The coronavirus disease (COVID-19), which originated in China, has spread to several countries and territories. Many economies around the globe have witnessed reduced economic activities in the first quarter of the year.
Industrial facilities have been shut down in some affected countries, and the global supply chain has been disrupted. Brent crude prices have fallen below $22 per barrel – the lowest since 2003 – due to the escalating global economic impact of the COVID-19 pandemic and the price war between Saudi Arabia and Russia.
Nigeria, the most populous country in Africa, is awakening to a new economic and social reality as a result of the COVID-19 crisis. The country of over 192 million people, recorded its first case on February 28, 2020. Since then, it has recorded about 4,151 cases and 128 COVID-19 related deaths.
While the virus infects people regardless of wealth and social status, the poor will be most affected. In 2019, Nigeria surpassed India in terms of the number of people living in abject poverty. With a recession looming as a result of the pandemic, that number will only grow if proper measures are not enacted.
Living in typically high-density houses, with reduced access to sanitation, and a lack of savings to facilitate self-isolation, Nigeria’s poor are at greater risk of contracting the disease. More so, due to the high cost of health care, greater economic fragility, and higher mortality rates, we are bound to see many more Nigerians fall below the poverty line before this is over.
About two months ago, the Lagos State government banned the use of tricycles and bikes. The immediate and most significant impact was the sudden rise in unemployment. The ban affected about 14,000 bike-hailing employees and about 50,000 tricycles and informal motorcycle riders.1 A further strain on incomes resulting from the COVID-19 pandemic will devastate workers.
Nigeria’s response to the pandemic
The CBN is providing N50 billion to firms affected by the virus and is increasing credit to the health sector. In addition, the Bankers Committee pledged to provide N3.5 trillion in support to pharmaceutical companies, assist essential health companies in purchasing raw materials, and encouraging local production of drugs. Whilst these stimulants are necessary to spur economic growth, structural policy changes are required to achieve macro-economic stability and long-term sustainable growth.
The average size of the stimulus package as a percentage of GDP in advanced economies is 12%. The US, for instance, is 11%, while in SSA the average stimulus is 0.4% of GDP. Therefore, a stimulus package of 0.34% of GDP in Nigeria is totally insignificant and unlikely to boost the already fragile economy.
To reduce unemployment and poverty, which are inevitably linked to this pandemic, it is imperative that policymakers provide relief packages tailored particularly to Nigeria’s vulnerable citizens. Nigeria needs to ease the financial burden ensuing from the lockdown, and cushion the aftermath of the pandemic.
(READ MORE: Fidelity Bank debuts ‘SME Forum Online)
Countries’ responses to the pandemic
The US, now the epicenter of the virus, reversed its initial indifference, approved strict external travel prohibitions and some states enacted strict internal restrictions. The President approved a coronavirus relief bill of $2 trillion, which was designed to bolster unemployment benefits for individuals, increase money for states, deliver a huge bailout fund for businesses and send one-off payment of up to $1,200 to every American with an annual income of $75,000 or less.2 This had a direct impact on each citizen including low-income earners and casual workers.
In other countries such as China, the government has instructed that salary payments should be made to workers who are unable to work due to quarantine or illness. Ireland, Singapore, and South Korea have made sick leave available for the self-employed, while in the UK, statutory sick pay will be provided for diagnosed or self-isolating individuals, coupled with a three-month payment holiday for anyone struggling with mortgage or rental payments.3
Taking a look at the relief packages in advanced countries: they are well-tailored to citizens, will have an immediate and positive impact on the standard of living of its citizenry, and they will reduce the knock-on effects on incomes.
The way forward
It is no news that the COVID-19 pandemic will disrupt the global and Nigerian economy in 2020. However, Nigeria can cushion the impact of the virus by introducing measures to protect companies and their workers, most especially the vulnerable citizens, from the impact of the quarantine measures. Such measures could include:
- Unemployment benefits
- Employment retention
- Social assistance benefits
- Financial support and tax relief
While these measures will not single-handedly contain the pandemic, it will encourage the citizenry to stay at home, reduce the spread, and also help reduce the level of unemployment, day-light robbery, and poverty ensuing from the pandemic.
