The social, economic and financial challenges of theCOVID-19 will lead to a global economic recession in2020 and potential lost output of $2.7 trillion

Nigeria may go into economic recession if theCoronavirus pandemic persists for months and withthe potential loss of N2.27 trillion worth of trade andsignificant job losses across sectors

Employee productivity is expected to drop especiallyfor companies that were not designed for and have notmade remote working a part of their processes

Business leaders should expect different recoveryspeeds for different sectors and different locations

Leaders must also be flexible to spot and pursue theopportunities presented by this crisis includingreserving 90 minutes (10% of 15 hour day) per day forwork focused on preparing the organization for thefuture

COVID-19ANDNIGERIANBUSINESSES:FROMSURVIVALTO THRIVINGIN ACHANGINGWORLD

FULL REPORT

"Difficult days ahead for over100m Nigerians living on N700daily, and the 78m Nigerianswithout savings who rely ondaily wage, monthly salary, andsupport from family members forsurvival"

"It is crucial for business leadersto distinguish between hardfacts, soft facts, and speculation,and to make fact-based decisionsby probing situations andresponding by creatingenvironments and experimentsthat allow for patterns to evolve"

Highlights

Caused by the Severe Acute Respiratory Syndromecoronavirus2 (SARS-CoV-2), the Coronavirus disease 2019,code name COVID-19, has plagued nations, leading toover 1.2 million cases and an excess of 74,000 deathsglobally as at April 7. Many nations have moved from theirinitial prevention strategy to aggressive multi-prongstrategies to contain its rapid spread, save lives andsustain economic activities to ensure a health crisis doesnot morph into a combination of a financial crisis,economic recession, and social upheaval. About 192countries have been affected and the death rate keepsincreasing while about 22% have made a full recovery andare disease-free[1]. The coronavirus has, so far, had adevastating effect on human lives and has begun to leaveits negative impact on economies and businessesworldwide. Nigeria is not exempted from its insidiouseffect. Bloomberg predicts the Coronavirus pandemic couldlead to a scenario of zero global growth in 2020 and witha lost output of $2.7 trillion [2]. Already, the Organizationfor Economic Co-operation and Development (OECD), inearly March, noted that “annual global GDP growth isprojected to drop to 2.4% in 2020, down from the 2.9%projected earlier”.  The Sub-Sahara African region is notimmune from the economic shock caused by thecoronavirus outbreak.  In its analysis, Renaissance Capitalrevised down the growth forecast for Sub-Sahara Africafrom 3.5% to 1.3%. A reduction in global economic activity has lowered thedemand for oil, taking oil prices to a multi-year low. InMarch of 2020, the price of Brent crude averaged $34.27per barrel in the month (spot price FOB was $23.55 onMarch 26), while the price was $56.21 per barrel inFebruary of 2020. This is a 65.25% reduction in price sincethe beginning of 2020 and 48.19% reduction over the lasttwelve months, with an obvious negative impact on theFGN 2020 budget as about 60% of the Federal [1] https://www.worldometers.info/coronavirus/[2] https://www.bloomberg.com/graphics/2020-coronavirus-pandemic-global-economic-risk/

