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How coronavirus outbreak threatens Nigeria’s economy

By Femi Adekoya, Adeyemi Adepetun, Sulaimon Salau, Benjamin Alade and Bankole Orimisan
02 March 2020   |   4:30 am
• Oil price, reserves, excess crude savings dip • ‘Why prices of phones may rise by 75%’ • Spare parts dealers worry about weak supply chain • Travel insurance claims expected to spike • Shipping industry loses $350 million weekly The cost of the coronavirus outbreak for businesses is rising as the organised private sector…

Oil price, reserves, excess crude savings dip
• ‘Why prices of phones may rise by 75%’
• Spare parts dealers worry about weak supply chain
• Travel insurance claims expected to spike • Shipping industry loses $350 million weekly

The cost of the coronavirus outbreak for businesses is rising as the organised private sector explores measures to reduce the impact on the struggling local economy.

Although cargoes are still received from China and other European countries, there is the fear about the sustainability of business operations that require the movement of personnel for maintenance of plants and machinery as well as the disruptions in the supply chain.

Already, oil prices which are the mainstay of the country, are trading below the Federal Government’s benchmark for the 2020 budget, thus posing a threat to the budget which was signed by President Muhammadu Buhari in December, on the assumption of oil production of 2.18 million barrels per day with the price benchmark of $57 per barrel.

Similarly, Nigeria’s latest Excess Crude Account balance, according to a statement from the Office of the Accountant General of the Federation, was put at $71.81m, while movement in reserves showed that the country’s reserves stood at $36.37 billion at the weekend, down by $2.16 billion from $38.53 billion in which it opened the year.

With an earlier projection by Citigroup that Brent Crude might slide to as low as $47 a barrel in the wake of the coronavirus that is yet to be contained, there are concerns about the economy’s buffer package.

Oil prices are expected to tank further having dropped to $49.67 on Friday.

The Federal Government has been exploring various means of generating revenue to buffer the effect of unstable oil prices through increment in VAT and review of extant legislation, among others.

For China, a trade war with the United States has left its economy expanding at the slowest pace in 30 years, as economists estimated that four million jobs might have been lost in 2019.

With the outbreak of the coronavirus, which has killed many and has infected thousands more, a plunge in Chinese factory output in February is expected as quarantine efforts to contain the disease disrupted supply chains – with damaging consequences for companies around the world.

The outbreak of the coronavirus is estimated to be costing the shipping industry $350 million weekly in lost revenues, according to the International Chamber of Shipping (ICS).

The ICS estimates that more than 350,000 boxes have been removed from global trade as a result of the outbreak. Global supply chains continue to suffer, and issues remain around the quarantining of ships at ports, crew changes, and ensuring the health of seafarers and passengers.

Having built an inventory over time, there have been no concerns or data from Nigerian manufacturers, except for the fear of machine maintenance if a breakdown occurs.

According to the Director-General of the Lagos Chamber of Commerce and Industry, Dr. Muda Yusuf, the performance of key sectors that have the capacity to facilitate economic diversification is still largely constrained.

“The assessment of realities in the macroeconomic environment suggests that the economy is yet to recover from the 2016 recession. Growth is still sluggish and weak to create employment opportunities for the fast-growing population and lift millions of Nigerians out of poverty. There is the need for government to embrace the structural, policy and regulatory reforms to unlock the huge growth potential in the economy,” he added.

For the insurance sector, the Chairman, Nigerian Insurers Association (NIA) Tope Smart, said that many insurance policies might pay out as quite a few policies also have deliberate exclusions for epidemics and pandemics.

To Smart, it was too early to say how much the virus outbreak will cost the insurance industry. According to him, travel insurance claims are expected to spike, as flights and trips get cancelled in the wake of the disease, while companies whose operations get interrupted and events get cancelled will turn to insurance to absorb the financial blow.

Similarly, over $100 million worth of hardware goods belonging to some of Nigeria’s phone and computer vendors are currently stuck in China, The Guardian has learnt.

It was learnt that some Nigerian vendors who travelled to China for the Chinese festival shopping season in late January are unable to do business or return to the country due to the outbreak of COVID-19.

Confirming this development, the President of Phones and Allied Dealers Products Association (PAPDAN), Ifeanyi Akubue, said huge stocks, especially phones and computers were stuck in China.

Akubue, who spoke with The Guardian, said the coronavirus’ impact was huge on the Nigerian market, as major Original Equipment Manufacturers (OEMs) supplying this market are based in China, and have not supplied products since the outbreak of the virus.

“I can confirm to you that over $100 million worth of goods is currently stuck in China. Most of the OEMs have stopped production. Ours stocks are currently depleting. It is a sad situation. The world is confused. We can only pray and take caution,” he stated.

He appealed to the Federal Government to help ensure that the nation’s borders, especially the airports, are not porous.

“I think airport scrutiny should be taken more seriously. We can’t afford to face the epidemic as a country. You can imagine the number of deaths in China, and other countries. We need, as a country, to take more precautionary measures.”