Article was written by Miss Tobiloba Ogunpolu. Ogunpolu is a Senior Economic Analyst with a renowned investment firm
Traders’ Voice… A recession, for how long?
With the oil sector likely to remain depressed in Q4 2020, expectations of recovery will rest mainly on the future performance of the non-oil sector.
Recession! I think we all saw this coming. The Nigerian economy declined for the second consecutive quarter by 3.6% YoY in the third quarter of 2020, following a 6.1% drop in the preceding quarter. It marks the 2nd recession in the country in four years amid a significant decline in the oil sector, coupled with the rippling effects of the restrictions implemented across the country in early Q2 in response to the COVID-19 pandemic.
During the Sunday sermon, my pastor made a spirit-filled statement. He said, “it is hard to create sustainable wealth with a shaky foundation.” This statement did not only resonate with me spiritually, but it also did economically. In the case of Nigeria, ever since we shifted all attention to crude oil, it has been one economic struggle or the other. If I start talking about the macro-economic and sociocultural headwinds that watered down the effect of the fiscal and monetary stimulus packages, I would be forced to ‘off my mic’. At the end of the sermon, we were all asked to say this short prayer “Oh Lord, heal my foundation.” I also made the same prayer for Nigeria. However, deep down, I know we will need just more than prayers to address the fundamental issues hindering growth in the economy. The question remains, how long will it take to diversify the economy?
Over the years, huge amounts of investment have gone into the Agricultural sector in a bid to diversify the economy from crude oil. However, the agricultural sector remains underdeveloped and unable to sustain the economy (maybe we need to decide on what sector can really take us to the promised land). Although Nigeria is not the only country that has been gravely affected by the Covid-19 pandemic, I think it is safe to say that the Nigerian economy was already showing signs of weakness following a steady decline in crude oil prices and external reserves.
Just thinking out loud, for a country that is so rich in natural recourses, has a youthful population, favorable weather and fertile land, why do we struggle to generate multiple revenue streams? I guess it is true what they say, “one man’s trash is another man’s treasure.”
The oil sector recorded a real growth rate of -13.89 percent YoY, driven by the depressed price of crude oil this year. We also witnessed a significant drop in oil production, which declined by 18.13% YoY to 1.67 Mbps, representing its lowest level since the third quarter of 2016, due to compliance with OPEC+ cut agreements.
ICT remains the outperformer in the non-oil sector
The non-oil sector recorded a real growth rate of -2.51 percent YoY in Q3 2020, which is down by 4.36 percent relative to the rate recorded in Q3 2019, but represents an improvement of 3.54 percent when compared to the 6.05 percent contraction recorded in the preceding quarter. The gradual economic reopening pursued during the third quarter aided the improvement. The underlying subsectors that supported the non-oil sector include Information and Communication (14.56%), Agriculture (1.39%), Construction (2.84%), Financial and Insurance (3.21%), and Public Administration (3.58%).
For how long?
With the oil sector likely to remain depressed in Q4 2020, expectations of recovery will rest mainly on the future performance of the non-oil sector. We expect that the N2.3 trillion stimulus package contained in the economic sustainability plan will play a major role in supporting the recovery of the non-oil sector.
Nevertheless, the economic impact of the #EndSARS protest remains a concern as well.
All eyes are on the MPC meeting…
The MPC will be holding its last meeting for the year and with the recent macro-economic data (GDP and inflation), market participants will be anticipating the outcome of the meeting more than ever. The MPC will have to decide between further supporting economic recovery or taming inflation. The Central Bank of Nigeria unexpectedly slashed its monetary policy rate by 100 bps to 11.5% during its September 2020 meeting, bringing anchor to the lowest since 2016.
Inflation vs Interest rate (2015-2020)
*White line… inflation
*Blue line…. MPR benchmark rate
Where is the money?…….
The decision of the MPC will be a major determinant of market direction for the rest of the year. We face three
1. Bull case (rate cut): A further rate cut at the MPC will most likely renew interest on the long end of the
curve in the bond market as the short to mid end have received most of the traction in weeks. We will
also witness renewed interest in the equities market after last week’s pullback created possible entry
2. Base case (maintain status quo): The relatively quiet trend will persist in the bond and equities market.
Participants will be looking forward to the PMA on Wednesday where stop rates could print negative.
