2015 was a year wrought with many challenges; a massive decline in oil prices, the Greek Sovereign debt crisis, turmoil in the Middle East and Eastern Europe amongst others. The underlying effect has been a fall in global economic performance, suppressed foreign demand and a message of austerity.
Furthermore, we have seen growth prospects fall with economies and indeed global markets struggling to pick up the pace of growth. But regardless of the recovery efforts, earnings have continually hit rock bottom, and we have as such seen desperate measures by companies and sovereigns alike struggling to keep their heads above the water. If the Greek crisis has taught the international market anything is that economies need new plans for delivering on governance and profitability. Renewed efforts and even much more a redesigned revenue model is without ploy crucial to sustaining governance and businesses. So which way forward then?
Without doubt, a more adaptive business model is a necessity for companies in today’s world. Highly volatile markets and business models have seen more business close shop and many on the verge of insolvency. The critical issue has been the relative exposure of firms to systemic factors which take a toll on business expectations and performance. This has been seen in the effect of the decline in oil prices and its impact on the income pool of many sovereigns and companies. Survival is thus the theme and we have seen this play out in cutbacks in government spending and even more cutbacks by the private sector.
The critical point for the New Year is improving on last year’s performance and a steady momentum on the part of growth. I firmly believe that in achieving this, organisations and sovereigns alike must get creative and more adaptive. A critical analysis must be taken on business models to outline means of increasing income as against reducing the loss of revenue. Business models must become more adaptive in such a manner that they evolve to sustain businesses in harsh times as we see today. So as income streams thin out, organisations and sovereigns must fall back to their core competencies and build on that. They must look to evolve and adapt their businesses and nations to today’s trend. The theme must change from one of revenue generation to revenue creation. Taking that in a deeper context, revenue generation relies on existing structures; it’s like milking a cow you own. But revenue creation is simply building new structures; new streams of income generation that require some level of change and a critical analysis of existing business models.
So moving forward, organisations and sovereigns must look to blue oceans with high growth potential in which they can leverage their competencies in the New Year. Although, 2016 presents enormous challenges with the current trend in today’s market but then we must look to the optimism in this vast ocean of challenges. We must look to identifying where the wind is blowing and take advantage of the wind to set sail. Taking a broad view of the relative effect of oil prices and most importantly its impact on nations and organisations in which this serves as major source of revenue; a diversification strategy must be taken into consideration to create new streams of income that will foster the growth of the economy.
Business on the Radar
2015 has seen many industries struggling to meet their bottom line vis-a-vis meeting shareholder expectations. The current economic conditions triggered by the fall in oil prices and erratic movement in exchange rate has seen many either closing shop or shrinking their human resource to stay afloat. In all, hopes are high as we sail into 2016, and I believe many companies would be re-evaluating their performance metrics and growth expectations. The critical question still remains what business can do in this current crisis. Welcome Innovative disruption!
I firmly believe that businesses need to evolve their business models as I stressed earlier on, such that they broaden their income base. With the current economic crisis, income heads are either thinning out or disappearing and sticking to old strategies won’t work. Innovative disruption in the value chain is a good way for organisations to adapt their business models. Organisations must look towards disruptive innovation in their value chains in ways that allow them run more efficiently in other to generate more revenue. These actions must be such that they are disruptive enough to create new customer expectations, trigger a change in the market and dislodge competition, thereby creating openings for growth. Organisations can then leverage on their key competencies and maximise the opportunities apparent in these markets. But then, organisations must look to change and adapt to new ways of doing things without which these are simply mere expectations.
The Retail Blue Ocean
During the last quarter of 2015, I noticed re-branding efforts by some Nigerian financial institutions. This I believe was a step in improving their brand equity which they believe will foster a retail strategy. In a more projected move, more technological innovations sprang up such as the PayAttitude, PayCapture, mobile banking, mobile insurance, etc. In all, one thing stood out: the Retail blue ocean.
The Retail blue ocean is a market that is still largely untapped. With a large portion of the Nigerian population being youths, the growth potential of this market is high and can be maximized if organisations take advantage of today’s technological innovations. Rather than continually squeeze the already saturated corporate sector which is facing a “technical recession” in revenues and growth expectations, organisations must look to the retail sector. We must learn from the developments in the financial sector and adopt these new potential strategies for growth. But what about the government?
