HOW & HOW NOT TO SURVIVE THESE AUSTERE TIMES
Last week I admonished Nigerians to prepare for a rough ride ahead, given the Security, Political and Economic challenges confronting our Nation, one climbing on the back of the other. As I had predicted, some salvos were fired during the week by the Central Bank of Nigeria. The naira was devalued, though I hear that my brother, Dr Nnanna, Deputy Governor designate of the CBN, says it is not devaluation. May be we can call it a steep depreciation of the Naira. Today the dollar is exchanging for more than 180 naira in the Parallel market. The interest rate was adjusted upwards, prompting immediate review of the pricing of most bank loans and creating new nightmares for the industrial sector including the SMEs. With depreciation of the dollar in an import dependent nation and with rise in interest rates, it will not be long, before inflation will begin to inch up. The consumer at the end of the day will bear the full brunt of these austerity measures.
I had planned to do a follow up article on 'how to survive these austere times', as a modest effort to suggest to my readers, some steps they may need to take both in their personal and business conducts to overcome the current and developing economic challenge. But I was compelled to adjust the topic a little bit, when I realized that we may be taking some actions( consciously or unconsciously) that may worsen our ability to ride the storm. I was jolted into this reality when I heard that at its last meeting, the Federal Executive Council (FEC) approved the purchase of Cooking stoves worth 9.7 billion Naira. What kind of stoves? At this austere time ? I was really troubled to reconcile my self with how these stoves will help with tightening our belts which the Federal Government has advised the Nation to do.What fuel will these stoves use?Firewood, coal or kerosene? Who will procure the fuel for the rural women, who often spend many productive hours searching for kerosene. Or will the second phase of the contract be for the fuel supplies? I once heard that we wanted to move Nigerians from kerosene to gas for domestic cooking. How does this stove and 'wonder bags' business promote gas utilization ? Please I need some education!
To be sincere, I would have no problem with anything done for or in the name of our rural women were we not recently regaled with admonishments by senior government officials of the need to reduce expenditure in the face of dwindling income from crude oil. To send home this message, the CBN has decided to ' punish' importers with high exchange rate and industrialists with high interest rates. That tended to put me in the mood to think that we are going to be extraordinarily careful and selective in spending our National income henceforth. But these cooking stoves and 'wonder bags' have left me totally confused and wondering. What kind of austerity measures are we promoting? Are we truly serious?
And then the 60.9 billion naira contract award to KARKATAR for the provision of Engineering infrastructure for Kyami District, Zone C, Abuja. I knew it! When I began to hear and see on prime time advertising on Television of this hitherto unknown company, with claims of being entirely Nigerian and having built a bridge over two 'islands' in Abuja, I smelt a rat and suspected that something was cooking. I am happy that an indigenous Nigerian company has won a contract, the type that was only won by foreign companies in the past. My only worry is , must we be giving new contracts of that nature now? In austere times, should we not concentrate on completing ongoing contracts and paying off the huge debts owed Contractors. The last time I checked, Nigerian contractors are owed almost 1 trillion naira. My own sense of austerity dictates that I should be careful in entering into new debt obligations when I am uncertain of my source of income. May be my sense is exaggerated!
But that will be my first advice to Nigerians that they should limit new commitments, except they can guarantee source of repayment. Not only are incomes sources likely to diminish, interest rates are going higher. So I would do my utmost to limit my commitments only to guaranteed income and minimize building up new debt obligations.
Second, I will do my best to carry or keep minimum cash around. I will also not leave much money in my current accounts. The minimum is that every kobo that I will not need in the next four weeks should be either in a savings account or deposit account. This will help me hedge against inflation and ensure that I make my money work for me at this time, even if passively.
Third, I will not make long term commitments in foreign exchange. I will be very careful if I have to borrow in US dollars or any other international currency. If I must borrow, then I must begin to plan repayment as soon as possible. If I sell in naira then I must convert into dollars soon after to hedge against further deterioration or devaluation. With the current devaluation, many who borrowed in dollars or who must pay their suppliers in dollars must be 'sweating' profusely. Some businesses could easily be wiped out!
Fourth, I will advise prioritizing of expenditure. I will recommend that everyone learns to work with a budget. Make a budget and do your best to match expenditure with certain income. This is not the time to spend anyhow, trusting that 'God will provide'. He expects us to be wise and not to be foolish. I will for now focus on meeting basic needs. I will ignore anything that looks like I can do without it. My major focus should be on how my money will work for me, creating more money and improving my ability to have money to spend in the future. Nigeria's main income earner- crude oil is under threat and no body, not even the CBN Governor knows how low the price will go. As I was writing this, I was watching on Television, the pain on the face of Governor Suswan as he tried to explain his inability to pay the salaries of the Benue civil servants for a couple of months now. He allowed the wage bill to rise when he was getting excess crude money and 'argumentation' but now, no more 'show' and he has decided to reduce salaries and the workers are resisting. Guys, this problem is more serious than many of us have been led to believe! And it has long been brewing!
Fifth, this is the time to seek multiple streams of income. Tell me how the Benue State civil servants are surviving if they do not have multiple streams of income? They must be yam farmers or have other forms of investment through which they are getting some food to eat while they continue to tango with their governor. Every able bodied man or woman, especially those in employment should seek something to do after office hours and at weekends for supplementary income . The anticipated rise in prices of goods precipitated by higher exchange rate of the dollar and the higher cost of borrowing, will lead to drop in sales in the short to medium time frames and this may also create cash flow problems for some businesses. Default in meeting obligations, including salaries may increase in the private sector as well. So all wise salary earners must hedge against this possibility.
Sixth, we may also need to review our investment portfolio at this time. In uncertain times like we are in or about to get into, we need advice on what kind of investments we should get into. As much as possible, we have to avoid speculative investments. It is better to invest in low yield,low risk and more guaranteed investment options. You may consider asset acquisitions at this time, especially immovable assets like land and building for those who have some cash. Landed properties are better stores of wealth at uncertain and potentially volatile periods as we are entering into. Also, this may be a good time to return to the stock market as many who divest from the currency and money market because of volatility may head to the stock market, thereby boosting the stock market and leading to share price appreciation. Secondly, the adjustments undertaken by the CBN promote some level of increased confidence by foreign portfolio investors who see opportunity for higher returns in the Nigerian stock market.
Seventh, this may be time for many to take positions in the export trade. Ideally, the devaluation of local currency makes domestic products cheaper and more attractive in the export market. Agricultural products and even manufactured products can now better compete in the international markets.
Eight, I advise a more aggressive approach to business. Given the anticipated overall drop in demand and re prioritizing of expenditure by consumers of all sizes, competition for market space will intensify. Those who win will be those who take a better advantage of the market opportunities by adopting more aggressive marketing strategies including offering bargains to the consumer.
Nineth, there is wisdom in minimizing risks this season. Every investment decision and business transaction must be fully evaluated to measure risks and deliberate efforts taken to hedge against risks. One major way will be to ensure binding agreements and contracts. Another way, may be to share risks. So we may consider strategic alliances, which in addition to helping us build competitive strength, can help us leverage the market and then share risks.
Tenth and last, this is the time to trust God more than ever. I know that God loves Nigeria but in times of uncertainties and increased volatility in the Polity and in the Economy we need to seek His Help more than ever. One thing is certain, this season too will come to pass.
Mazi Sam Ohuabunwa OFR
Chairman, African Centre for Business Development, Strategy & Innovation( ACBDSI)