3. Bear case (rate hike): Although least likely, this would lead to a sharp knee jerk negative reaction
across all financial assets especially in the fixed income market.
Here are 7 ways to plan for the unexpected in your small business
Learn what to do to prepare yourself for the unexpected as you build your business.
It is not easy to maintain a business, whether big or small. A lot of things have to be in place before things can work smoothly with a business. Many entrepreneurs get the shock of their lives when they start a business and they end up facing things that they never even expected in the first place. This piece is going to expose you to the things you should do to prepare yourself for unexpected scenarios.
Prepare for the Rainy Day
Do not be deceived even if your business is booming, things can change very quickly. The economy can enter a recession or sales can dry up without any warning. For this reason, you should have some funds saved away for days like these. The funds can be used during emergencies or when things are very tight for you.
Do Background Checks Properly
Doing a business means you will need to buy some items or at least incur certain costs, such as the price of renting your working space. You should not go ahead with this without doing a detailed investigation. If you’re looking for an office in LA, for instance, you have to make sure that you are renting out a coworking space for your employees, and get the most out of the payment that you’re making. Business owners who do not investigate and run background checks end up getting shocked by the turn of events. Do not let this happen to you so conduct your investigations very well regarding the costs.
Be Attentive to Customers
If you want your business to thrive then you have to pay very close attention to your customers. You have to interact with your clients and be attentive to all their needs. Customers often change their preferences and if you do not pay attention, you may be shocked with unexpected outcomes. You also have to be on top of your game so that you know the latest trends in the market and this way, nothing is going to get you by surprise.
Moderation is Key
Quite a few business owners get surprised by the difficulty in maintaining a balance between the running of the business and also keeping their home. You have to draw a very practical plan that will help you to strike a balance between your family and your business. This way, you are not going to melt down into a mode of shock when you start running your business. Fortunately, there are lots of resources on the Internet that you can make use of to help you with this. There are even professional advisers that guide entrepreneurs with this. If you can afford their services then you should not hesitate to go for these services because you are going to gain massively from them at the end of the day. It is a very smart move for your business.
Get Finances in Order
Well, what makes any startup tick and succeed is a constant flow of cash. If the cash flow dries up, then you can as well just kiss the business by. You need to fully comprehend your business cycle and come to the realization that there will be some time when customers will pay well and there are some other times when payments will plunge. This can be as a result of unpleasant economic times or even personal financial issues that your customers are facing.
Whatever the case, you have to figure out well ahead of time how you are going to maintain constant liquidity. This is going to put you in a very safe and comfortable position so that even when the business cycle dips, your business is going to be safe, fine, and running. You can decide to go for corporate loans, depending on your savings, or use any other credit facility available for you.
(READ MORE: Protecting your money from fraudsters)
Sort Taxes Swiftly
Yes, even small businesses have to pay taxes too. Your size is not immune to taxes. If you do not do your calculations very well, you will be very shocked when the tax documents arrive. Discuss this with the law attorney so that you can get all the necessary information.
Pay Attention to the Rules and Regulations
Governments keep making business laws all the time and these laws apply to all kinds of businesses, whether big or small. By paying attention to the business legislation, nothing is going to get you unawares. Here is where a good business attorney can also be of help.
Rachel Eleza, Growth Marketing Director at UpSuite and a part-time writer.
Financial Literacy and its relevance in the 21st Century
One of the most important lessons that a person can learn is how to manage their money. Many young people go into adulthood with little knowledge about financial management and they end up making mistakes that cost them a lot of regrets in the long run. Educating young people about the importance of financial management and making sound financial decisions will go a long way to prevent them from making costly mistakes. This will also encourage them to be financially prudent when making decisions. Thus, the importance of educating young people on financial literacy can never be overhauled or overemphasized.
Financial literacy is the act of acquiring set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. Financial literacy also involves the skillfulness of financial principles and concepts such as financial planning, budgeting, forecasting, compound interest debt management, profitable savings techniques and also, the importance of understanding the value of money and the principles of wealth management. The lack of financial literacy leads to making poor financial choices that can have negative consequences on the financial well-being of an individual.
