted that the operational costs on fuel, oil, and tyre had increased by 71 percent, 64 percent, and 90 percent respectively.
The Federal Airports Authority of Nigeria (FAAN) also recently raised Passenger Service Charge (PSC) by 100 percent for both domestic and international travellers. Airfares have also increased since domestic flights resumed after the lockdown, with some airlines raising prices by as high as 50 percent.
For the everyday Nigerian, prices of local food stuff also show a significant increase in the cost per unit of items. A 50kg bag of rice previously sold for N18, 000 now costs N21, 000, while a paint bucket of Garri that was sold for N350, is now being sold for N1, 300.
Businesses like Shoprite and Mr. Price have also struggled within the Nigerian business environment. Long-running losses and other issues have been cited as factors for their decision to leave.
According to Tunji Adegbite, analyst and founder of research firm, Naspire, “The continuous exit of foreign brands from Nigeria might send a bad signal to other foreign investors thereby reducing inflow of critical foreign investments needed to stimulate sustainable and robust economic growth.”
Small & Medium Scale businesses across Nigeria are also having a rough go of it, with a lot of them seeking relief.
According to Jonathan Lavender, Global Head of KPMG Private Enterprise and Head of Markets, “It has become necessary for governments to introduce incentives and economic relief programs that help alleviate business stress and bolster economies. Additional financial relief mechanisms include corporate income tax rebates, deferral of government payments, and reductions in tax rates to help owners retain more immediate cash in their business.”
Stakeholders in the Nigerian business sector are also calling on the Nigerian government for strategies, policies, and financial infrastructure, to help the economy get out of this slump. Such programmes should include interest-free, non-collateral loans, corporate income tax rebates, deferral of government payments, and reductions in tax rates to help owners retain more immediate cash in their business.
If conditions remain until the end of the year, it could invite long-term distress for both corporates and ordinary Nigerians, running into the coming years.
Orodare is a writer and journalist based in Lagos.
