It’s the “new normal” again.
If the pandemic had a manifesto its number one point would have been to change the way we do business, and it definitely has succeeded in doing just that as it is the motivation behind hundreds of innovations and strategies seeking to leverage IT to render services and solutions that hitherto had to be carried out by personnel on a face to face basis. Hence the ubiquitous caption “new normal” In business.
After years of the self-service options on their applications being ignored, Nigerian Banks not to be left out when the word innovation is mentioned have taken to their media spaces to air their previously ignored innovations that enable their customers transact remotely. Apart from the usual balance check, bills payment and fund transfer services that their apps are known for, here is a rundown of a list of services available across most Nigerian Banks’ applications:
Compare fixed deposit rates across Banks from the comfort of your home by logging in and out of their different applications before you place your funds- all online of course. Treasury bills investments are not left out too.
Not cut out for conventional investments as these, no problems. Most Banks have you covered in the most traditional way by giving you a platform to organize contributions with your family and friends. Yes, ajoo or esusu is available on most platforms.
You know the ego trip you feel whenever your account officer calls you to confirm your cheque, the Banks have conspired to take it away by providing a cheque confirmation feature on their apps.
I know you won’t subscribe to this if you are anything like me, but the other cheque services such as cheque book requests, stop orders, cheque number validity and Manager’s Cheque requests still make this service worth your while.
Only a handful of people know that they can make card requests and deactivate/activate their cards on their Bank apps. Congratulations, you are now part of that handful.
You can open an account, monitor your trade transactions, pay staff salaries, schedule bill payments, receive third-party international transfers, make international transfers, download bank statements, locate the closest branch, make loan applications and register your complaints via your bank app.
The banks even go the extra mile of using app notifications to update you concerning recent industry developments and security tips knowing the effort you have put in ignoring the countless SMS and mails they have sent to this effect. All these in an effort for you to keep your distance and bank from home.
When in 2015, Bill Gates posed the question of whether Bank accounts could be opened without physically coming to the Bank, it seemed a little farfetched. Now it’s clear that the days are gone when footfall at a Bank’s branch were a sign of their market share, it is about the number of downloads of its apps and its usage hence the push by these Banks for their customers to use these apps even as they strive to make them more efficient.
This is the “new normal”.
How Cash flow, Liquidity, and Leverage impacts your financial plans
Aja discusses how Cash flow, Liquidity, and Leverage impacts your financial plans.
It is key to discuss cash under the three themes of Liquidity, Leverage, and Cashflow. These concepts are interrelated, but each has different impacts on your financial plan.
It captures only cash transactions and is simply the amount of cash flowing in and out of your business or person. Hence, if you buy an asset and issue a Purchase Order to pay a supplier in 90 days, that transaction will not show up on your cash flow.
As an illustration, if Emeka buys a TV with N200,000 but issued a cheque for N100,000 cashable in 90 days; only N100,000 will be captured leaving his cash position. Thus, Emeka has positive cash flow and negative leverage, because his debt has gone up.
For Okafor, the seller who received half of the proceeds in cash, he may be liquid but cannot replace his stock due to lack of enough cash flow. He may have to leverage to generate cash. Should he need cash, he can create liquidity from his paper check of N100,000 by discounting to cash before 90 days, but at a cost.
You must be aware of negative and positive cash flow and avoid as much as possible, generating cash from financing activities i.e. borrowing to fund non-income generating assets or activities.
It is determined by how fast an asset can be converted into cash. If Okafor gets a cheque offer from Dangote Cement and another from Emeka to pay for a TV, which do you think he will accept all things being equal? Most likely the Corporate cheque, because he perceives that it is easier to discount to cash; thus, more liquid than the individual cheque.
Federally issued bonds are said to be less risky than State or Corporate bonds of similar tenor because the issuer (the FGN) is more liquid than the States or even Corporates.
The same can be said of Equities. Stocks that are traded more often and held by more investors are more liquid and commands a better premium to the bonds of a similar company. This is one reason large blue-chip stocks command higher market prices, the investors are also paying for the ease of liquidity.
