Unprecedented Changes As A Result Of Covid 19

The outbreak of Coronavirus disease (COVID-19) pandemic has exerted unprecedented changes worldwide in a stint of a few months across multiple countries and economies and it has introduced a new wave of disruption never seen before, the industry will change again, and the landscape will witness an impact from deal-making to fundraising. The health systems have been stretched to the limits and the economic impacts are taking their toll on government revenues, businesses, families, and individuals across the world. This has prompted various governments across the world to introduce fiscal and economic stimulatory measures to enhance the impact of the pandemic on businesses and save their economies from collapse.

As it is the world is still recovering from the shallows of the 2008 financial crisis, industries like venture capital and private equity steadily progressed through the 2010s, crowning in the recent record-breaking years. Global economies are now in a similar state as their public health services – on emergency, no thanks to the COVID-19 pandemic. This is a sad situation; the world is perplexed and all we can do is to take caution.

The emergence of COVID-19 and its increasing incidence in Nigeria has called for drastic review and changes in the earlier revenue expectations and fiscal projections. In Nigeria, the country is still sluggishly grappling with recovery from the 2016 economic recession which was a fall out of the global oil price crash and insufficient foreign exchange earnings to meet imports. In the spirit of economic recovery and development, the 2020 fiscal budget was prepared with significant revenue expectations but with contestable realizations. The approved budget had projected revenue collections at N8.24 Trillion, an increase of about 20% from the 2019 figure. The revenue assumptions are premised on increased global oil demand and stable market with oil price benchmark and oil output respectively at $57 per barrel and 2.18 Million Barrels Per Day. The federal government has been exploring various measures of generating revenue to buffer the effect of unstable oil prices through increment in VAT, review of extant legislation among others. This pandemic will reduce its operating budget for the year.

Nigeria, like most countries, will be hit on two fronts. Directly as a result of cases in the country, and indirectly, due to our closeness with – badly hit China, our number one infrastructure financier and trading partner, plus our reliance on global oil prices. The falling oil prices amid the pandemic poses a threat of recession and the devaluation of the national currency. The Covid-19 pandemic came with its attendant oil price crash, as demand plummeted. With lockdown in China, which consumes about 14 percent of the global crude oil daily, and reduction in major economic activities globally, the price of the commodity went southwards.

On March 9, 2020, Brent crude futures, the global oil benchmark, was down 22 percent, the last trading at $35.45 per barrel. The crash has been attributed to two major factors – the Coronavirus pandemic and the oil war between Saudi Arabia and Russia. As of the time of filing this report, oil prices hovered around $27 per barrel, way below Nigeria’s 2020 budget benchmark of $57 per barrel.

All of Nigeria’s 2020 budget indicators: an oil production volume of 2.18 million barrels per day, oil benchmark of $57, the N305 exchange rate to the US dollar, GDP growth rate of 2.93 percent, and an inflation rate of 10.81 percent now are out of reach.

The restrictions on movement around the world and in Nigeria are another bit hit on the economy. The shutdown of offices and non-essential businesses will reduce productive effort and output. Nigerian businesses will be required to slow down or halt production. Moreover, with stay-at-home policies and the uncertainty that comes with the pandemic, non-essentials will be less sought after.

For manufacturers and other allied businesses, the disruption in the supply chain is already taking a toll on raw materials needed for production. They are worried about access to critical raw materials needed to sustain their operations, as the performance of key sectors that have the capacity to facilitate economic diversification is still largely constrained. Already, the price of crude oil, which is the mainstay of the country’s economy, is trading below the federal government’s benchmark for this year’s budget, even as the government explores several options to hedge the effect.

Similarly, Nigeria’s latest Excess Crude Account balance, according to a statement from the Office of Accountant General of the Federation, was put at $71.81m, while movement in reserves showed that the country’s reserves stood at $35.94 billion at the weekend, down by $2.59 billion from $38.53 billion in which it opened the year.

