How do you think COVID 19 will affect the economy and small businesses?

Here is a summary of our thoughts

Last month, the World Health Organization (WHO) declared the new coronavirus outbreak, which originated in Wuhan, China, a global pandemic.

The new coronavirus (COVID-19) is part of a family of viruses that cause a number of illnesses. These range from the common cold to more severe diseases such as severe acute respiratory syndrome (SARS) and Middle East respiratory syndrome (MERS), according to the WHO.

Today, we’ll show you how COVID-19 has affected Nigerian businesses, and steps we can take moving forward.

EFFECTS ON ORGANISATIONS

1. Work-From-Home (WFH Policies) A lot of businesses have implemented work-from-home policies and skeletal structure to reduce the spread of the virus. Given the necessity of this policy, a lot of local companies have now realised that working from home is more feasible than they thought. They have recognised the possibilities and the challenges that come with it, such that we might see more of remote work post-COVID19.

2. Liquidity concerns with reduced cash inflows coming into businesses this period, there is a threat to the ability of these businesses to meet their short-term obligations. This could result in the issuance of short-term debt instruments to finance their such obligations. For instance, Sterling Bank recently issued commercial papers to service short-term obligations.

3. Bottom-line worries While running costs have dropped as a result of reduced business activities, revenues are also declining, given the reduced overall demand. With overhead costs still running, many firms are already feeling the weight.

While no sector will escape unscathed, sectors in the production of food items and other essential goods and services e.g. telecommunications, will be least affected. This is due to fairly stable consumption in those spaces.

Sectors like leisure and hospitality, transportation and warehousing, and professional and business services are at high risk of the impact of social distancing and collapsing trade from COVID-19.

Where the impact is severe, we have seen layoffs, and would probably see more, depending on how long COVID-19 persists. This could lead some to bankruptcy. Startups might be the most impacted due to their high burn rates.

We would also see renegotiation of business contracts, given that economic realities have experienced drastic changes since the contracts were initially agreed upon.

EFFECTS ON THE NIGERIAN ECONOMY

1. Due to the outbreak of COVID-19, that has led to business slowdown, there has been a reduced demand for crude oil as a source of energy.

2. This, added to the supply glut created by 2 major suppliers of crude in the global oil market, Saudia Arabia and Russia, has led to a collapse of crude oil prices globally (hovering around $20). This poses enormous challenges for our fiscal and monetary policies.

3. The crash in price of crude oil implies reduced dollar inflows from oil sale proceeds. This impacts our foreign reserve, used to manage our currency, negatively, thereby increasing the likelihood of (further) devaluation of the Naira against the dollar.

4. The risk and uncertainty of a devalued Naira has found foreign portfolio investors (FPIs) exiting their positions in OMO bills securities, a vital tool used to manage exchange rate by the monetary authority.

Fiscal Implications 1. The 2020 budget was based on a $57 oil price benchmark, $37 higher than current price. This means reduced revenue from the sales of crude oil which accounts for over 90% of revenue from exports.

2. The depreciation in currency will make it hard to meet debt obligations, since revenue will decline. Given our recent poor credit rating, this isn’t a good one for the nation.



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