The effects of COVID-19 on Nigeria’s economy are felt by all industries despite government’s attempt to mitigate the impact on businesses. AKIN ADEWAKUN analyses the situation to reveal that more is need from the federal government if the economy would survive.
THESE are not the best of times for businesses around the globe. The advent of the novel Coronavirus pandemic has continued to take its toll, leaving them prostrate. More worrisome is the fact that domestic issues, confronting developing countries, such as Nigeria, are also in the league with the public health crisis to send the economies of such countries to the doldrums.
For instance, despite the huge potential in Nigeria’s business landscape, the consensus among investors, for now, is that the worst is yet to come. Unless government, at the three tiers, comes to the aid of businesses in their domains, it is going to be a matter of time before a sizable number of such businesses go under.
Interestingly, the financial commitment of N2.3trillion by the federal government to support vulnerable sectors and create jobs as part of its Economic Sustainability Plan seems to be like a drop in the ocean. Experts still believe the intervention is yet to make the necessary impact on business, and as a result, the short-term outlook of the key economic indicators is not looking bright.
The dwindling fortune of the oil price, which had caused significant dislocations in the 2020 budget and in the economy, coupled with the fact that the country is already grappling with challenges of weak revenue performance, has not left many with a ray of hope, either.
The recent meeting of the organised private sector and the nation’s Vice President, Professor Yemi Osinbajo, therefore, provided an eye-opener to the abysmal level many businesses in Nigeria have presently sunk.
At the virtual meeting organised by the Lagos Chamber of Commerce and Industry (LCCI), the President of the Chamber, Mrs. Toki Mabogunje, described the state of the nation’s economy as a source of concern for many investors in the country.
According to her, while the effects of COVID 19 disruptions had been profound on businesses in the country, the public health crisis had induced a slump in oil price, thereby resulting in the plunge of both revenue and foreign exchange earnings.
“There were serious disruptions in the supply chains with consequential dislocations to many production processes. The liquidity crisis in the foreign market has reached a scary level, reflecting in acute foreign exchange scarcity, sharp depreciation in the exchange rate, widening parallel market premium and weakening investors’ confidence,” Mabogunje had told the Vice President.
Interestingly, similar sentiments were echoed by other participants drawn from different sectors of the nation’s economy, ranging from Aviation, Manufacturing, Banking and Oil and Gas. The message was clear: businesses and the nation’s economy are on a downward slide, and it will require a timely intervention from government to put them back on track.
Director, Corporate Affairs and Sustainable Business, Unilever Plc, Mrs. Soromidayo George, believes that for businesses to remain sustainable, it has become imperative for the government to enhance the ease of doing business in the country and facilitate trade.
According to her, many businesses continue to groan, and thereby remain uncompetitive, as a result of some fundamental issues, that have continued to hinder the growth of businesses in Nigeria.
Some of the issues, she stated, include border closure, issues at the nation’s ports and lack of adequate support from the government.
“For us to be sustainable, the ease of doing business and trade facilitation is something we cannot over emphasised. Besides, port issue, border closure and others are impediments that we really need the help of the federal government to address, since it is not allowing us to be competitive,” she added.
The Chief Executive Officer of Ruff N Tumble, Mrs. Adenike Ogunlesi also spoke the minds of operators in the nation’s garment industry. According to her, the public health crisis had brought massive disruptions to global supply chain in the sector; since a lot of items, needed by the industry for medical apparels, could not be imported.
“The garment industry in Nigeria at this crucial time needs to rise to the occasion and meet our local needs. Within this pandemic has been the huge opportunity to know the potential existing within the garment industry,” she added.
Ogunlesi, however, called for federal government’s intervention in the area of infrastructure development to enable the industry realise its huge potential. For instance, she argued, the sector would need government’s intervention in the power sector to enable it use most of its highly computerised machines that require uninterrupted power supply to function maximally.