State of the Nation
The Nigerian financial sphere continues to be clogged with financial difficulties arising from the fall in oil prices. As uncertainty continues to fill the air coupled with a new political atmosphere, public expectation is indeed high of the current administration. Although, growth expectations remain gloomy the populace has taken comfort in the promises of change by the administration. The million dollar question still remains when is the CHANGEcoming?
Change! But first let’s look at the current state of things. Nigeria’s 2016 budget stands at N6.08 trillion financed by an oil revenue price benchmark of $38 with oil production estimates at 2.2 million barrels per day and an ambitious non-oil revenues expectation. With a foreign reserve of $28.9 billion and a budget deficit of N2.22 trillion and oil prices down to $32 not forgetting high public expectation of a government with surplus promises. I must say this current administration has a long way to go. If change is the desired part, then we must start seeing action in that light. The Government must set sail for change in economic policies and change in orientation to create the desired effect and put the nation in the direction of the Promised Land.
Let\’s Talk Reforms
Reforms, Reforms, Reforms; this is simply the only way forward. The current administration must work on reforms as the nation is in dire need of reforms. I believe the current administration must channel its efforts in these areas:
Social & Economic Infrastructure
Amidst the challenges facing African nations, lack of adequate Infrastructure is one that stands out. The lack of support systems to aid economic development is one that keeps mauling development in African countries. It is imperative to note that the key to sustainable economic development is a strong infrastructural system which in turn creates a good economic atmosphere for growth and development.
Social Infrastructure means those basic activities and services which, in addition to achieving certain social objectives, indirectly help various economic activities. For example;, Education does not directly affect economic activities like production and distribution but indirectly helps in the economic development of the country by producing scientists, technologists and engineers. So Education, Health service, Water supply, Housing are examples of social infrastructure.
Economic infrastructure means those basic facilities and services which directly benefit the process of production and distribution. For example; Power, Transportation and Communication. (Pooja Mehta, Economist)
The good news is that the current administration has devoted a good portion of this year’s budget to infrastructure with N433.4 billion for Works, Power and Housing; N202.0 billion for Transport; N369 billion for Education and N221.7 billion for Health. This is a good move, but now we need to see action with the funds allocated. This I believe can be achieved with greater demand for accountability from public officials and a Private Public Partnership initiative. With a Private Public Partnership initiative we would see more productive efforts at building a sustainable economic atmosphere that will foster the growth and development of the economy.
Revenue Diversification
If the oil price continues to fall and experts are predicting a further decline, the Nigerian government risk a cash crunch and a further addition to its current budget deficit. We simply need to broaden our revenue base in other to offset the current shortfall in revenue expectation else we incur more debt burden. Over dependence on one source of income is simply a shallow minded approach to budgeting; although emphasis has been placed on the non-oil sector in 2016’s budget, it\’s simply blind optimism without adequate infrastructure and the right economic policies. We must begin to look beyond the myopic view of oil as our primary source of income and focus our efforts in areas such as Agriculture and Mining of natural minerals. While the National Assembly looks to review the $38 oil benchmark to reflect the current market reality, I believe this would give the government a more realistic view of its revenue expectation and aid effective planning.
Fuel Subsidy
Fuel subsidy has to go. The financial commitment of the government to subsidizing petroleum products for the Nigerian masses is taking a toll of its revenues. With falling oil prices the government needs more funds and freeing that chunk of revenue allocation will provide more opportunity for the government to tackle other critical issues in the economy. But then most would argue without the existence of efficiently run refineries this would be an enormous burden on the Nigerian masses. Simply, this is a dilemma between progress and more financial burden for the nation and I believe we must choose progress.
Security
The continuous battle with the Boko Haram insurgency is one that has heightened the nation’s security concerns over the last few years and still continues to. This battle is simply a stalemate as the government continues to fight the insurgents while also trying to provide safety and relief to victims of this crisis. But this is just one problem on the government’s shoulders as rising agitation by the Easterners for a resurrection of the “Biafra” nation raises more serious concerns. The current administration must work on stressing the message of peace and unity while it focuses on a peaceful resolution to all these issues. I must emphasize that we can only move forward as a nation, as a united front.
Power
This is, without doubt, a long-standing issue in Nigeria and despite various attempts to reform this sector we continue to see a snail-like change process coupled with huge amounts of mismanaged and unaccounted funds. The lack of infrastructure and power generating capacity continues to maul growth in this sector, and the ripple effect of this is a higher cost of doing business in the country. Though privatisation of the power distribution companies has cut out the bureaucratic dispensations but then you can only distribute to the full extent of what you generate. Nigeria needs to start looking at other sources of energy generation asides the conventional hydropower. The nation needs to invest in the power sector and other green energy alternatives. Solar energy is worthy of note, with an extraordinary hot temperature in the North that is a potential energy supply that can be taken advantage of.