A good metric for measuring liquidity has to be the Acid Test liquidity ratio that determines how easy it is for you to generate cash in an emergency. It is calculated by dividing your assets by your liabilities, but the key is that the assets are stripped off all hard assets and will include only cash and easily marketable securities and commodities like gold that can be sold. The higher the ratio the better.
Simply put, leverage is borrowing. You can borrow to increase potential profits or to meet an obligation that is due. When cash is borrowed, it must be paid back with a cost called interest. Leverage can produce cash flow and liquidity, but no firm or household can remain a going concern solely on cashflow financed by leverage.
Eventually, the interest cost will swell and more of future operating cash generated by the firm or household will be earmarked to pay off interest, leaving the principal to remain and generate more interest cost.
In the earlier example, Emeka used leverage to buy the TV and gave Okafor a cheque, who will in turn generate cash flow by liquidating the instrument from Emeka.
A good leverage analysis is to calculate your Leverage Ratio. To determine your leverage ratio, list out all your liabilities, divide by your total assets, and multiply by 100. The answer tells you how much of your assets are financed by debt i.e. leverage ratio.
Hence, you can have positive cash flow, be liquid but be highly leveraged, which is not ideal. The rule of thumb says the lower the leverage ratio, the better.
Summarily, with cash, you must be aware of the implication in terms of cash flow, liquidity, and leverage.
#EndSARS: Analyzing the economic prospects of another lockdown
Decisions taken in the next few days will determine how soon the issues surrounding the #EndSARS protests will be resolved.
The past five to seven days in Nigeria have been nothing short of fictional for the Nigerian people.
One would be hard-pressed to describe the events without seeming to take sides with either part of the standoff as emotions, euphoria and sometimes, unfounded principles have seemed to become the order of the day. Logic, accountability and common sense being on vacation as they often are in such matters.
If there were negotiations (of which there are none presently), parties involved may likely disagree on a couple of things ranging from the sincerity of the other party, approach to a peaceful resolution, what amounts to a peaceful resolution and how to forge ahead.
There would be accusations and counter-accusations, more so, as the chasm of discord between stakeholders continues to widen with each passing day of the #ENDSARS protest across major cities and towns of the Country. Nonetheless, one thing both parties would agree on is that their continued standoff and reluctance to resolve the complex issues around the protest is ruinous to the economy.
Nigeria’s real GDP growth for 2019 was estimated at 2.3% by the AfDB. It was an improvement on the 1.9% estimate for 2018 and an achievement of the 2019 expert projections despite the uncertainty about the 2019 election outcomes, policy implementation slowdown and sell-offs by foreign investors in 2018.
Household consumption was the key growth driver in 2019, followed closely by growth in transport, the oil sector and information and communications technology. Agriculture, for all its Government patronage could not withstand the floods that heralded a climate change while suffering from the conflicts between herdsmen and farmers- it flopped, and so did manufacturing which could not be reckoned with due to a lack of financing. Estimated inflation for 2019 was 11.3%.
After a turnaround from –1.6% in 2016 to 0.8% in 2017, 2020 was supposed to be the year where Nigeria consolidated on the steady GDP growth of previous years by implementing its Economic Recovery and Growth Plan with an emphasis on economic diversification.
The CBN’s proactive decree that banks hold loan–deposit ratios of 60% was geared to increasing lending to the real sector, even as they eased the risks of lending to small businesses.
An increase in the value-added tax from 5% to 7.5% was implemented to shore up domestic non-oil revenues, and agro-industrial support from the Government was supposed to make 2020 a year to surpass growth forecasts even as oil revenues began to improve and drive foreign exchange reserves. Then came COVID-19.
Lacking a clear nationwide pandemic framework, coupled with a nonexistent welfare system and weak healthcare infrastructure, the Nation did a relatively impressive job in managing the pandemic but did lose the economic advantage it started the year with. Negative GDP growths were projected for Q2 and Q3 even as oil prices slumped to an all-time low.
