Jubal Kanayo takes a global look at the speed at which the novel Corona Virus is laying waste to corporations, firms and economies and attempts to look at the situation back home and where this leaves us.
No one can deny that the Corona Virus, popularly called COVID-19, has laid waste to a number of businesses and economies on a global scale. So, it is officially, according to the International Monetary Fund (IMF), the worst economic down-turn since the Great Depression,1930 to 1936.
With 11.3 million cases and 532 deaths as at the first week of July, the extent the virus will mutate as it makes its world tour can only be imagined, with the probability of an explosion of cases and mortality in the developing world and a persistent human reservoir of COVID-19 infection from now on.
Besides the consequences for global economies and businesses, the virus has brought about a harvest of bankruptcies of both liquid and solvent companies, as companies and their creditors perceive that markets will remain untenable in the medium term. However, many are restructuring as quickly as possible before conditions deteriorate further, which could set off an immediate self-fulfilling tsunami of bankruptcies and contagious market shocks later in 2020 and 2021.
February
Under Armour told investors that its revenues in the first few months of 2020 — and potentially beyond — would take a hit of $50 million to $60 million because of the outbreak. Soon after, FedEx reached an agreement with its pilots’ union, the Air Line Pilots Association, allowing crew members to decline trips to China. Disney closed its theme parks in Shanghai and Hong Kong for more than a week. The closings reduced the company’s operating income by $175 million in the second quarter, Chief Financial Officer Christine McCarthy said. Canadian film company Imax was forced to postpone the release of five films it had planned to showcase in China during the Lunar New Year holiday period.
In Japan, video game and gaming device maker Nintendo, said shipments of its Switch game console to Japanese customers would be delayed. This cost it millions of dollars.
Officials in the Chinese city of Macau asked its 41 casinos to close for half a month. The move hit American casino operators in the region. Hospitality giant Wynn Resorts has been losing $2.4 million to $2.6 million daily, for as long as its casino in Macau remains closed because of the coronavirus, company’s chief executives revealed.
Apple CEO, Tim Cook, told analysts that its suppliers could be disrupted and that traffic to its stores in China had dropped.
Maker of smartphone chips, Qualcomm, was also hurt. Last year, nearly half its revenue came from China, a major hub for smartphone manufacturing and sales. One can only imagine how much damage the virus has inflicted on it.
March
With the proper lockdown during most of March, most of April and May 2020, came real problems for global industries, including those run by Tesla, Ford and Nissan.
Nissan of Japan shut down its plant in Kyushu, Japan, for four days beginning later this week because of “supply shortages of parts from China”.
Hyundai, the world’s fifth-largest automaker, temporarily stopped production lines at its factories in South Korea because of shortages of Chinese parts.
Volkswagen cited problems with “the nationwide restarting of supply chains, as well as limited travel options for our production employees”, while Fiat Chrysler warned that the outbreak could disrupt production at one of its European plants. But the company’s chief executive said it wasn’t changing its financial guidance for 2020.
Several hundred of the approximately 3,300 McDonald’s restaurants in China closed. Starbucks closed more than half its 4,300 stores in China and delayed a planned update to its 2020 financial forecast, saying it expects a material but temporary hit.
May
After 100 years in business, the world’s largest car rental company Hertz, let off 16,000 employees and filed for bankruptcy.
Holding company for four trucking transport companies and one truck repair and parts distribution firm, Comcar Industries, became the biggest brand to declare bankruptcy, when it announced that its assets totaling $66.7 million were dwarfed by its $85.6 million liabilities.
The world’s oldest retail company (JC Penny) filed for bankruptcy and was acquired by Amazon.
Warren Buffett lost $50billion in the last two months and the world’s biggest airline, Emirates, laid off 30 per cent of its staff to lighten its financial burden.
Victoria’s Secret declared bankruptcy, ZARA closed 1,200 stores, La Chapelle withdraws 4391 stores, Chanel was discontinued, Hermes is discontinued, Patek Philippe discontinued production, Rolex discontinued production, Nike is preparing for the second stage of layoffs, 12-year-old Airbnb got back to Ground Zero in 6 weeks…the list goes on and on.
The situation is the result of a domino effect. With no income, consumer demand is falling drastically and economies and businesses will go into a free-fall.
Bringing the situation back home
Back home, the Federal Government is in denial and claiming it has an ‘economic plan’. While this may need proof to be dismissed as hog-wash, it is important to note that very little is made to restore hope in a poor system made even worse by the rampaging virus.
