For every Small and Medium Enterprises (SMEs) that want to survive the coronavirus pandemic, it is essential for them to source raw materials locally, Ugodre Obi-Chukwu, the founder of Nairametrics, has advised.
This is particularly essential as the foreign exchange will remain volatile for a long while after the pandemic, affecting businesses that depend on imported materials for their productions.
Ugodre suggested this while speaking during an Instagram live session with Ore Ajayi of United Capital Plc, themed “Hedging your business with the right investments post-COVID-19.”
According to Ugodre, the volatility of the foreign exchange could lead to increased costs of productions for businesses, making it even more difficult for them to retain their market share in an economy that is battling a COVID-19 induced depression.
“Before COVID-19, we were in a difficult position as a country. Government revenue was down. Oil prices had started falling from late 2019. We had an economy where the government could not fund the budget and had to resort to borrowing,” he explained.
Ugodre suggested that the purchase of foreign exchange could be explored, but investment in dollar assets, foreign stocks and bonds would be better options to help businesses cushion the impact of rising inflation and depreciation of the naira. Ugodre, however, placed a caveat:
“While keeping a healthy mix of dollar and naira assets, try not to buy foreign exchange above 20% premium of the official price. This gives you enough room to protect your funds and reduce risks.”
Renegotiate loans and stay liquid
As things get tougher in post-COVID-19, it will become expedient for businesses to stay liquid and set aside some funds for emergencies.
Ugodre advised SMEs to consider renegotiating loan repayment terms with bank partners so that the facilities are not repaid at the expense of staying afloat.
He also suggested that SMEs could approach commercial banks, or the Bank of Industry for loans to keep them afloat, at reduced interest rates.
Use tech-driven investment platforms
At a time when the world is gravitating towards technology, SMEs must consider tech-driven investment platforms to run and manage their investments.
Responding to the question of platforms to explore, Ore Ajayi, the session host, noted that SMEs and individual investors have to move from looking for walk-in investment platforms and explore digitally-driven platforms.
“You must leverage technology for your investment needs. Platforms such as Invest now, which is powered by United Capital, could be a great one to leverage on at this time,” he said.
Investments to look out for
Ugodre emphasized also that as the business owners try to hedge their businesses with investments, they must look out for risks, returns on investments, time-frame of investments, and background of the issuers.
“Tread carefully in your investments. Picture the world 10 years from now, and imagine what businesses would look like then. Let that guide your investments. Those who identify this are those who will win,” he stated.