Furthermore, cutting expenditures must be done such that the already excluded group and vulnerable are not left to bear the brunt of economic contraction. In the light of this, some businesses have carried out a downward review of staff salaries, retrenched staff, and payment of salary on a pro-rata basis. The last unemployment report released by the National Bureau of Statistics (NBS) ranks Nigeria 21st among 181 countries with an unemployment rate of about 23.1%. The country has also been rated as the poverty capital of the world with an estimated 87 million people living on less than $2 a day threshold.

Nigeria operates a largely mono-product economy solely dependent on crude oil. Past and even the present government had on many occasions mouthed the need to take the economy out of dependence on oil. Now the chicken has come home to roost. With the present economic reality, workers’ salaries may be in jeopardy. On Wednesday last week, members of the Federation Accounts Allocation Committee (FAAC) could not agree on the amount presented for sharing. An official hinted that members of the committee could not agree on the amount presented for sharing by the revenue-generating agencies. The amount presented was far below what the members were expecting to be shared by the three tiers of government.

The current crisis will likely hit states and their workers harder than it happened in 2016 because the lowest price then was $29 per barrel and it quickly moved up to $35 per barrel and continued climbing. But now experts say that oil price could fall to as low as $10 per barrel with the coronavirus and oil war between Saudi Arabia and Russia.

Also, then the national minimum wage was N18000 but it's now N30000. The question on many lips is, many states could not pay the former minimum wage even when the oil price was above $30 per barrel, will they be able to pay the latter now that the oil price is about $27 and projected to slump further to $10 per barrel?

Even though, businesses find it hard to see a path forward, the central bank of Nigeria hopes to avert the economic impact of the pandemic by loaning money to the most affected individuals and those that are in the front line of fighting the pandemic. The CBN hopes that the money can be used to keep vital sectors afloat. It particularly wants the manufacturing and pharmaceutical sectors to boost local production, reducing their reliance on foreign exchange for imports.

Although the public authorities are taking decisive action to respond to the emerging health threat posed by COVID-19. During this unprecedented time, businesses need to prepare and manage continuity, with minimum disruption. The businesses need to provide momentum to emerge stronger and thrive in the new normal.

Some investment entities have rigorously reviewed their interest rate in line with the competitive market

Businesses are hereby faced with a dilemma of interpreting the various clauses included in the respective schemes, how to capture the financial impact on their businesses efficiently, deciding on the best possible business model regarding operational, financial, and manpower matters of the business and the practical liquidity management and workforce strategies that put people first and ensure business continuity.

As the coronavirus continues to spread, there is fear and trepidation in the air among the real estate community, especially as travel and other economic activity have slowed or stopped.

Their apprehension also arose that several sectors have taken a heavy beating, except real estate. And with social distancing, house showings may slow down while pullback by buyers will take the momentum out of the market, which could see some price falls.

The leading real estate experts further revealed that with the stock market crashing and layoffs ramping up, real estate sales will take a hit over the coming weeks and months. They say, there might be declining interest from home buyers as a result of the coronavirus outbreak.

The International Air Transport Association (IATA), said disruption of air travels due to the continued spread of coronavirus would cost Nigeria 434 million US dollars in revenue loss and 22,200 jobs.

IATA, an umbrella body for 290 airlines globally, added that Nigeria would also lose approximately 2.2 million passengers and that the spread of the virus, which was first reported in Wuhan, China, at the beginning of December 2019, would negatively impact the aviation industry worldwide.

Basically, the Nigerian government essentially must lead economic diversification drive. It is one practicable way to saddle through the current economic uncertainties and instabilities. What the consequences of the COVID-19 pandemic should further offer the Nigerian economic managers and policymakers, is that the one-tracked, monolithic reliance on oil is failing. Diversification priorities to alternative sectors such as agriculture, solid minerals, manufacturing, and services sectors, should be further intensified.