On the 3rd of January, 2019, Acting Gov. Sheila Oliver of New Jersey in America signed a law that mandates the state Board of Education include financial literacy instruction in the curriculum for sixth- through eighth-grade students in public schools across New Jersey. This bill was signed at President Barack Obama’s Elementary School in New Jersey City. Although the new law gone into effect in September 2019, New Jersey has actually been ahead of the financial literacy curve for years now. In 2014, the state adopted the program Standard 9, 21st Century Life and Careers, which include guidelines for what students need to know and be able to do in order to be successful in their careers and to achieve financial independence and health. Included are specific financial literacy standards broken out by grade level. However, the 2017 Financial Report Card from Champlain College’s Center for Financial Literacy provides the grades for all states, based on their efforts to produce financially literate high school graduates. Sadly, only five states received an “A” grade for their financial education efforts, namely; Alabama, Virginia, Tennessee, Utah and Missouri. These five states require high school students to take at least a half-year Personal Finance course as a graduation requirement. Only 17 states in total require high school students to take a course in personal finance.
After graduation every step our kids take from college through retirement will be directly influenced by their ability to manage their finances: student loans, credit cards, jobs, mortgages, savings, etc. Once they hit 18 years old, they are required, and able, to make decisions that could affect their entire life, often without the necessary financial knowledge and skills. The point being, understanding finance is a critical skill needed as an adult, yet it is not a mandatory high school course in most states.
The Central Bank of Nigeria made a commitment in 2011 which she referred to as the “MAYA DECLARATION”. The purpose of this declaration is to reduce the number of financially excluded Nigerians from 46.3% in 2010 to 20% by the 2020. To ensure the fulfilment of this obligation, a National Financial Inclusion Strategy was accordingly developed and launched in October 23, 2012. The strategy identified consumer protection and its constituent pillars of Market Conduct, Dispute Resolution & Consumer Education as critical to the attainment of its objectives. Sometime in 2015, The Central Bank of Nigeria said it has commenced discussions with the National Education Resource Centre to introduce financial literacy programs into the education curriculum of secondary schools in Nigeria.
At a recent stakeholders meeting conference that was held in Abuja on the 17th and 18th of January 2019, the Central Bank of Nigeria (CBN) in collaboration with a variety of financial industry stake holders came out with a number of policy positions that will help to educate more Nigerians on Financial Literacy and its importance in the society today. It said once the discussions with NERC are finalized, Financial Literacy will be taught as a subject in all Nigerian secondary schools before the end of this year. The commencement of the financial literacy program will assist in improving the savings culture among secondary schools in Nigeria. An important aspect of this strategy is the implementation of financial literacy programs across various target groups of Nigerian population. On the 19th of July 2019, Central Bank of Nigeria (CBN) said it is in partnership with churches and mosques in the promotion of financial literacy in the country. The bank’s Director, Consumer Protection Department, Mr Kofo SalamAlada made this known in an interview with News Agency of Nigeria (NAN) in Abuja. SalamAlada said the apex Bank had organized outreach programs to educate members of some faiths based organizations with a view to educate them on the program and the need to key into it. CBN decided to use such religious organizations because of the spiritual and religious nature of most Nigerians. However, CBN is ready to work with any organization willing to set up an in house financial literacy program.
The five key points from the conference that was held in Abuja on the 17th and 18th of January at the stakeholders meeting include;
1. With Financial Technology (Fin-tech) becoming an increasingly important part of the business ecosystem , there must be deeper collaboration amongst the various regulatory authorities and private market participants such as deposit money banks (DMBs), Telco, retail stores and payment system banks (or agency banks). The regulators must ensure a seamless set of rules and responsibilities that cover issues related to the services rendered by each retail and wholesale market participant.
2. Consumer education needs to be broadened and deepened. Multilevel platforms need to be adopted for the education of a wide range of consumers of financial services:
- Market men and women
- Students-primary, secondary and tertiary
- Crop Farmers
- Animal Husbandry Farmers
- Sellers of small unit items at the margins of urban economies
3. Consumer dispute processes must be fashioned in manners that guarantee quick, easy and inexpensive resolution of differences between service vendors and customers. This may also require speedy resolution of differences between regulatory agents, meaning there must be clarity over role and responsibilities in cases of dispute.