Government’s revenue and 95% of export revenue comesfrom oil and gas. As at April 3, the Brent Oil Price fell toas low as $19.125 per barrel. As it stands, monthlyFederation Account Allocation Committee disbursementto Federal and State government is expected to dropbelow N400 billion over the next 3 to 6 months fromprojected N888.5 billion, a shortfall of 55%. Yet, to meettheir current obligation, the Federal and StateGovernments require, at least, N650 billion monthly asFebruary already showed sign of slowed economicactivity with a disbursement of N647.4 billion. It is,therefore, not surprising that Nigeria is also notexempted from a downward revision of its GDP growthrate to less than 2% by major analysts, down from theinitial 2.4% projection. The Government is currentlyseeking concessional funding from internationaldevelopment banks like the World Bank, AfricanDevelopment Bank, and Islamic Development Bank tobrace the 2020 budget, having suffered ratingdowngrade by global rating agencies due to concernsabout reversal of international portfolio inflows in acontext of a spike in global risk aversion that couldmagnify the impact of the oil price shock. All-Share Indexand Market Capitalisation both dropped 19.5% and 18% toclose the month at 22,198.43 and N11.568 trillionrespectively as at March 20, but all of these are signs of atroubling journey for the economy and the citizenry. Four of Nigeria’s top trading partners and import sources- China, USA, Spain, and the Netherlands - accounting foran estimated 45% of our imports have implementedlockdown strategies to contain the spread of COVID-19.The attendant effect on trade, if this continues foranother 2 months, is a potential N2.23 trillion loss fromNigeria’s top 5 import nations which would lead todomestic scarcity. From the top 5 export figures, anotherestimated N2.27 trillion worth of exports which shoulddrive economic activities will also be lost to closedborders, social distancing, lockdown in destinationnations, and lockdown in Nigeria. While the exchangerate will be significantly challenged from the loss of

Global collapse in world economy

Collapse in national development indices

A Quake on the World Economy

exports proceed, this pandemic will be responsible for theattendant decline in revenues, reduction in profits, anderosion in asset value for non-essential services,consumer-facing, and export-dependent firms who maythen have to downsize.  Market scenarios are likely to getworse if the naira is devalued. The Central Bank of Nigeriahas set a $30bn foreign reserves threshold fordevaluation. With a 19.83% drop from $45.175 billion inJune 2019 to $36.221 billion as at March 5, 2020, amidst afalling oil price and oil production, the nation’s reserve isdangerously close to this threshold and it is not surprisingthat the CBN has made an adjustment of the Naira/USDexchange rate to N360 per dollar for bank transactionsfrom prior N306, and to N380 per dollar in the I&E windowfrom prior N365. The Government has also reviewed the2020 budget downward by benchmarking oil price to $30per barrel from its initial $57 per barrel and oil productionto 1.7mbpd from 2.1 mbpd. This effectively, is a 57%reduction in the benchmark of oil revenue. Non-Oilrevenue projections have also been reviewed downwardsconsidering expected fall in tax, customs receipt, andprivatisation exercise revenues. Beyond the foreign reserves and exchange rate of theNaira, employment and poverty indices will need to bethoroughly reviewed to provide useful economicindicators and business planning guides for small,medium scale and corporate business over the next fewweeks. For example, Trade and Other Services are two hard-hitsectors that account for 13.97% and 7.89% of theestimated 28 million[3] formally employed populationand jointly account for 18.98% of the country’s $410 billiongross domestic product as at 2019[4]. This crisis, therefore,threatens not only the livelihoods of the directly affected6.1 million employees but also their relations, dependents,personal staff and hitherto neighbourhood stores. Thisfigure is more than the current 6.1% of the 62.4 millionlabour force that is currently unemployed[5]. Althoughthe Federal government has promised to createemployment for 774,000 Nigerians through the SpecialPublic Works Programme financed through the COVID-19 Crisis Intervention Fund, its implementation is delayed[3] https://tradingeconomics.com/nigeria/employed-persons[4] https://tradingeconomics.com/nigeria/gdp[5] https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?locations=NG

