What businesses must do to thrive in the new economy

The spread of the COVID-19 virus across the world has drastically influenced the way we live, work, and do business. Economies slowed globally down as countries shut economic activities to fight the pandemic. In Africa, nations are still trying to flatten the curve of the outbreak and also to protect their economies from collapse. The African Development Bank (AFDB) already projects the continent's GDP to contract by 3.4%.

Countries like Nigeria, with a weak healthcare sector and a high dependence on oil export revenue, will be most affected. It is no news that Africa’s largest economy depends largely on earnings from crude oil export, as its primary source of revenue and foreign exchange. The pandemic exposed this over-dependence as multiple factors contribute to a worrying revenue decline and mounting pressure on foreign reserves that weaken the Naira.

The World Bank reports that Nigeria could experience its worst recession in four decades, predicting a 3.3% contraction of the economy. Industries such as Aviation and Tourism, Hospitality, Oil and Gas, and Real Estate & Construction are severely affected. Most businesses are implementing cost-control measures such as hiring freezes and layoffs, as consumer spending continues to decline. All of these manifest in declining household incomes and standards of living.

Nigeria has introduced measures to minimize the impact of the economic contraction, suppress pressure on the naira, and create a soft landing for citizens and businesses. For example, the Central Bank of Nigeria (CBN) officially adjusted the naira against the dollar in March by 15%, moving it from N307/$1 to N360/$1 to manage the economic disruption caused by several economic factors. The CBN also activated plans to invest in crucial sectors of the economy in a bid to drive mass employment and wealth creation. These intervention scheme target the Housing, Renewable Energy, Cutting Edge Research and Light Manufacturing sectors. Furthermore, the government launched the Nigerian Youth Investment Fund (NYIF) to support aspiring and existing young entrepreneurs.

However, all of these are not nearly enough.

The way forward for businesses in Nigeria

The devaluation of the naira, as a result of the pandemic, is not only affecting the local economy but also companies and organizations that depend on imported goods and raw materials. Restricted access to foreign exchange leaves Nigerian businesses fighting for survival because they have to spend more on importation, eventually leading to higher production costs.

To turn the current tide into a fresh wave of opportunities, businesses must consider forward-thinking strategies such as utilizing digital technologies, streamlining costs and eliminating extraneous activities. More specifically, business can do the following:

1. Source materials locally

Where possible, companies should source raw materials locally to reduce dependence on importation and avoid the challenges of scarce foreign exchange. Businesses should also consider expanding into other international markets with better economies, to diversify their revenues and increase market share.

2. Align strategies with government policies

It is very important for businesses to align strategically with government policies to drive economic diversification and increase local production and exports. This will position organizations to enjoy support from the authorities in terms of business-friendly policies and intervention funding.

3. Employ currency hedging strategies

In servicing foreign debt, companies should implement currency hedging strategies as a proactive measure against unexpected changes in the country’s currency and exchange rate.

4. Ditch unstable currencies

Businesses should consider saving their liquid cash in a stable currency to mitigate the risk of currency fluctuation.

The government faces a responsibility to tackle the current economic distress and mere disbursement of intervention funds are not enough. It must also promote and implement sustainable economic policies to improve ease of doing business and boost investor confidence in the Nigerian economy. It must also institute public-private partnership models to successfully navigate Nigeria out of the current situation.

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Pulse Contributors is an initiative to highlight diverse journalistic voices. Pulse Contributors do not represent the company Pulse and contribute on their own behalf.

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About the author: Tobi Durosinmi-Etti is a communications and design (thinking) specialist with a passion for sustainable development and community transformation. He has worked in various capacities with top organizations, strategically contributing to their effort in driving development in Nigeria and across Africa. He holds an MSc in Media and Communication from the Pan-Atlantic University.