Speaking more on the impact on the local market, the President, Computer and Allied Products Dealers Association of Nigeria (CAPDAN), Adeniyi Ojikutu, said if the situation persisted, prices of products would definitely rise.

According to him, “the situation has become worrisome because both goods and people are stuck in China. The CoVID-19 must be tackled as fast as possible before it crumbles both businesses and humans.”

One of the vendors, who simply gave his name as Chukwu Alphonso, said he had been expecting his orders to return to Nigeria since early January. “Both goods and my officers sent are stuck in China.”

Alphonso said if the situation failed to abate by the end of the first quarter, “prices of mobile phones, computers, chips would rise by as much as 75 per cent. And that portends something bad for the market.”

The Public Relations Officer of CAPDAN, Olaifa Ademola, said the situation had been pathetic. He lamented that vendors couldn’t get orders any more and old stocks are fast depleting as products are stuck in China.

“My advice is that people should take caution. The virus is real, and no solution in sight. We are currently selling old stocks. I don’t know what will happen if we finish the old stocks and the virus remains.”

According to him, high-end brands such as Apple, Samsung are not really affected because some come from Europe and America, “but brands that are directly linked to China, the likes of Tecno, Infinix, Gionee are feeling the impact, and soon, I can say the prices will go up. So, I will say the problem is real. People should take caution.”

The Head, Corporate Communications, Zinox Technologies, Gideon Ayogu, explained that though the outbreak had impacted the production and shipment of components and hardware, production planning and forecasting had helped the company.

Responding to The Guardian inquiries on the matter with regard to possible impact in Nigeria, the Director-General, Delta State Innovation Hub (DSHub), Chris Uwaje, said: “I advise the entire ICT industry ecosystem, and especially the fintech players in the banking and finance sector, to ensure that their best skilled IT manpower (both software and hardware) are specially protected and constantly counseled about coronavirus.

“This is important because if they go down, they will be very difficult to replace at short notice. Remember that the 34 years old Chinese medical doctor – a vital skill resource – who discovered and ‘whistle-blew’ the incident is dead. Coronavirus can deliver a critical blow to the ICT performance sector,” Uwaje stressed.

The Nigerian Ports Authority (NPA) said the nation still received cargoes from China, adding that the system was enforcing strict preventive measures against the coronavirus.

The General Manager, Corporate and Strategic Communication of NPA, Adams Jatto, told The Guardian: “We still receive ships from China, but the vessels are not coming directly from China, they call at various ports before coming to Nigeria and they must have undergone different screenings before arriving at Nigerian ports. When they come here, we also do our own screening to ensure that the crew and cargoes are free from coronavirus.

“We are liaising with the Port Health Service. We are also getting some precautionary facilities to ensure that we provide safety for all the workers. Dockworkers who are boarding the ships are well protected.

“In any case of suspecting coronavirus, such a vessel is flagged, and we immediately ensure that the involved persons are handed over to the state health centre. We already have a standby ambulance to take care of that. So, we are liaising with the health officials and the state government,” he stated.

The Guardian learnt that vessels calls to China are becoming less frequent, as fear of the coronavirus and a slowdown in the Chinese economy have deterred cruise liners, container ships, oil tankers and bulk carriers alike from stopping at the country’s harbours.

Commercial vessels have stopped calling, with port calls falling by an estimated 30 per cent in February, and container throughput estimated to decline by between 20 and 30 per cent, according to Clarksons – a shipping research company.

Seven of the world’s 10 largest container ports are in China, including Hong Kong.

Many of the world’s largest container shipping lines, including the Mediterranean Shipping Company (MSC), AP Moller Maersk, CMA-CGM and Hong Kong’s own OOCL, have all cancelled their cargo routes from Asia to Europe and North America in recent weeks.

The development also has an effect on the Nigerian ports system with fewer vessels coming into the ports from the Asian country.

Sources at Lagos ports confirmed to The Guardian that the level of imports arriving in Nigeria was nose-diving, as cargo import from China has dropped significantly.

The Secretary, Foreign Trade and Investment Committee, Automobile Spare Parts and Machinery Dealers Association (ASPAMDA), Sir Leo Okoye, said the effect of the coronavirus was devastating to the markets.

According to him, “is an international market that we operate in, the outbreak of the virus has affected our business drastically. Foreigners are no more coming in for business. The virus has caused hikes in the sales of auto parts as some of the parts have tripled in price because there is no supply.

“The goods that came before the outbreak of the virus are already getting out of stock. An auto mechanic event coming up this month was cancelled because of the outbreak.”

On alternative markets to purchase spare parts, he said: “I don’t think there will be alternatives because the Chinese are indoors, they are no more producing.

“We are not receiving goods again, the last consignment we received will soon be out of stock and after then, we won’t be selling again. This coronavirus is a threat to our businesses,” he added.

The Assistant Public Relations Officer, Ladipo International Market, Ezekiel Ezekwo, said: “It has affected our sales because our people are not traveling to China again.

“Nobody can import, nobody can send money to load the container for now. Some of our members usually travel every month but can no longer do so. The business is dull now, people don’t want to travel because they don’t know where they can contact the virus”.