29 Apr COVID-19: Nigeria Industry Analysis
COVID-19 has continued to hinder global
economies and may lead to a global recession.
So far, the pandemic has disrupted economic activities in over 210 countries.
Most apparent, is its impact on global stock markets and international trade. The
oil and gas sector in Nigeria – our main export – has been significantly
affected. Transport, hospitality, healthcare and manufacturing have all felt
the strain. As the virus continues to spread, the world is witnessing stock
market dips, falling oil prices, border closures restricting travel, increasing
unemployment, overwhelmed health facilities and reduced manufacturing
This has left a significant
impact on the Nigerian economy given its high vulnerability to external shocks.
There are also growing concerns that the
direct and indirect effects of the COVID-19 pandemic may cause a recession in
the Nigerian economy.
In China, Luohan Academy estimated that, for every ten days of the lockdown, 0.39-0.46% of quarterly GDP growth will decrease. Nigeria is also recording its own share of economic losses, as the federal government has imposed a lockdown in three states, imposing restrictions to social interaction, movement of people and the closure of markets and non-essential businesses in these states. This has led to suppressed demand for goods and services, disruptions in exports, decreased investments in many industries, increased unemployment, and the shutdown of several businesses. Some businesses have however managed to remain open by leveraging customer loyalty and tapping into the opportunities the new landscape offers.
Industries that can adapt to the drastic changes will see increased sales, improved customer loyalty and should remain financial stable. These industries have been assessed based on macroeconomic factors such as foreign exchange rate, and supply & demand forces; as well as profitability factors such as customer loyalty, adaptability, and sales growth.
Industries Most Affected
- Oil and Gas
The spread of COVID-19 is affecting the global oil market and its impact on Nigeria’s oil and gas industry is severe. Persistent price drops, declining demand, excess supply, and price competition between oil producers are tell-tale signs of the woes in the industry. Nigeria could lose up to $19 billion as a result of the reduction in total crude oil exports in 2020 when compared to forecasts before the pandemic.
Since the outbreak, the price of crude oil has fallen significantly. The spread of the virus caused an economic slowdown in China, which accounted for more than 80% of global oil demand growth in 2019, leading to a decrease in demand from the world’s largest energy consumer. Also, as travel bans and movement restrictions are implemented globally, the demand for transport fuels declined, which led to an even steeper drop in the demand for crude.
As a result, Nigeria has excess supply of crude oil and does not seem to able to find buyers for approximately 50 cargoes of crude oil and 12 liquefied natural gas (LNG) consignments.7 To adapt to market forces, countries that produce at the cheapest prices like Saudi Arabia and Iraq are offering discounts to buyers to remain competitive in the market. While countries with high production costs like Nigeria are struggling to cope with the competing prices.
Given that Nigeria’s major export is crude oil, the decline in oil prices and reduction in price per barrel will lead to a shortage of available foreign exchange for the Nigerian government.
In Nigeria, both local and international airline operations have been paralysed. The International Air Transport Association (IATA) has given country specific analysis of the impact of COVID-19 on Africa’s aviation industry, stating that the disruptions could result in an 853,000 loss in passenger volumes, 22,200 lost jobs and $170 million loss in base revenues in Nigeria. If the situation spreads further, approximately 2.2 million passengers and $434 million of revenues could be lost and airlines may be compelled to reduce their workforce in the face of decreasing revenue and inactivity.
Industries Neutrally Affected
3. Finance / Banking
Although the finance sector seems to have been able to manage its operations and retain customers, the pandemic, decline in oil prices, and reduced economic activities due to restrictions, may significantly impact revenue in the industry. It threatens the financial stability of indigenous companies and affects their capacity to repay bank loans.
As oil prices decline, indigenous oil and gas companies will struggle and may be forced to seek moratorium on debt repayments. Looking at trends on the relationship between oil prices and loan quality, when oil prices declined in 2008-2009 and 2015-2016, there was an increase in non-performing loans. Given that oil and gas is the bedrock of Nigeria’s economy, this can affect other players in the non-oil sector like SMEs.
To adapt to current challenges in the financial industry, the Central Bank of Nigeria (CBN) has granted a moratorium of one year on all principal repayments for all its intervention facilities, and interest rates have been reduced from 9% to 5% per annum for 1 year, effective March 1, 2020.6 It has also created a N50 billion targeted credit facility for households and SMEs to facilitate the flow of credit into the economy.
Financial institutions have also adapted to the current challenges, as they have strengthened efforts to satisfy customers’ demands electronically through ATMs, mobile applications and internet banking services.
Given that China accounts for about a quarter of imports into Nigeria, the nation is reliant on China for raw materials, inputs and machinery utilized in local production. If China remains unable to export, there is a risk that raw materials may be sourced from other countries which are 5-20% more expensive. This will lead to an increase in prices of goods and services, resulting in a rise in the inflation rate. Some manufacturing companies have scaled down their production, while others shutdown. Customer loyalty has been very low due to the lockdown, thus drastically reducing sales.
There is uncertainty about when production factories will reopen in Nigeria, but once the pandemic is over, both imports and exports might be further delayed due to a decreased supply of goods from China and other relevant countries affected by COVID-19.
