I asked a friend of mine why he never did a budget. He responded, “I don’t have the time. I work and travel constantly, so I don’t have the time to plan and arrange my affairs and do a budget.”
Well, to my friend (and I know he is reading this), you now have time. The Coronavirus disease (COVID-19) has shut down all economic activities across the entire world; Wall Street and Main Street are shut with everyone sheltering in place.
What can you do in 7 days while at home? A lot.
Review your finances
There are three main books of account for personal finance:
- Expense account: To track daily spending.
- Budget: That tracks projected and actual income and expenses.
- Net worth statements: Tracks snapshots of assets and liabilities.
This stay at home is a great time to review and plan out your expenses, budget and net worth. Pull up the 2020 budget you planned; have you kept to it? Where have you gone over your limit? Have you made more income? Investing less? Do a full audit and then recast your budget for the rest of the year. Clearly, whatever you projected must be amended to consider the new economic realities.
If you did not have an Emergency Fund, you now see the wisdom of having one; put that in your budget.
Your net worth statement needs updating. If you own a small business, sales may have suffered and taken a hit; correct for this. What about liabilities? Do people owe you? Can they pay? Will you be able to meet your own obligations? In summary, the 2020 outlook has evolved, so let that reflect in your financial plans.
Review your retirement plan
If you had a portfolio with variable income, especially shares, the fall in markets across the world has definably affected your portfolio and your retirement. The fall in your portfolio valuation may result in you missing out on your target investment amount, meaning you either must raise your contribution limits, or work longer. You must!
There are many apps online that allow you calculate how much you can expect to make in retirement; I like the Bankrate® retirement calculator. You simply get your latest RSA statement, plug in starting balance plus annual contributions (including Additional Voluntary Contributions), and agree your retirement age. Very importantly, select the ‘tax is deferred’ box and if you make payments to match inflation, also check the button. Finally, feed in the inflation rates and expected rates of return. I like this tool because it brings into prominence the effect of inflation to your RSA. The result is presented pre and post the selected inflation rate. This is a great exercise and important insight to have well before you retire.
Go to school, learn a new skill
Go back to school and develop yourself professionally. Learn a new skill, and update yourself. Online education has never been easier to accomplish than today. With good internet connection, you can go to top education sites like Cousera and pay to get a professionally recognized certification for a short program. Examples are Python basics by the University of Michigan or Social Media Marketing by Northwest university.
These courses are free and there are many more out there.
Globis University is recognized as the largest MBA provider in Japan through its English and Japanese MBA programs offered in different formats. It’s also offering free courses until the end of April.
Start a business
Or at least draw up a business plan for a business. Take to time to put your thoughts on paper.
What problems can you solve? What service can you perform better? What skills can you outsource?
These are all business ideas, but take these ideas and put them into a document until you can raise funds and operationalize.
Health is wealth, they all say. Take time out and rest. Rest your mind and body. Eat healthy, sleep early, chill. If you live in Lagos, it’s normal to wake by 4 am and sleep by 11 am as you navigate traffic. Don’t feel guilty in simply watching your favourite tv shows and laughing out loud. Make a deliberate effort to break your usual monotony, read a book on love, cook for someone, get your body ready for the coming months which will require more effort to catch up. Give back by helping someone out. There are people out there that are broke and cannot afford to buy food; be that help.
CBN disburses N50 billion loans through MFBs’ IT platform
It aims to enhance financial access, inclusion and sustainability of the microfinance institutions on value chain financing and ensure the growth of the small and medium scale enterprises.
The Central Bank of Nigeria (CBN) is disbursing the N50billion COVID-19 Targeted Credit Facility meant for Households and Micro, Small and Medium Enterprises (MSME) that are affected by the killer disease via the Integrated National Association of Microfinance Banks Unified IT Platform (NAMBUIT) deployed by Inlaks.
