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
possible scenarios.

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
points.

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.

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.

READ: Nigeria not broke, budget to be passed before end of the year – Budget Office

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.

(READ MORE: Many millionaires plan to buy Crypto before 2022)

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.

READ: AMAC raises alarm over proliferation of fake revenue officers

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.

READ: Huawei competes with Apple, announces release date for new smartwatch

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.

About author

Rachel Eleza, Growth Marketing Director at UpSuite and a part-time writer.

The Nigerian banking sector has consistently been one of the most profitable sectors in the Nigeria Stock Exchange market. However, in 2020, Deposit Money Banks (DMBs) have faced a flurry of impediments, which may have affected their solidity.

With reduced income from fee and commission implemented at the start of the year by the Central Bank of Nigeria, the paucity of foreign currency for international transactions, the resulting economic contraction from dire effects of the coronavirus pandemic, and the consequent operational constraints of keeping employees safe, 2020 is obviously fraught with numerous disorders for banking institutions.

READ: Another Fidelity Bank Non-Executive Director purchases 1 million shares worth N2.75million

For most, it hasn’t exactly been a year for growth at all, more like a walk in the woods, where improvements to bottom-line is almost unexpected. This period, many banks seem content with simply surviving and fundamentally matching their previous feats.

Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years. The bank generated a 2020 9M PAT of N20.4billion, rising 7.08% from the corresponding figures last year, but drilling solely into its results in Q3’2020 and its exact comparative period in 2019, the bank suffered reduced interest revenue, reduced fees and commission, reduced profit before tax, and reduced after-tax profit.

READ: STANBIC IBTC posts Profit After Tax of N45.2 billion in H1 2020

Fidelity Bank Plc concluded Q3 with a profit position of N9.1billion, 13.7% decline compared to its position in 2019 y/y. PBT reduced by 12.9% from N10.8billion in 2019 to N9.4billion this year. Gross earning in Q3 was only N49billion as against N57billion in 2019 – plummeting 14%.

The Group Chief Executive Officer of the bank, Mr. Nnamdi Okonkwo, commenting on the result said: “Our 9 months results reflect our resilient business model, particularly in a very challenging operating environment. We worked closely with our customers to gradually recover from the economic impact of the pandemic and the attendant effect of the lockdown. The drop in gross earnings was due to the decline in interest and similar income, caused by lower yields and drop in fee income.”

READ: Sterling Bank Plc records 3.28% decline in 2020 9M gross earnings

True cause of the reduction in earnings

DMBs generate gross earnings under three primary subheads: Interests earned, Fees and commission, and Other operating income. Fidelity Bank Plc generated a combined total of N150.8billion for the period ended September 2020 from these three categories, compared to the N158.5billion in the corresponding period last year.

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Deeper analysis reveals that this rising tier-2 bank has seen more deficit in revenue from fee and commission compared to the other aforementioned gross-earnings’ generating-sources within this period. Interest earned dropped by a difference of N4.3billion, while revenue from fee and commission saw a decline of N4.8billion from N14.5billion in 2019 to N19.3billion YoY.

Fee and commission as a component of gross earnings

Card maintenance fees, account maintenance fees, commission on remittances, collect fees, telex fees, electronic transfer fees, amongst others, represent the plethora of channels that makes up income from fee and commission.

READ: Strong performance from Stanbic IBTC, despite weak retail banking position

The real insight this particular component of gross earnings provides is that a spike in revenue generated indicates increasing/increased customer account activity. The more a customer maximizes the usage of an account’s product and facilities, the more the revenue earned from this segment. Thus, earnings from fees and commissions are so overriding due to their apparent controllability.

For example, a bank could make the decision to purely pursue and aggressively drive the usage of its ATM debit card and promptly see the revenue from commission rise. Furthermore, an increased rate of card production and collection necessitates usage and consequently means more money is earned as card maintenance fees.

READ: Unity Bank Plc posts gross earnings of N11.04 billion in Q3 2020

The fact that gross earnings reduced mostly from fees and commissions should be a telling concern for the Management of Fidelity Bank Plc. Post covid-19 would birth the dawn of a new era for business processes. The management must guarantee the usability of its electronic banking channels, promotion of its cards, and with urgency, implement improved service delivery mechanisms to ensure that it is the first port of call to customers for general payments and remittances.

These measures are of grave significance in the bid to bridge its widened fee and commission income gap.

READ: Central Bank says monetary policy not to blame for rising food cost

Other indices

Holistically, in the 9 months ended September, it is worthy of note that the bank made certain advancements. Customer Deposits, Net Loans and Total Assets all grew in double digits. Customer Deposits grew by 22.3% from N1.2billion to N1.5billion, Total Assets also rose by 21% from N2.1billion in 2019 to N2.5billion, and Net Loans rose by 12.9% to N1.3billion from N1.1billion.