4. The target of national exclusion must be reduced from 46.3% in 2010 to 20% in 2020. The current exclusion rate in 2018 was about 36.8% according to a recent report by Enhancing Financial Innovation and Access (EFINA).
5. To reach the financially excluded, market infrastructure needs to be enhanced. Poor communication, especially in respect of Telco services in rural communities need to be urgently addressed. Many payment bank agents suffer frustration because of weak network connection and slow data processing time.
The lack of financial literacy can lead to owing large amounts of debt and making poor financial decisions. For example, the advantages or disadvantages of fixed and variable interest rates are concepts that are easier to understand and make informed decisions about if you possess financial literacy skills. Based on research data by the Financial Industry Regulatory Authority, 63% of Americans are financially illiterate. They lack the basic skills to reconcile their bank accounts, pay their bills on time, pay off debt and plan for the future.
The current realities in the Financial Sector show that, it is only when the interest of consumers is given proper attention and protected that public confidence would be restored in promoting a strong and stable economy. Though there exits many educated and literate Nigerians, a high percentage of the population does not have the requisite skills to effectively manage their financial transactions and take advantage of the opportunities presented by the financial products and services to improve their well-being. An important aspect of this strategy is the implementation of financial literacy programs across various target groups of Nigerian population.
Consumers of Financial Services have also been subjected to unethical practices from financial institutions which could be attributed to their low levels of financial literacy arising from their lack of knowledge of their rights and obligations in their relationships with the financial institutions. Financial illiteracy affects all ages and all socioeconomic levels. Financial illiteracy causes many people to become victims of predatory lending, subprime mortgages, fraud and high interest rates, potentially resulting in bad credit, bankruptcy or foreclosure.
However, some signs of lack of financial literacy include;
- Not having a budget, a goal or a plan.
- Excessive spending
- Living on debt.
- Not having emergency savings.
- Borrowing for the wrong reasons.
- Banking on an expected money
- Not investing for the long term.
- Ignoring insurance.
- No retirement plan
- Pressure from social media and friends.
- The main steps to achieving financial literacy include;
- Learning the skills to create a budget
- The ability to track spending
- Learning the techniques to pay off debt
- Effectively planning for retirement.
These steps can also include counseling from a financial expert. Education about the topic involves understanding how money works, creating and achieving financial goals and managing internal and external financial challenges.
Financial literacy helps individuals become self-sufficient so that they can achieve financial stability. Those who understand the subject should be able to answer several questions about purchases, such as whether an item is required, whether it is affordable, and whether it an asset or a liability. This field demonstrates the behaviors and attitudes a person possesses about money that is applied to his daily life. Financial literacy shows how an individual makes financial decisions. This skill can help a person develop a financial road map to identify what he earns, what he spends and what he owes. This topic also affects small business owners, who greatly contribute to economic growth and stability.
How can financial literacy be encouraged in Nigerian?
- There is a need for increased consumer financial literacy to improve the literacy penetration ratio which is still embarrassingly low. An 80% penetration by 2021 is targeted.
- Nigerian youths need to be more actively engaged in financial literacy to create a more active financial industry participation rate for a demography group between 16 and 35 years of age. This represents over 60% of Nigeria’s population of an estimated 198million people
- Women need to be especially targeted since research evidence show that they are more reliable borrowers of funds at the MSME levels
- The different segments of the financial ecosystem; banks, insurance companies, pension fund managers and stockbrokers need to be more intimately related to provide consumers
with a more robust understanding of products and services rendered by each market segment and how they are linked or complementary.
- A process of monitoring and evaluation has been designed to ensure that processes or procedure agreed are actually followed
Children and youths are an important target group for the purpose of the financial literacy program. It should be noted that financial literacy is better learned at a young age instead of in adulthood. This is because a habit imparted in the youth at an impressionable age becomes a way of life. Where the youth grow without financial education, it would be difficult for them to have financial literacy as well as being capable of managing their own financial matters in a way that will impact their well-being when they become adults. When financial literacy is achieved, it will help to boost financial inclusion in any country-Nigeria to be precise.
It should be noted that being financially literate is different from acquiring normal education as some people are educated but financially illiterate.
Written by Chukwuma Aguwa