07/04/2020
Read from Segun Ajanilekoko:
We have all been pre occupied with the immediate effects of Covid 19, and it’s current impact on society. However we need to look beyond immediate and think of what happens after the virus has been sustainably defeated.
It is undeniable that a global recession is on as a result of the pandemic with no indication of how hard it will be, and how long it will last. In Nigeria, our major income is tied to Crude oil. Brent crude, which we produce is currently in the mid $20's well below our break even point of $30. The economic setback worldwide has led to low demand and NNPC has indicated it currently has unsold cargo. The price war between Russia and Saudi Arabia is exacerbating an already poor situation. This is unlikely to clear soon.
The impact on our already weak economy is clear
• Reduced income to government leading to lower allocations to states
• The capacity to defend the Naira will be lost
• Lockdown has led to reduced demand triggering production cuts and job losses
• Disruptions to activities leading to closure of companies
These will translate to the following:
• Focus from government will be on payment of salaries so contractors won’t get paid
• Reduced demand as people are at home and are unsure of the future thus no spending
• Most businesses will be hit either from disruption of activities or reduced demand or both
• Unemployment will continue to rise as affected companies lay of staff
The solution as we are seeing around the world is fiscal stimulus to encourage spending, increase demand and resume economic activities. However, due to our already weak economy, fiscal intervention is limited. Government is already doing something in this regard but it is not clear if this will have the desired impact particularly as they will only be able to reach a very limited part of the financially vulnerable, as they are not captured in existing data.
What to expect?
• Increased pressure on household spending (school fees, meeting basic needs, mortgages/rent, medical expenses etc.).
• As there is no social security in place, an increase in pressure from others for support.
• Rise in costs: time to maximize cost efficiencies, finding lower costs for similar quality of products and services
• Increase in Client default on payments: both government and private sector will have to prioritize payments leading to default to some. Be sure your tenant might be late with payment.
There will however be new business opportunities as the lessons learned from this experience are put in place amongst others. Some sectors will benefit whilst others become moribund. The world will change so will the way business is done, more people are likely to work from home...
so lets get prepared. We will win at last. thoughts!