NAMBUIT is a unified information technology built by Inlaks to service Microfinance banks on behalf of CBN and NAMBs. The innovation was designed to boost financial access, inclusion and sustainability of the microfinance institutions on value chain financing and ensure the growth of the small and medium scale enterprises. The NAMBUIT Platform, according to the Inlaks, is powered with a sophisticated Loan module for the management of the total life cycle of the over 80,000 loans that will be disbursed for this scheme.
Chief Executive Officer, African Operations, Inlaks. Femi Adeoti, explained that the platform runs on Temenos T24 Inclusive Banking Suite (IBS), and implementation is being managed by Inlaks, a system integrator in Sub-Saharan Africa, in line with global best practices, with support from the CBN.
“NAMBUIT is Software as a Service (SaaS) platform that reduces operational costs as well as improves the bank’s ability to provide necessary information to agencies such as CBN and NDIC. The unified platform comprises a core banking system and sub-systems for agent banking, non-interest banking, and mobile payment among other services.
“A core benefit of the NAMBUIT platform is the smooth on-boarding of the microfinance banks (MFBs) into the national payment system lowering the operating costs of MFBs significantly. This has been significant, especially in the context of developing economies, where many low-income households and micro-enterprises do not have ready access to financial services.”
The CBN had introduced the N50bn Targeted Credit Facility as a stimulus package to support households and Micro, Small and Medium Enterprises affected by the COVID-19 pandemic. The N50bn intervention is financed from the Micro, Small and Medium Enterprises Development Fund. The loan amount is determined based on the activity, cash flow and industry size of the beneficiary, subject to a maximum of N25m for SMEs. Households with verifiable evidence of livelihood adversely impacted by COVID-19 can access the loan to a maximum of N3m.
What Nigeria is not getting right with PPPs
We need to develop greater capacity for our public service to engage in public private partnerships. PPP is not a gift. The public sector is not charity and so you need to understand what you are doing with them.
To achieve the Sustainable development goals, public-private partnerships (PPP) is not just an option for Nigeria but a necessity. That is because it is not possible for government alone to raise the kind of money needed for it.
According to Dr Joe Abah, Country Director, Development Alternatives Incorporated (DAI), the government needs to provide a safe and stable environment for the private sector to invest, and also restructure public-private partnerships in order to get more value out of it.
Speaking during a virtual conference on Saturday, he referred to a report from the United Nations general assembly which stated that Africa needs “an incremental amount from $200 billion to $1.3 trillion per annum to be able to achieve the SDGs”.
This, he noted, calls for restructuring of public private partnerships, to harness the strengths of both sectors towards sustainable development.
“We need to develop greater capacity for our public service to engage in public private partnerships. PPP is not a gift. The public sector is not charity and so you need to understand what you are doing with them.
“We need to monitor performances very closely and that is one thing that the private sector does very well that we don’t do in the public sector,” he stated adding that the public sector needs to have delivery target tied to remunerations.
Removing socio-economic constraints
In his presentation, chairman of Citibank Nigeria limited, Yemi Cardoso stressed the need to remove constraints that hinder people from thriving.
“In one of the studies done where they looked at 8 high-growth countries, they discovered that there were no identical policies in all of them, but there was a common theme – liberate people from their societal economic constraints and they flourish,” he said
He explained how tax rates and regulations that frustrate free enterprise could also impede a countries growth and pointed out countries that had removed such bottlenecks.
According to him, the negligible tax rates in Hong Kong are a source of encouragement to businesses, and so is the ease of doing business in Singapore.
“There is also Macedonia where the sectoral competitive strategy is focused on attracting foreign direct investment (FDI) in automotive industry. Malaysia has also reduced dependence on agricultural exports by paying attention to manufacturing,” he added.
If Nigeria could focus on her competitive advantage, tweaking it as the time changes and attracting strategic investments to the country, she would well be on her way to economic prosperity.
Can a lower MPR rate really prevent this recession?