First off, available data shows that Nigeria Economic Recovery Growth Plan (ERGP) will cost trillions of naira. But, how the Federal Government hopes to pull this off is what may remain to be seen, given that the nation’s debt profile has risen over the last couple to years to N33trillion, about 75 per cent of her external reserves – which sit at $35 billion. Also, recall, that the Nigerian Senate had, in March, approved President Muhammadu Buhari’s request to acquire a $22.7 billion foreign loan request.
The question remains; how will Nigeria pay of her debts, finance her recovery plan, fund her budget, service her loans, carry on developments on all fronts, etc, without harming her economy?
Director-General, Debt Management Office (DMO), Patience Oniha, expressed fears that the global economic effects of the Corona virus pandemic could frustrate Nigeria’s attempts to service her debts appropriately. But she does not think it is impossible. According to Oniha, Nigeria’s debt is sustainable, as the total debt-to-GDP ratio was within a 25 per cent limit, even lower than the 56 per cent advised by the World Bank and IMF. The actual Debt Service to Revenue Ratio has, however, been high at over 50 per cent since 2015, an indicator of lower revenues and higher debt service figures.
Could the nation find herself in the pre-2005 debt crisis; when she was one of the most heavily indebted countries, owing the almost mind-boggling sum of $35.994 billion, with a revenue less than $9 billion, putting the debt-to-revenue ratio at over 400 per cent and when measured with the GDP, which stood at $62 billion then, it was 58 per cent?
A few years ago, the then Deputy Senate President Ike Ekweremadu had joined the rising voices of concern to wonder why the nation was mortgaging her future and “putting… generations unborn in very great danger”.
The African Development Bank (AfDB) and other international institutions, who at different times questioned the sustainability of Nigeria’s binge. In its 2019 Economic Outlook for countries in the West African sub-region, the AfDB said pointed out that “…the increase has heightened the fiscal burden in an already fiscally and growth-constrained environment, raising important concerns regarding the sustainability of external debt”.
The Central Bank of Nigeria (CBN) did voice its concerns via its January 2020 Monetary Policy Committee (MPC) meeting, cautioned the government on the borrowing spree, which it warned could return Nigeria to the pre-2005 debt trap. The bank’s chief, Godwin Emefiele, noted that “on external borrowing, the committee noted the increase in debt level advising for caution, noting that it could fast be approaching the pre-2005 Paris Club level”.
But what is the CBN doing, besides increasing the exchange rate to be at par with the parallel (black) market?
“As Nigeria continues the process of the full reopening of its economy due to the lockdown over Coronavirus (COVID-19), the nation needs industrial conglomerates to support efforts aimed at growing the Nigerian economy,” the CBN boss said.
While many do not share Emefiele’s confidence that the price of crude oil would not remain at low levels for a long period. He added low crude oil prices were defeated and that the foreign reserves of about $37 billion remained robust to support the economy, his call to conglomerates to key into the current administration’s drive of diversifying the economy by leveraging on its large population to market their products that could be produced locally and exported to the rest of the world holds more water.
In assurance of its commitment, the bank said it is willing to provide foreign exchange to companies that required such raw materials and machinery that could not be obtained in Nigeria. “With the African Continental Free Trade Area (AfCTFA) now billed to commence in January 2021, Nigeria provides the companies with immense opportunities to produce their items and make huge profits through the Nigerian market, which is large enough to support their respective businesses,” he added.
On the need to prioritise the Nigerian market, the CBN governor said it would collaborate with the relevant government agencies to help grow the nation’s industry, while also promising to protect their businesses to ensure that they succeed.
Presently, the apex bank is doing nothing extraordinary for local businesses. What will happen in the next three, four months when people dip into their savings, without a foreseeable income in hand or in the nearest future?
Inspite of Emefiele’s talk, the economy is far from diversified and cannot help itself beyond the nation’s crude.
Malcolm Ikegwuani, an economics analyst is one of those who does who is not impressed with what he called the government’s “pretence to be doing anything about the situation”.
“There have been pledges by previous governments – even this one – to venture into mechanised agriculture and take us away from unrealistic reliance on crude but they never keep their word. The allure of crude is too enchanting. Now, it will be our undoing. Anytime crude prices stutter, our economy wobbles.
“In no time, we will pay the price for our 0ver 60-year-long procrastination. Since we discovered oil in Oloibiri, we have turned neither to the left nor to the right. Soon, we will pay the price and it will be heavy. The time is near. Our pseudo diversification, dichotomy and all the other things we have been pretending to do will catch up with our economy.
“On one hand, the president says we have closed the border to check importation but, daily, through the ports, we bring in bags of rice because the local rice industry – in spite of all the trumpeting, cannot seem to produce enough to cover local consumption.
“The country is importing more than she is exporting. Nigeria’s external reserves have continued to decline unabated as it shed $3.33 billion in the first quarter of 2020. The external reserves dropped from $38.59 billion on December 31, 2019, to $35.26 billion as at March 30, 2020. This represents an 8.6 per cent decrease.”
