From Households to Corporations, Economic Effects of COVID-19 Continue to Ripple Across Nigeria

Sunday, August 16, 2020 / 11:00AM / Oped by Michael
Orodare / Header Image Credit: Medical Xpress

The
Covid-19 crisis has brought with it unprecedented effects on many different
factions around the world. World economies have had to pick up the pieces as
stakeholders look to return to some normalcy. The United Nations Trade and
Development Agency (UNCTAD) estimated that the total cost of the outbreak
reached about US$2 trillion in 2020. This immense loss has been felt by all
countries, including Nigeria, and has set off a chain reaction that has left
its imprints on Government and Business operations, as well as on households.

As
health crises continued to rise, measures such as lockdowns and curfews were
put in place to curb the spread of Covid-19. These living situations left to a
large number of people and organizations living in economic uncertainties.
Subsequently, prices of global commodities and services were increased. A lot
of industries most significantly, aviation, hospitality, retail, oil and gas,
regular road transport, and subscription service industries have not been
spared in the least bit, from the effects. A lot them were left with no other
option but to raise prices in order subsidize cash flow to keep their
businesses afloat

Nigeria,
which is highly reliant on oil, has had to deal with a global reduction in
price (below $30) and a reduction in demand for oil. After the 2016 recession,
Nigeria had been experiencing an upward trajectory in its economic performance
and was predicted to see an increased GDP. The 2020 federal budget was created
with significant projections in view, even though it was met with some
speculation.

The
budget had projected revenue intakes of 8.24 Trillion, which was about 20% more
than that of the previous year 2019. The projections were made with a rise in
global demand for oil in view, and a rather equable market, with the price
benchmark of $57 and an output of 2.18 Million Barrels Per day. Now that the
crisis has disrupted those projections, the country has had to make drastic
reviews and changes across different sectors of the economy, in order to
minimize the financial effects suffered. The constant fluctuation in the Naira
to Dollar valuation is one indication of this.

The
exchange rate has been adjusted from 306 Naira to 360 Naira. The exchange
rate under the investors and exporters (I&E) window has also been adjusted
from 360 to 380 naira. This was done in an attempt to unify the collective
exchange rates across the I&E, Bureau de Change, single and multiple-unit
commodity trading sectors.

It
has been reported that food prices hit the 15.03 percent mark in April, this
was the highest Nigeria had seen in two years. The Covid-19 crisis was the
major force behind the significant spike in inflation. The National Bureau of
Statistics (NBS) reported that Nigeria’s annual inflation rate rose to 12.34
percent in April, from 12.26 percent which was recorded in the previous month.

The
details that came from the NBS highlighted the fact that the implemented
lockdowns in Abuja, Lagos, and Ogun states largely impacted the increased
prices. Reported prices of local goods indicated a remarkable increase in the
cost per unit of these goods. A 50kg bag of rice which was previously sold for
N18, 000 is now being sold for N21, 000 and a paint bucket of Garri, that was
sold for N300 and N350 is now being sold for N1, 300.

Supply
chain management has also been greatly affected. Business owners who had
previously sought goods from China were left in a lurch when the global
movement of goods was stopped. Even locally, business owners have had to find
new methods of moving their goods. This is largely because they have had to
source previously imported items like raw materials, locally. This has impacted
the cost of doing business.

In
the Nigeria COVID-19 National Longitudinal Phone Survey (COVID-19 NLPS),
implemented by the National Bureau of Statistics with technical support from
the World Bank, it was reported that the most significant shock experienced by
households was an increase in prices of major food items. 85% of households
since the outbreak, have experienced the effects of food price increase
compared to only 19% between January 2017 and January 2019.

Pay
tv providers have also been forced to make some sort of conformance or the
other due to the rising cost of doing business. Startimes had earlier raised
the prices of its subscription packages. These increases took effect on August
1. The company announced an overall average increase of 22 percent across its
various offerings. StarTimes Basic Bouquet subscribers would now pay N1,700 as
opposed to the previous N1,300 monthly. Classic Bouquet subscribers would pay
N2, 500 as opposed to N1, 900 monthly. The StarTimes Marketing Manager, Viki
Liu, highlighted the Federal Government increased Value Added Tax (VAT) from 5
percent to 7.5 percent as a major factor in the company’s decision to increase
its rates.

Sky
U.K. also increased the price of its satellite television packages. Sky wrote
to TV subscribers, telling them that the price of their packages would see an
increase from April 1, 2020. Customers on the Original Bundle would see prices
increase by Â£2.20 per month. Sky had stated in a letter to customers, that its
ability to “bring its customers unmissable entertainment and innovative
products that they could enjoy, 365 days a year”, necessitated the increase.

Even
without announced increases, Nigerians are already paying more for any dollar
denominated services, as every subscriber to Itunes, Spotify, Youtube, Netflix,
Mailchimp and G-Suites will attest. A $1 subscription in February cost NGN362.
Today, that same subscription costs NGN 475. No Wonder experts say it is only a
matter of time before services like GOTV, and DSTV adjust their prices.

According
to Bloomberg, analysts at Goldman Sachs believe that a significant devaluation
of the naira is likely in 12 to 18 months to stabilize Nigeria’s external
accounts. An official exchange rate of N500-550 per dollar should bring about
the desired balance.” This impending action may further complicate matters for
Nigerian businesses and consumers.

The
global financial effects of Covid-19 have been felt collectively by businesses
and households across the globe and methods of resolution are still being
discussed and speculated upon around the world. And if the government is really
determined to help Nigerians and the private sector, this is the time to start
acting.