Chairman, Major Oil Marketers Association of Nigeria (MOMAN) and Managing Director, 11 Plc (formerly Mobil Oil), Mr. Tunji Oyebanji, also stated that the sector is hurting.
He expressed the reservations of industry operators about some government’s policies hindering the growth of the sector.
For instance, in 2018 alone, Nigeria’s three refineries in Kaduna, Warri, and Port Harcourt suffered a loss of about N154 billion as indicated in the 2018 audited accounts published by the Nigerian National Petroleum Corporation (NNPC), a development attributable to government’s reluctance to fully release its hold on the nation’s refineries.
While expressing delight at the decision of the federal government to eventually do away with ‘the very wasteful subsidy regime,’ Oyebanji however, stated that the policy had not fully met the expectations of stakeholders in the sector, because of some vital issues left unattended to.
One of such issues, he stated, remains the decision of the federal government to continue with price fixing in the sector.
“There are some issues facing the downstream sector, which we believe that the federal government should help sort out once and for all. For instance, the decision of government to do away with the very wasteful subsidy regime is something that we had clamoured for over the years. It was something that was very positive.
“However, the minister stopped short of what we had expected. Government should get out of fixing the prices of petroleum products. The concern expressed was that there might be price gouging and exploitation of customers. But, rather than continuing to fix the price, government can monitor the prices. All they need to do is to strengthen our consumer protection agencies such that anybody who goes outside what is reasonable is sanctioned heavily.
“The danger in allowing government to retain fixing of petroleum pricing is that the decision will go back to the political realm. Unfortunately, what is politically expedient is not always economically sustainable,” he argued.
Oyebanji also called for the dissolution of some government institutions, such as the PPPRA (Petroleum Products Pricing Regulatory Agency) involved in the fixing of petroleum prices because of the cost implications of running such institutions.
“There are institutions involved in the fixing of petroleum prices, like the PPPRA, which we believe government should do away with. Those institutions cost Nigeria, in the region of N60billion, just on the administrative side. If one now add other costs, such as its cost of transportation, absorbed by government, across the country, that goes into more money which we really can’t afford.
“So not only do we believe that those institutions have no role to play, we believe that legislation should be put in place to entrench the idea that we are going out of this whole subsidy regime so that we do not wake up and find ourselves in that quagmire once more,” Oyebanji, who is also the chairman of the LCCI Petroleum Sector, added.
The slow pace of reforms in the sector, especially the failure of the Petroleum Industry Bill to make it through the eighth National Assembly has remained a huge source of concern in a country where oil still remains the lifeline of its economy.
Dr. Amy Jadesimi, the Chief Executive Officer of a privately-owned logistics and engineering facility in the port of Lagos, Lagos Deep Offshore Logistics Base (LADOL), called for closer ties between public and private sectors to enable the logistics sector overcome some of the challenges facing it.
While identifying lack of adequate funding as one of the challenges facing the business of logistics in the country, she, however, expressed delight that the sector had begun to attract the much-needed Direct Foreign Investments.
“The challenge is funding. Ten years ago, I started talking to DFIs about the need to fund this market. Initially, they didn’t want to hear us. But in over ten years, the conversation has evolved. All of them are agreeing that they need to find ways of investing into companies in Nigeria,” she stated.
She also called for a creation of new funding parameters that would allow local companies to access funds through the aid of the federal government, without having to provide security and other stringent terms.
“Interestingly, the funds are there for Africa. We should engage with DFIs, including organisations such as the Africa Development Bank to put in place financial product, focusing on funding large or small sustainable companies, where the definition of bankability is the one that enables us access funding, provided there is a strong market place. So, this is the era I think public and private sector can get a quick win by engaging,” she added.
For Mrs. Adefunke Adeyemi, the Regional Head for Africa, International Air Transport Association (IATA), the aviation sector, which contributed 4.5 percent to the nation’s GDP in 2019, is under a serious threat of going under. According to her, the value of aviation suffered the most during the crisis, with passenger travel dropping by 96 %.