to take effect from October to December. On one hand,we have seen a further reduction in PMS pump price bythe Federal Government to recognize the global fall in oilprices and cushion some of the impact while on the otherhand, we see the Central Bank of Nigeria cutting interestrates, injecting liquidity into the economy throughdifferent credit facilities aimed at stimulating economicactivities, and regulatory forbearance for deposit moneybanks. As the health sector rightly takes up more nationalresources needed to combat this pandemic, peoplereduce social activities, and government revenuedeclines, we see a conscious decision by many businessesto conserve cash while government at the state andnational levels are likely to slow down investments inphysical infrastructure. Yet, there is a high risk of infectionand mortality amongst health workers who are on thefront lines fighting this global pandemic—in a countryalready battling with a shortfall in the supply ofhealthcare professionals — this could worsen healthconditions further; eroding the slow gains being made inthe sector. Furthermore, as schools close, students willlose learning opportunities and resources leaving morevulnerable students from low-income households withreduced chances of learning even with the onlinealternatives being hurriedly provided by some stategovernments and reduced opportunities of returning toschool at later resumption date. This translates to lowerlong-term earning trajectories for them and their familiesand reduced overall human capital for the economy. This pandemic is already leading to severe shortages anda global supply chain bottleneck. With many local

"All these monetary policy actionsare no doubt, attempts by theApex Bank to control the loomingslowdown in economic growth" Human capital challenges

Supply chain bottleneck

manufacturing operations dependent on China, theglobal factory, the inbound logistics chain of many willsuffer. Conversely, demand for Africa’s raw materials andcommodities in China and other closed-border producernations will continue to decline and the attendantbottleneck will make a significant dent to manufacturingoperations, consumer goods retail operations, and Africa’saccess to industrial components and manufacturedgoods from other regions will be hampered. Whencoupled with the closure of borders, including that ofNigeria, there will likely be a spike in production costs,increased lead time to restock raw materials, hoarding,panic purchasing, and severe, irregular price fluctuationsas companies are forced to price goods and services atenvisaged replacement cost and, at worst, cut productiondue to unavailability of raw materials. This calls forresponsive and smart forecasting, planning andscheduling operations. In peculiar contexts where, a company nor its industry isnot the only one affected by a social, economic, or evenpolitical Tsunami that sweeps through the businesslandscape, negotiation becomes critical. Every businessseeks to operate from a point of advantage, and this maycreate conflicts. As corporates seek cash flow to stayafloat, they must negotiate to increase cash payableperiod and reduce the cash receivable period as a meansto shorten their cash cycle. But the reverse case is ofinterest to suppliers and customers, hence the conflict.Traditionally, businesses give credit facility as a tactic toincrease sales, but this advantage may be upended bybad debts and cash discounts. All these seeming conflictsmust be implemented by a craftsmanship given to skillfulprecision. This effort will reduce pressure on cash andprofit although this is better done when businesses allyto engage the government. In response to the cash crunch, businesses must shortentheir cash cycles; liquidate non-income generating assetsto free up cash for more expedient use; pay up foreigncurrency-denominated debt on the balance sheet assoon as possible; where possible, businesses must seekmeans to hedge itself against exchange rate hike andpossible interest rate fluctuation; and weigh the benefitsof low-interest foreign debt against the impact of Nairadevaluation. Indeed, prices may have to go up, corporatesmust understand the price elasticity for the demand oftheir products amidst competing alternatives. Also,efficiency must be mastered to reduce waste andturnaround time must be reduced for product andservice firms respectively as a means to appropriatemaximum value from all forms of the asset.