Job creation
The vehicle of growth is fostered by a fully engaged youth force. With the massive influx of graduates leaving Nigerian universities, this continually puts more pressure on the labour market which in turn creates desperation, which many employers take advantage of. So you find many Nigerian youths either unemployed or underemployed and underpaid. In the long run, what you have is an ill-equipped workforce lacking capacity and a rising inequality gap which like a jar filled with water would eventually overflow and spill. The end result being cases of militancy, high crime rate or a slow economic growth (The Niger Delta crisis is a good example).
Also, the minimum wage is still very much up for debate as many state governments chorus “we cannot pay”. Frankly, N18, 000 is unacceptable and cannot cover the monthly cost of living in Nigeria; but then, it’s a start, and hopefully, it will rise in the coming years. I believe the Federal government must take a strong stance on this issue and push for compliance by the state governments.
My expectation for 2016 is stronger labour laws to combat this problem and many other issues like contract employment (with ridiculous pays and contract terms) amongst other. There must be standards regarding labour practices if we want to move forward as a nation and we must deal severely with organisations with poor labour practices to serve as a deterrent to others.
Financial Independence of State Governments
Every state government by standard must be able to meet its obligations and financial commitments from its own internally generated resources without dependence on the National pool. Governors must get creative and not continually rely solely on their Federal Allocation and expend a huge portion of that on recurrent expenditure. This is simply not the path to growth. With oil revenues falling, it simply means the Federal government has less money to distribute among the states. With less money distributed, that means many state governments would be unable to run effectively without incurring additional debt burden which is simply unhealthy to the financial stability and growth of the state.
In 2016, state governments must get creative as I stressed earlier on or risk instability and total shutdown of economic activities in the state. The handwriting on the wall is getting clearer; with many states unable to pay staff salaries for months in 2015. The critical question is how will they finance other economic activities in the state and still meet other financial commitments in 2016? We must clamour for creativity in governance, not just words or irrelevant action figure acts.
Dollar Squeeze
To many consumers, the highlight of 2015 was the out of control exchange rate of the Naira to the dollar coupled with foreign exchange restrictions by the Central Bank to curb the fall. The market response was a rise in commodity prices and business cost as dollar supply shrunk on the heels of the steep fall in oil prices. But with a reduced inflow of foreign exchange into the nation’s foreign reserves and an unabated dollar demand, the relative effect of the CBN’s efforts has been questioned? Is it working or not?
The critical point continually remains the relative effect of the foreign exchange restrictions by the CBN in curbing the exchange rate crisis. Though we have seen stability in the official rate which has remained within the N195 – N197 band but then the parallel market is simply in chaos. With little or no access to dollars from the commercial banks, the parallel market seems to be exploiting the situation with rates reaching as high as N305/$1.
In recent days after calls by the National Assembly to the CBN, we are seeing a relaxed response from the lender of last resort as dollar deposits which were earlier restricted are now being accepted. Hopefully, we would see more improved and consumer conscious actions from the Central Bank, which does not undermine the exchange rate stability.
Small and Medium Scale Enterprises (SMEs)
My stance has always been that the only way to grow as a nation economy wise is to think long term and invest short term. Putting that view in proper context, I believe that proper investment in SMEs now is an investment in the future of the nation. 10,000 well-funded, guided SMEs are potential income streams and job generators for the economy. The government must ensure that statutory allocations made available to this sector are disbursed to aid it. Also, the CBN must make sure that commercial banks lend to SMEs in order to boost the growth of that sector.
Tax System and Treasury Single Account (TSA)
In light of the shortfall in the nations revenue, increasing the tax burden would be an unwise move in terms of government policy but then employing the Lagos state tax model in driving an efficient (though not perfect) tax system and clogging all the income leaks would be a positive step forward. We have seen action in this light with the TSA (Treasury Single Account) initiative which ensures all agencies of the government remit the proceeds they collect to the Federation account but then the management of the pooled funds is the critical issue. The government must therefore continually stress accountability in the administration of public funds such that every official is accountable to the last kobo.
In all, 2016 holds enormous challenges but then optimism must be given room in these stormy waters as the new administration plans to implement CHANGE. Well, we are waiting to see that change emerge, eagerly waiting.
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