5. Real Estate and Construction
With growing fears and uncertainties, the spread of the coronavirus in Nigeria may impact the attractiveness of the real estate market and reduce sales. As companies struggle to remain afloat, there are indications that issues such as reduced economic activities and closure of offices may lead to reduced income or loss of jobs. As such, real estate sales are expected to drop.
The demand for office spaces and residential properties has also been significantly impacted in oil driven economies like Nigeria. In early 2016, oil price fell to $30 per barrel, resulting in increased property vacancies.18 Although the spread of the virus has not taken a toll in the real estate market, if the declining prices persist, the market might be hit.
China is a major supplier of raw materials to the Nigerian construction industry.18 Construction companies and vendors source sanitary wares, doors, other fittings and fixtures from there. The slowdown of economic activities in China may impact pricing, the speed of delivery, and buyers may be forced to source these materials from other markets.
Most governments around the world have temporarily closed educational institutions to contain the spread of the COVID-19 pandemic. As of 28th March 2020, over 1.7 billion learners around the world were out of school due to closures in response to COVID-19.
The closure of all schools especially in Lagos, Abuja and Ogun has adversely impacted millions of learners as most schools have not implemented measures and technologies for distance learning. However, customer loyalty and the school’s income (from fees), might be stable now but could get worse over a longer period of time, especially at the beginning of new terms and sessions.
Industries Positively Affected
Food security was one of the first problems to be solved since the pandemic hit Nigeria, thus, food supplies have not been significantly affected. Also, if food security becomes a concern, governments and donors may increase their drive to support small, medium and large-scale farmers.
This pandemic has opened more opportunities for businesses in this sector, especially for players in markets that were initially dominated by foreign players. This could be an added advantage for the agriculture sector to adapt in this crisis, attain more customer loyalty and experience increase in sales.
There is still demand and supply of agricultural products amidst the COVID-19 crisis. More so, the foreign exchange has not adversely affected this sector since majority of the food is locally cultivated and importation has been banned.
8. Retail and consumer goods
The crisis is gradually changing consumer behaviour as some customers have engaged in “panic buying”. Most retail stores, open markets and supermarkets have taken advantage of this to stock consumer goods (mostly food) and price hikes of some products. However, these businesses, especially those in Lagos, Ogun and Abuja, have experienced declined sales, as the lockdown takes its toll. There appears to be more opportunities for businesses in this sector that adapt their models to fit today’s realities.
The panic buying has led to increased demand for food items with longer shelf life as people stock up for the lockdown. Meanwhile, supply chains have been affected due to the shortage of imported goods,16 so there is a higher reliance on locally produced goods.
Businesses in the healthcare sector comprising hospitals, pharmacies, pharma-logistics, production, distribution, particularly of hygienic materials such as sanitizers, disinfectants, face masks, coveralls, etc. have experienced an explosion in demand during this crisis. Being that this sector is at the forefront of combating COVID-19, these businesses have received a lot of attention from both public and private sectors. So, significant opportunities have increased for businesses in this sector.
Implication on the economy
The continuous drop in the demand and price of crude oil in the international oil market have a significant negative impact on Nigeria’s economy, as oil and gas accounts for over 90% of Nigeria’s foreign exchange earnings and more than 60% of the country’s earnings. With Nigeria’s 2020 budget benchmarked on the crude oil price of $57 per barrel, the country will struggle to fund its budget.
The spread of the virus encouraged social distancing which led to the shutdown of financial markets, corporate offices, businesses and events. The exponential rate at which the virus is spreading, and the heightened uncertainty about how bad the situation could get, has led to flight to safety in consumption and investment among consumers, investors and international trade partners.
Businesses are experiencing a paradigm shift in their concepts and business models. Strategies, value offerings and operations have been adjusted to absorb the shocks of the pandemic. The average Nigerian is struggling to survive, as many do not have the financial capacity to stay isolated for a prolonged period.
The effects of COVID-19 on Nigeria’s industries are largely influenced by the country’s high vulnerability to external shocks like dwindling oil prices, foreign exchange rate hikes, cost of importing materials, etc. To build an efficient and sustainable local ecosystem, Nigeria needs to implement strategies focused on diversification and economic growth, human capital development, mass employment, wealth creation and boosting the average household income.
It is important for the government and private sector to develop local manufacturing capabilities, substitute imported goods for locally produced ones, and reduce the impact of foreign exchange on the international market. Efforts should be made to drive research and innovation in various industries, particularly health, education, and manufacturing to improve the quality of locally generated products and services, which in turn reduces Nigeria’s dependence on foreign entities.
For businesses to recover once this
pandemic is over, soft loans for small and medium-sized enterprises may be
required to help cushion the losses suffered as a result of the direct or
indirect effects of the COVID-19 pandemic.
 (Elliot, 2020)
 (Rufai, 2020)
 (Bouey, 2020)
 (Punch, 2020)
 (Shaban, 2020)
 (African Union, 2020)
 (Pulse.ng, 2020)
 (Birol, 2020)
 (Koiki, 2020)
 (Ruth Olurounbi, 2020)
 (FitchRatings, 2020)
 (Seller Nexus, 2019)
 (Baker McKenzie, 2020)
 (Uwaegbulam, 2020)
 (Omidire, 2020)
 (Uroko, 2020)
 (UNESCO, 2020)
 (Moseley, 2020)
 (Umaizi, 2020)