Helpless economic structure
While he insists that the economy is helpless against external forces, he does not think the nation’s banking sector can hold up to the heat when it comes.
“What is NDIC doing to safe-guard the economy and businesses? Nothing. Have you heard anything from them beyond their talk about ‘wonder banks’? Talking about banks, they will fail the litmus test because of the Domino Effect. Let me explain: Businesses are failing and they will have practically no finances to shore up their activities, so they will have to go to the banks who, in turn, will run short of deposits which will not be equal to over-head costs and other expenditures.
“These are the building blocks to an economy that is playing sitting duck, waiting to be the target of any external factor. In 2020 alone, how much has the Federal Government borrowed? Will the borrowing cease in the foreseeable future? Not a chance, as govt income is being challenged by COVID-19. We do not have resources and capacity to diversify; whether it be into agriculture, industrialisation, tourism or solid minerals’ mining and utilisation. We are just there; no progress, no retrogression. Just there, stagnating,” Ikegwuani opined.
Professor of political economy and founder of the Centre for Values in Leadership, Pat Utomi, recently opined: “It is far too easy to blame Covid-19 for the state of the economy. We were in a race to the bottom before the pandemic. The bright side is that collapse may give us the opportunity to begin again in a manner nourished by learning from past mistakes.
“You did not need to possess the gift of prophecy or genius to predict the Nigerian economy was bound for where it is now. We got due notice but continued down the path like a group of drunk sailors largely because the political class lacks the personal discipline, organizational skill and moral stock and perhaps the know-how and know-why to step away from a debilitating narcissism to contemplate reality. The desire for legal and, sometimes, illegal plunder seems to precede reason and good judgment in public choice.
“At the end of December (2019), it was clear the Nigerian economy was heading into a Triple-shock crisis. Only the blind could have missed that. In the face of two major studies that showed Nigeria had become the poverty capital of the world, and a Forbes report suggesting Nigeria was a money-losing place, given regulatory risk and a poor environment of business, and with crude oil prices going far south of the budget benchmark price of 57 USD who would carry on with business as usual? Yet, the National Assembly voted an incredible amount of money to maintain their building, voted to buy themselves new luxury cars and Governors continued to draw security votes, as the Federal executive continued to travel around the world and Nigeria in style. Some blamed it on wickedness, selfishness or greed. I disagreed. It had to come from extraordinary ignorance because it would have been easy to see how the self-interest would be damaged by these choices.
“How can anybody rationally make these kinds of choices even when possessed by self-love? To be fair, you still find some people who are good or know enough in those corridors of power to be bewildered by goings-on even though they are in the system as politicians or senior civil servants.
“The real good news is that our failures to respond to the triple shock crisis from international loss of confidence which is constricting investment flows; the collapse of crude oil prices and the lockdown impact on supply lines, has forced need to think of new ways. If the Phoenix rises from the ashes of yesterday’s errors and chases off the hovering patient vultures, we will have managed well out of bad and ugly.”
Beginning again
Utomi does not only have barbs for a system that seems to ridicule the best counsel. He has a blueprint for the way forward. He advises that the nation begins with identifying the factor endowments on which she wants to erect global value chains she can dominate, based on her latent comparative advantage.
“For me, that means broadening competitiveness of agricultural production generally and specific emphasis on select produce like cassava, sesame seeds, plantain, corn, rice, gum arabic and sorghum for processing in agric/industrial towns for food security and exports for industrial uses. So, the cassava value chain will take us from ‘garri’ to various snacks and the topmost quality Industrial starch and ethanol.”
The former presidential candidate stopped prancing around cameras and decided to lead the way by doing everything he once assured the nation could experiment with and be the better for it.
“To prove my point, I stopped talking about it and actually began to develop one such Agric/Industrial Town throwing in every naira I could earn as the system seldom supports innovators. We can bring into our project within the next few months the thousands of young graduates as produce agents, in our aggregation processes through a wholesale produce market and leverage technology to create a new kind of Agricultural extension service agent. We are starting with the plantain and cassava value chains and should be exporting processed outputs by next year.
“Nigeria got here because we made irrational choices to move forward, we need to make a more thoughtful rational effort and do what Deng Xiao Ping said to China in 1977 that pulled it away from 500 years of stagnancy and propelled it to global dominance: trust knowledge more. In Nigeria, we try to denigrate knowledge and say ‘na grammar we go chop?’ We have made fun of ‘grammar’ for 50 years and we now know where it got us.”
Maybe, the country will realise her problems began long before COVID-19 showed up on the scene and that this makes her issues a lot more easier to solve than that of most countries.