Diaspora remittances (which accounted for 83% of the FG budget in 2018) had reduced to a trickle because of the pandemic, and unemployment surges. The World Bank predicted a recession by Q4, it would be Nigeria’s worst in four decades.
Once again, Nigeria beat the odds. A series of monetary and fiscal policies saw to it that more funds were made available to the real sector; delinquent loans were restructured to keep from becoming bad; the free fall of the Naira was staved off and key industries were supported through Government’s special intervention programs. A few optimists were beginning to think we had rounded the corner, then came #EndSARS protests.
In the few days since the protests have begun, the Nation is estimated to have lost billions of Naira with Lagos state, understandably, being the biggest loser so far hosting the largest protests. Manpower hours have been lost, properties have been destroyed and worst of all lives have been lost.
Household spending, transportation and manufacturing cannot continue to thrive in these unrests. September inflation was pegged at 13.7%, its highest since February 2018 there is already considerable strain on healthcare due to the pandemic and the exposure of the populace during the #endsars protests and counter-protests could spike up the COVID-19 numbers once again.
The peculiarity of the nature of the protest has seen Nigerians in the Diaspora channel their funds to supporting the protests in Nigeria while organizing theirs in their host country. Another significant loss of diaspora remittances which represent a substantial percentage of the GDP. Also, the protests are beginning to weigh in on stock market activities and could affect other economic indices if tensions escalate further.
The unfortunate resolve of both sides to fight to the finish without giving room for dialogue could lead to another lockdown of economic activities as witnessed in Edo, where a 24hr curfew has been declared; Lagos where schools and businesses have shut down; Osun, Ekiti, Plateau, Imo and the FCT where business activities have come to a grinding halt.
The cyber warfare being threatened by both sides could also have far-reaching effects on the liquidity of our financial institutions as their customers opt for crypto wallets as safe haven for their funds and as punitive measure for brands they perceive as not being supportive towards their cause.
Of course, decisions taken in the next few days will determine how soon the issues surrounding the protests will be resolved, but for a country on the precipice of serious economic repercussions, both parties seem a little too comfortable in staring down the opposition when serious gains could be made by coming to a round table.
More agriculture loans but longstanding bottlenecks remain
Despite the flurry of funds provided via intervention policies, long-standing bottlenecks in the agric sector still exist.
According to local media reports, the Minister for Agriculture, Sabo Nanono through an information official of the Agric ministry announced plans by the ministry to provide relief for farmers in form of interest-free loans, and effective input subsidisation. According to the statement credited to the minister’s representative, the relief is for the recent covid-19 disruptions to farming activities and flooding in Kebbi, Jigawa and Kano states. In addition,
the minister stated the interest-free loans would be provided through a partnership of the Agric ministry and the Central Bank of Nigeria.
We acknowledge that farming activities have been significantly affected in 2020 due to covid-19 movement restrictions during the planting season as well as abnormal rainfall patterns which led to flooding of farmlands. That said, we note that the farmers/herders clashes remain a significant threat to agricultural productivity. These unfortunate events have led to a spike in food prices refelected in the food inflation rate of 16.66% in September according to the National Bureau of Statistics (NBS). Thus, we consider provision of reliefs for farmers important to restore farming activities and output level back to pre-covid levels.
However, we note that the agriculture sector remains plagued with long-standing structural challenges which if ameliorated, would significantly improve output level and drive the country towards its goal of achieving self-sufficiency in food production. Some of the long-standing bottlenecks include; poor transport network to connect farmlands with main markets, poor storage facilities, sub-standard farming inputs, crude agricultural techniques
etc. These in our view, are the reasons why the funds that have been pumped into agriculture via different intervention schemes such as Anchors Borrowers Program (ABP) and Commercial Agricultural Credit Scheme (CACS) have yielded limited results and remain riddled with repayment controversies.
In our opinion, while short term relief for farmers is necessary to immediately alleviate some of the pressures on food prices in the short term, we think some of the flurry of funds provided via intervention policies should be directed at resolving long-standing bottlenecks to truly maximise the full potential of Nigeria’s agriculture promise.
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