Although only 21% of the 99.6 million adult population inNigeria have savings[6], Most of these people wait on the monthly salary, dailyincome, or erstwhile generous relatives who remit moneyhome. There has been and will be some panic buying andstocking but overall, there is likely to be a decline indiscretionary spending and producers of luxury and non-essential goods and services will need to brace up for thetimes ahead. Households that earn less than the minimum wage ofN30,000 every month, spend 95% of their salary on foodand other essentials. 84% of those who earn betweenN30,000 and N50,000, slightly above the nationalminimum wage, spend less than N30,000 on feeding,and the remaining 16% spend between N30,000 andN60,000 monthly on food. Interestingly, 3 of 4 (74%) ofearners of monthly salary between N50,000 to N80,000and 3 out of 5 (62%) of those whose earnings fall withinthe range of N80,000 and N120,000 spend less thanN30,000 on food monthly[7] [8].  With over 100 millionpeople living on N700 daily[9], more than half the countrywill be under the immense pressure of inflation even ifthey focus on only food and essentials. As more peopleconsequently seek cheaper but less healthy substitutes,this begins to lay the foundation for future pressure onour limited health infrastructure. Professional services, sports, education, entertainment,transportation, retail energy, hospitality, and tourismservices will need to plan and hunker down for thecoming lull in their sectors. However, the new essentialservice providers – Food and Agriculture, Electricity, ICT,Trade and Manufacturing, Banking, and Healthcarebusinesses – may not likely have the capacity to meet the [6] https://www.efina.org.ng/wp-content/uploads/2019/01/A2F-2018-Key-Findings-11_01_19.pdf [7] https://nairametrics.com/2019/08/20/nigerians-who-earn-less-than-minimum-wage-spend-95-on-food-report/[8] https://www.sbmintel.com/2019/08/discretionary-income-in-nigeria/[9] https://nairametrics.com/2019/12/09/over-100-million-nigerians-earn-less-n700-daily-uks-efina/

"...this period will particularly be atrying time for about 78 millionNigerians who are withoutsavings."

Cash crunch

Drop in purchasing power

coming demand as border closure prevails, movement isfurther restricted, and social distancing is enforced. Employee productivity is expected to drop especially forcompanies that were not designed for and have notmade remote working a part of their processes. As themiddle and lower class cut discretionary spending, employees who work remotely may be forced to rationtheir power, and telecommunication spend in the face ofan uncertain revenue stream. Business leaders mustenable remote working for a portion of the workforce andsupport people as they transition to digital ways ofworking. Beyond the economic implications, it is most likely thatNigeria, as a whole, is not ready for a pandemic of thismagnitude. This is uncharted territories and with lessthan 9% of the population having access to healthinsurance [10] [11] , the need for the rapid introduction ofinnovative and affordable health insurance schemes andtelemedicine options has now become more crucial thanever particularly for the treatment of non-communicableand less acute medical conditions. Health insurancefirms, as well as pharmacy chains, must scale up theiroperations, responsiveness and overall customer serviceusing technology. The non-profits in the healthcareintervention sector also need to scale up and prepare forincreased collaboration with the Government toimplement the necessary healthcare interventions thatwill be required. In addition to the coronavirus pandemic,we would do well to situate the ongoing battle with theLassa fever epidemic in Nigeria. At this point, it will not be out of place to borrow fromSnowden and Boone (2007) masterpiece, a HarvardBusiness Review article on managing in difficult times.The authors discussed how to respond in simple,complex, complicated, and chaotic business scenariosand market environments. Most unique to this presentdiscourse is the complex business context as it referencesbusiness situations characterized by flux andunpredictabilities, emergent instructive patterns,unknown unknowns, a myriad of competing ideas, theneed for creative and innovative approaches and pattern-based leadership. It is crucial for business leaders todistinguish between hard facts, soft facts, andspeculation, and to make fact-based decisions by probing [10]https://www.medicwestafrica.com/content/dam/Informa/medic-west-africa/english/2019/HealthcareInsights.pdf[11] https://noi-polls.com/fourteen-years-after-the-establishment-of-nhis-about-90-percent-of-nigerians-still-do-not-have-health-insurance-cover/