She also the fears that half of over 340,000 jobs, which the sector supports might be lost if government failed to intervene and save the sector from imminent collapse, induced by the COVID19 pandemic, which had seen the sector halting operations in the last few months.
“The advent of the pandemic has put half of 340,000 jobs aviation supports, at risk. We’ve recorded a loss of $1.2 billion from the airline alone, not to talk of the aviation ecosystem. So, the halting of air travels and the necessary closure at the height of the pandemic has decimated the industry and really affected the economy, because aviation is the key driver of the economy,” she stated.
Adeyemi also called on the federal government to support the aviation sector in the area of urgent financial relief to enable operators go back to business.
“While we appreciate the Federal government for putting some palliatives in place, we really do need additional support to enable aviation do what it does best: critical connection for people to work, to trade, to do business, visiting friends and families which drive economic growth.
“This moment is a critical time for us to seize on the underlying policy issues, like infrastructure, security, as well as good governance, so that businesses can sustain themselves the way they are supposed to,” she added.
Hope on the horizon?
Interestingly, many of these businesses are not giving up, rather they believe that with the much-needed government support coming their way, there is still light at the end of the tunnel. For them, the advent of the public health crisis provides the opportunity to reset.
For instance, Ogunlesi of Ruff N Tumble believes the pandemic provides the opportunity for the nation’s garment industry to maximize its potential.
“Within this pandemic are the huge opportunities that exist within the garment industry. And for me, the challenge is how to build on what we have been able to achieve. For us, we are able to make a million masks within such a short time. We had never made a million of anything, prior to this period. But under pressure, when there was a need, when we needed to contribute, we were able to retool, and we were able to contribute our own quota. We were able to produce PPEs, we were able to produce medical masks and hospital gowns,” she stated.
According to her, with government’s support, the nation’s garment industry could realise its potential of being the manufacturing hub, not only for West Africa, and the African continent, but also for the American and European continents.
“And what this means is that we can bring foreign currencies, it means we are producing for brands that are in America, that are in Europe, and therefore we will need consistent policies and interventions that will allow the industry to become this hub and earn foreign exchange.
“COVID 19 can be Nigeria’s double-edged sword; an opportunity as well as a challenge. So within this, is the great opportunity to industrialise Nigeria. There cannot be a better time to industrialise Nigeria than right now, so that we can meet local needs,” the Ruff N Tumble boss stated.
For Jadesimi of LADOL, the huge population provides a strong market for the business of logistics in Nigeria, and with the public and private sectors closing ranks, the business will be better positioned to maximise its potential. She also believes the advent of COVID 19 also provides stakeholders in the sector the opportunity to reset.
Adeyemi, however, sees the advent of COVID 19 as providing the opportunity for stakeholders in the nation’s aviation industry to address the underlying policy issues like infrastructure, security, as well as well good governance, to enable the sector sustain itself.
“On the continental level, there is also the opportunity for Nigeria to play a leading role through the African Union, as well as AfCFTA. Aviation again can play a critical role. For instance, there is a great opportunity for us here to support trade across Africa and the rest of the world,” she stated.
Federal Government assures
For many, it is quite soothing that the federal government is not abandoning these businesses to their fate, especially with its financial commitment of N2.3trillion, as part of its Economic Sustainability Plan, to support vulnerable sectors and create jobs. But they believe it is glaringly obvious that the government has to do more.
Beyond financial commitment, a more business-friendly environment, coupled with other business-enhancing policies from the government, will go a long in way in helping businesses, especially those already gasping for breath, to stand on their feet again.
Fortunately, the nation’s Vice President, Professor Yemi Osinbajo, has stated that the federal government is not oblivious of those challenges confronting the organised private sector, and would, therefore, do everything within its powers to mitigate the negative effects of the public health crisis on businesses in Nigeria.
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