COVID-19: OPS seeks more encompassing palliatives

President Muhammadu Buhari has announced a moratorium for businesses affected by the ravaging coronavirus disease just as the Central Bank of Nigeria (CBN) has rolled out some palliative measures to cushion the effects of the virus on the economy. However, the organised private sector says what has been proposed cannot save the country from sliding into a recession. SULAIMON OLANREWAJU looks at the arguments.

 

THE coronavirus disease (COVID-19), which started as a health epidemic, has turned out to be an economic crisis precipitating unprecedented disruptions in global supply chains, sharp drop in global crude oil prices, tumult in global stock and financial markets, massive cancellation of local and international flights, postponement of sporting and entertainment events and restriction on movements of persons in many countries.

COVID-19 has put Nigeria in a precarious state. With the price of crude oil on a freefall, the implementation of 2020 budget predicated on $57 per barrel is gravely threatened. Realising this, the government reduced the budget by N1.5 trillion and reviewed the benchmark downward to $30 a barrel, but even that does not give any cause for cheers, given the current price of crude oil which oscillates between $20 and $22 per barrel.

But the effect of the pandemic transcends the sliding oil prices. The Chinese economy is one of the world’s fastest growing economies in the world, with growth rates averaging six per cent over the past 30 years. Its GDP was $14.3 trillion in 2019. According to the World Bank, China accounted for 35 per cent of the total global GDP growth between 2017 and 2019.

China is the world’s largest manufacturing economy and exporter of goods. It is also the world’s fastest-growing consumer market and second-largest importer of goods. China is a net importer of services and products. It is the largest trading nation in the world and 129 out of the world’s 500 largest companies have their headquarters in China. So, when China shut down its factories to contain the spread of the virus within its borders in the first quarter of this year, the global economy practically shut down. Many factories in Nigeria and other parts of the world could not optimize their production processes because they could not get either finished products or spares from China.

According to Director General of the National Agency for Food and Drug Administration and Control (NAFDAC), Professor Mojisola Adeyeye, Nigeria imports at least 70 per cent of its drugs from China and India.

She said, “Seventy percent of our drugs are imported…We have drug insecurity because of the coronavirus.”

As it is with drugs, so is it with automobiles, computers, telephones and many other items.

While reacting to the economic crisis that the virus that has now become a pandemic might engender, Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, said the world would slide into a recession in the current year.

According to her, “The human costs of the Coronavirus pandemic are already immeasurable and all countries need to work together to protect people and limit the economic damage. This is a moment for solidarity.”

She added, “The outlook for global growth for 2020 is negative—a recession at least as bad as during the global financial crisis or worse. But we expect recovery in 2021. To get there, it is paramount to prioritise containment and strengthen health systems—everywhere. The economic impact is and will be severe, but the faster the virus stops, the quicker and stronger the recovery will be.”

In a similar vein, the United Nations Conference on Trade and Development (UNCTAD) said that the coronavirus outbreak would cost the global economy up to $1 trillion. The United Nations agency, in a statement, said global economic growth would drop to 1.7 per cent in 2020, lower than the International Monetary Fund (IMF)’s forecast of 2.7 per cent.

According to UNCTAD, “The Covid-19 shock will trigger a recession in some countries and a deceleration of global annual growth to below 2.5 per cent–often taken as the recessionary threshold for the world economy. The resulting hit to global income compared with what forecasters had been projecting for 2020 will be around the trillion-dollar mark.”

UNCTAD also said the outbreak and spread of COVID-19 would negatively affect global foreign direct investment (FDI) flows with Nigeria and other countries losing between 30 and 40 per cent of their 2019 earnings. A decline in FDI would negatively affect Nigeria’s foreign reserves and might put pressure on the nation’s currency whose value was recently adjusted downward to N380 to a dollar by the Central Bank of Nigeria (CBN).

To mitigate the effect of COVID-19 coupled with the lockdown order by the government on Micro Small and Medium-size Enterprises (MSMEs) and households, the CBN, penultimate week, rolled out a N50 billion credit facility stimulus package.

According to the CBN Governor, Godwin Emefiele, who announced this, the palliative is meant to mitigate and support businesses that had been significantly disrupted by the COVID-19 virus. With the package, businesses would be able to access credit facility to expand their productive capacity through equipment upgrade, research and development.

The CBN governor announced that the N50 billion facility would be financed from the Micro, Small and Medium Enterprises Development Fund (MSMEDF) to embrace key economic activities in agriculture value chain, hospitality, airline service providers, manufacturing/value addition, trading and any other income generating activities as might be prescribed by the CBN, with NIRSAL Microfinance Bank being the sole participating financial institution for the scheme.

In addition, CBN also cut down interest rate on all credit facilities by beneficiaries and those to benefit from the N50 billion facility to 5 per cent from 9 per cent, and urged deposit money banks to defer repayments of loans for the next one year on any of the intervention windows. The apex bank added that “the working capital shall be for a maximum period of one year, with no option for rollover. Term loan shall have a maximum tenor of not more than three years with, at least, one-year moratorium.”

The CBN, in conjunction with the Bankers’ Committee, later announced a N3.5trillion stimulus for the economy. According to the CBN governor, about N1trillion would be used to support the local pharmaceutical companies as well as boost import substitution, while N100 billion would be used to support the nation’s health authorities to ensure laboratories, researchers and innovators work with global scientists to patent and produce vaccines and test kits for the country.

President Muhammadu Buhari, during a national broadcast on COVID-19 last Sunday, announced a moratorium for beneficiaries of all Federal Government-funded loans issued by the Bank of Industry, Bank of Agriculture and the Nigeria Export-Import Bank.