situations and responding by creating environments andexperiments that allow for patterns to evolve. This willrequire increased teamwork, communication, andinteraction between multidisciplinary teams acrossdivides. Business leaders must track progress daily, lookahead to anticipate shifts and constantly update insightto frame overall perspective to avoid being slow tochanging dynamics. However, there are chances that the situation maysnowball into a chaotic one considering the less thanoptimal state of many Nigerian institutions. In such highturbulence, high tension and unclear scenarios,characterised by many unknowns; it serves little benefitlooking for the right answers and business leaders needto step up and act in what they consider to be the bestinterests of the firm while balancing responses to staff,clients, suppliers, community and others. Businessesmust focus on re-establishing order while providing veryclear and direct communication. The danger with thiscommand-and-control regime is that if it takes longerthan necessary, businesses may miss theopportunity toinnovate amid the adversity. Leaders can mitigate this bysetting up parallel teams that can pursue the spottedopportunities even in such chaotic environments. While most businesses are rightly active about short termsurvival, these few companies are deliberately positionedto take advantage of future opportunities and beat thecurve ahead. This is coupled with the knowledge thatsome industries will feel the impact differently, faster, andmore intensely than some others. But, similarly, some industries will jump the curve fasterthan some others too. Companies must be very prudentto know in what direction to spend its scarce resources.While many businesses will be driving for cash at theexpense of profits, smart firms must skillfully drive forboth. It is high time for business leaders to leverageexperiential insights defined by clarity of maneuveringfamiliar grounds. Just as the Great Depression defined consumer habits fordecades; oil supply crisis of the 70s led to the first effortsat energy efficiency, diversity, and conservation, and the2008 financial crisis triggered a new regulatoryframework across the financial service industry, theCOVID-19 health emergency is likely to change the way

"At every point in the history ofglobal inflection such as this, fewcompanies emerge stronger thanothers"

Hope in the horizon

Pressure on health systems

Surviving the storm - short term

Looking beyond today - long term

we work and live including online teaching, remotework, distributed supply chain, delivery service,eCommerce and digital financial services. Leadership that demonstrates inclusion, diversity,empathy, compassion, humility, transparency andopenness in taking decisions while actively listening todivergent views and balancing theneeds of critical stakeholders such as employees, clients,suppliers, community, governments, and investors ishighly sought after during this period. Business leaders must also build resilience in theiroperations to enable the business to have theability to survive and thrive through multiple crises.Operations must have a definite business continuity planthat offers inbuilt redundancies and avoid dependencyon one source or have a single point of failure. Diversityof the workforce across gender, culture, ethnicity, socialstatus, religion, and other dimensions must be activelypromoted, as this would enrich the conversation andfoster diverse thinking during moments of crisis. Infrastructure and machinery must be modular and besuch that they can evolve over-time and can befashioned for different usage. Lastly, business leadersmust act with both courage and prudence to ensure thebusiness is embedded in an ecosystem to benefit fromaffinity and economies of scale. There are many unknown unknowns and uncertaintiesahead, we do not yet know exactly how this will play outin Nigeria, but we do know that we are not exemptedfrom the flux this has brought to other nations and itsattendant impact on life and business supply chains. Business leaders would do well to consult multiplesources and experts and to map out alternativescenarios and set up plans to ride the storm and comeout of this with minimized damage to their businessoperations.

Business Leaders must deliberately look foropportunities amid the adversity – new consumptionhabits, new products, new services – and rapidlyinnovate around new needs to create future incomestreams. Those who succeed will be leaders who cancreatively lead the organization to navigate the crisis oftoday while also sensing and exploring the opportunitiesof tomorrow. They do not waste the opportunitiespresented by the crisis to streamline and reorganize toimprove operating efficiency and to also captureopportunities to improve competitive agility. ReferenceSnowden, D. J., & Boone, M. E. (2007). A leader's framework for decisionmaking. Harvard Business Review, 85(11), 68.

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"To conclude, we urge ourbusiness partners to brace up forwhat lies ahead and be agile,flexible and adaptable in arapidly changing situation. Thenext crisis is lurking around thecorner"

"Employees and the communityare looking forward to businessleaders to demonstrateresponsible leadership during thecrisis period. "

"Business leaders must reservethe ability to place bets on futureopportunities and alsoconsciously reserve at least 1.5hours per day for work focusedon preparing their organizationfor the future, so they are notconsumed by the urgentimperatives of today. "