We are on the brink of a recession. Whilst policies like these could offer a buffer, the prolonged existence of the pandemic on the economy is one nail in the coffin that can only be halted by the provision of a vaccine.
The world is in a fix. Covid-19, unprecedented as it is, has led to economic shocks owing to severe disruptions in the global supply chain, rising levels of corporate and public debt, rising levels of unemployment, negative shocks to commodity prices, and more. To cushion the negative impacts on economies around the world, global leaders have put policies in place hoping that it will stop or, at least, slow down the negative trajectory of these failing economies. It was in the same light that the Central Bank of Nigeria decided to lower the MPR rate to 12.5% from 13.5%.
How the Decision Came About
In a meeting held by the CBN’s Monetary Policy Committee (MPC) on Thursday this week, a majority of the members voted to cut the rate from 13.5% to 12.5%. During an earlier meeting held in March, the decision to hold rates had been unanimous. However, given the deepening challenges of the present time, seven out of the 10 members at the MPC meeting voted to cut the rate. Even more interesting is the fact that the rest of the panel opted for a more aggressive easing, with two voting for a 150 basis-point reduction and one for 200 basis points.
Why the Decision Was Made
COVID-19’s adverse effects on the global economy have been unprecedented and severe. During the meeting, which was broadcast live on Thursday 28th May, the MPC had noted key observations in the macroeconomic environment resulting from the adverse impacts of COVID-19 as well as the drop in crude oil prices. Some of the key highlights of the current economic situation include:
- The significant decline in Manufacturing and non-Manufacturing Purchasing Manager’s Indices (PMIs) to 42.4 and 25.3 index points, respectively, in May 2020, compared with 51.1 and 49.2 index points in March 2020.
- The marginal growth in broad money (M3) to 2.66 percent in April 2020 from 2.42 percent in March 2020, largely due to increases in Net Domestic and Foreign Assets.
- The significant growth of aggregate net credit by 8.07 percent in April 2020 compared with 4.90 percent in March 2020 (still below the indicative benchmark of 16.85 percent for the year.
The committee also mentioned the gradual improvement in macroeconomic variables, particularly the improvement in the equities market, the containment measures of the COVID-19 induced health crisis, as well as the impact of the increase in crude oil price on the external reserves. It also noted the stability in the banking system as shown by the increase in total assets by 18.8 percent and total deposits by 25.52 percent (year-on-year).
Given the overall economic situation and its impact on the average Nigerian, the MPC was of the view that any tightening of policy stance is, for now, inappropriate as it will result in further contraction of aggregate demand, thereby leading to a decline in output – which is necessary to sustain the supply chain for growth recovery. For the option of holding previous policy stance, the MPC believed holding may indicate that the monetary authorities are insensitive to prevailing weak economic conditions. Also noteworthy is the fact that this move to cut rates have been carried out by many other central banks across the globe, including Australia, Malaysia, and the U.S. Federal Reserve.
The Impact Of The Decision
The expected outcome of the decision of the CBN is to ensure that the economy reverses from the recession quickly. As such, the decision is geared towards stimulating growth and swift recovery. The cut, being the lowest in four years, rests on the optimism that it will possibly avert a recession. It, however, has its limitations. A clear challenge is the impact the rate cut will have on inflation which has been way above the target range of 6% to 9% for five years. There is also the issue of increasing pressure on the naira.
The rising question is whether the rate cut will do enough to prevent a recession. This is an important question, taking into account the volatility in the crude market – a sector that accounts for about 90% of exports and more than half of government revenue, the fall in private sector credit of 61% from just a year earlier, as well as all of the same challenges that spurred the making of the decision in the first place.
We are on the brink of a recession. Whilst policies like these could offer a buffer, the prolonged existence of the pandemic on the economy is one nail in the coffin that can only be halted by the provision of a vaccine. It is only when life reverts to normalcy that we can begin to undo the damage thus far.