In its reaction to the government’s efforts at stimulating the economy, the Nigeria Employers’ Consultative Association (NECA), while lauding the intervention of the apex bank, called on the federal government to take more specific steps in providing palliatives and support to organised businesses to hedge them from the negative impacts of COVID-19.

NECA, in a letter to President Buhari, signed its Director General, Mr. Timothy Olawale, asked the government for a “temporary scheme for paying compensation to companies in risk of laying off in order to retain jobs. This is to aid the continued existence of companies and prevent layoffs within private companies facing financial pressures as a result of COVID-19. Under the scheme, which could last for the next three months, the government will cover 60 per cent of the salaries of employees paid on a monthly basis, who would otherwise have been fired, with companies paying the remaining amount.”

The association, while calling for the suspension of payments of taxes and levies, also requested for support from government to negotiate and reschedule bank loans, and boost their businesses.

The letter reads in part, “We commend the Federal Government and the Central Bank of Nigeria (CBN) for the ongoing efforts at containing the COVID-19. In particular, we note the various interventions and palliatives through the CBN aimed at ensuring business continuity.

“We also commend steps taken by your administration to further curtail the spread of the virus, to wit: the closure of educational institutions and airports to prevent further spread of the virus in Nigeria.

“While we note the efforts made thus far, we wish to state that the implications of the pandemic on businesses could lead to closure of companies, massive job loss and loss of revenue to government through payment of taxes, increase in social vices and increased insecurity, among others, leading to further economic crisis.”

NECA, the umbrella body for all employers of labour in the country, then called on Buhari “to take more specific steps in providing palliatives and support to organised businesses.”

Supporting the call by NECA, Chairman/Founder of AACS, Dr Falil Ayo Abina, said the government should consider taking the burden forced on the organised private sector off them to ensure business continuation after the coronavirus crisis might have eased.

According to him, “Unless the government does that, the COVID-19 crisis would sweep away many companies and leave the nation’s economy worse off. Already, we are grappling with galloping unemployment rate, if we do not handle this crisis very well and we allow it to weigh down the private sector, the country would have a sorry tale to tell.”

While calling on the Federal Government to come to the aid of the private sector operators by coming up with a more robust palliative package, Abina said, “Many countries have come up with palliative measures to mitigate the effect of this crisis on people and businesses. The United States of America has announced a $2 trillion stimulus, the largest economic stimulus in its history, to mitigate the economic effects of the pandemic. Businesses will be given bailout by the government, while citizens will get a handout. The United Kingdom has also announced a stimulus package to stabilise its economy with the government saying it is ready to offset 80 per cent of the workers’ salaries in the country, while at the same time suspending payment of Value Added Tax (VAT) till June. Even India has announced a stimulus package.

“It is good that the president has said that workers should be paid. But if that is limited to just government workers being paid, we will not be able to stimulate the economy as much as we should. While I will not advocate a copy and paste style of palliative, I am of the opinion that in the interest of both the government and the people of this country, the government needs to do more than it has done. It is not only the pharmaceutical companies that need the stimulus.

“What about the hospitality industry that has been out of business as a result of this pandemic for about a month? What about the manufacturing sector that cannot produce because of acute shortage of raw materials? What about service providers that have been pushed out of business because of the lockdown? What about newspaper companies that cannot circulate because of the lockdown?

“What about the aviation companies? What about the haulage businesses? So, the palliative package has to be robust and all encompassing to save the economy,” Abina said.

A former Vice President of the Nigeria Labour Congress (NLC), Mr Issa Aremu, also said the country would likely go into a recession that might not be easy to exit if the government did not come up with a well thought out palliative package. He therefore called on the federal government to seek a moratorium on the N2.45 trillion debt servicing as contained in the 2020 budget to enhance the stimulus plan in mitigating the negative impact of the COVID-19 on the Nigerian economy.

He said, “Nigeria must mull a timely idea of a moratorium and deferred payment of interests on the country’s domestic debts to free resources for critical recurrent and capital expenditure in the wake of national lock down.”

He added that once the moratorium was secured, the government should convert the N2.45 trillion to palliative to stimulate the economy and rescue it from sliding into recession.

The Dean College of Management Sciences at Joseph Ayo Babalola University, Ikeji, Osun State, Professor Festus Epetimehin, said economic recession, job loss, increased poverty rate loomed if the government did not stimulate the economy after being brought down by COVID-19.

He said, “There is no hiding the fact that COVID-19, within just three months, has wreaked more havoc on the global economy than the 2007-2008 financial meltdown did. Our economy has been badly hit. Our 2020 budget has been shattered. There is no company, maybe with the exception of pharmaceutical companies that produce items with which coronavirus can be warded off, that can post a positive result this year.

“So, it is a very dire situation that companies are. The onus is therefore on the government to rise to the occasion and rescue these companies. That is the practice everywhere. We have to thank the CBN for what it is doing, we also have to appreciate the president for the moratorium he has promised, but these are just like a drop in the ocean. The government needs to do more. What the Organised Private Sector (OPS) needs now is something akin to what General Yakubu Gowon did after the Civil War.

“We have to prop up businesses otherwise they will die. We have to reinvigorate our businesses otherwise they will not last. The government has to look at the peculiarities of each industry affected by the crisis and come up with a plan on how to salvage it. Every company that fails at this time pushes our country farther into recession. We cannot afford a long-lasting recession at this time.

“The IMF has projected that the world will go into recession this year, I agree with that. What I don’t agree with is that the world would recover in 2021, that is not automatic. Some countries will recover because they will take the right steps, others will not because they will not take the right steps. It is my hope that Nigeria will not fall into the latter group. But that is just a mere hope. The determining factor is what we choose to do as a nation.”

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