Thread by @Kenna_Partners

Good evening everyone, hope your work for home (WFH) is coasting along smoothly and that you are as invested in today’s topic as we are because the issues to be discussed can potentially affect everyone irrespective of status.

Since our last discussion, a fortnight ago, things have spiralled to science fiction levels. Worldwidecases are at 882,068 with as many as 44,136 deaths reported. Locally we have as many as 151 cases and 2 deaths as of an hour ago.

The escalation of the outbreak has deemed it necessary for the Nigerian authorities implement a lockdown of Abuja, Lagos, Ogun State and the Federal Capital Territory (FCT) for 14 days from 23:00 (local time) on March 30, 2020 to reduce the spread of "Miss Rona"

Global economies are now in a similar state of bedlam as their public health services are all on emergency, no thanks to Coronavirus. Reports from the UN show the world is likely in a recession.

Thus, COVID-19, a viral disease has metamorphosised into an economic disease.

Nigeria, like most countries, will be hit on two fronts. We will be hit directly as a result of cases in the country, and indirectly, due to our closeness with, badly hit China, our number one infrastructure financier and trading partner, plus our reliance on global oil prices.

Thus, the global economic impact of the COVID-19 Pandemic cannot be understated for even where businesses are not closed due to the need to adhere to the social distancing stipulations of the World Health Organisation.

Brookings Institute on the concerns states “not a lack of liquidity, but a temporary halt of activity due to health restrictions and a fundamental question of solvency for many firms and individuals".

Thus, today will look at the local and governmental economic response to COVID-19 as well the economic impact of the virus on businesses

They say charity begins at home so that is where we will start, home.

Nigeria's Economic Response- A range of measures have been implemented to contain the spread of the virus, including the closure of international airports, public and private schools, universities, stores...

and markets, and suspension of public gatherings. Work at home has also been encouraged in several states and government institutions. This is uncharted territory for many Nigerian businesses.

If we consider that the informal sector contributes about 41% of Nigeria’s economic output, how many people can stay at home and still be productive? Work-from-home policies would not apply to food vendors and artisans.

Even within the formal economy, workers who are not skilled in working remotely like Nigeria’s civil servants and sectors without telework technology like manufacturing will be unable to work from home.

Thus, a shutdown of movement will lead to a massive decline in economic output, income and consumer spending.

As a result, the Nigerian Government has taken steps help mitigate the situation.

FISCAL MEASURES- Contingency funds of N984 million ($2.7 million) have been released to Nigeria’s Center for Disease Control, and an additional N6.5 billion ($18 million) is planned.

The government is reviewing its 2020 budget and, given the expected large fall in oil revenues, announced plans to cut/ delay non-essential capital spending by N1.5 trillion (close to 1% of GDP).

A fiscal stimulus package to provide relief for taxpayers and incentivise employers to retain and recruit staff during the downturn is being designed.

Import duty waivers for pharmaceutical firms will be introduced. Regulated fuel prices have been reduced, and an automatic fuel price formula introduced to ensure fuel subsidies are eliminated.

MONETARY AND MACRO-FINANCIAL- The Central Bank of Nigeria (CBN) maintained its current monetary policy rate in March but introduced additional measures, including

(i) reducing interest rates on all applicable CBN interventions from 9 to 5% and introducing a one-year moratorium on CBN intervention facilities;

(ii) creating a N50 billion ($139 million) targeted credit facility; and

(iii) liquidity injection of 3.6 trillion (2.4 % of GDP) into the banking system, including N100 billion to support the health sector, N2 trillion to the manufacturing sector, and N1.5 trillion to the real sector to impacted industries. Regulatory forbearance was also introduced

... to restructure loans in impacted sectors.

A lot of discussions have occurred on the interpretation of paragraph 1 of the CBN Circular on COVID-19 it is our belief that paragraph 1 relates only to CBN intervention facilities that are currently under moratorium such as the anchor borrower program.

Beneficiaries of the intervention schemes generally enjoy a moratorium on interest and tax holidays for a few years. This circular just continues that moratorium.

While we do not believe the moratorium applies to all companies currently servicing debt and that that businesses may benefit from an extension to other non-CBN intervention servicing debt with conditions to properly protect the Nigerian economy though.

However, a borrower can negotiate a restructuring under paragraph 5. That paragraph applies to all loans issued by DMB's. Well-intentioned as that may be. While we Appreciate the window.

Granting DMBs a wide discretion to consider, leaves businesses at the mercy of DMB's.

One may argue that in the current situation the world is grappling with when your regulator urges you to act in a certain way, it carries with it mandatory connotations.

While that is a solid argument but Counsel advising DMB’s would simply rely on the literal rule to interpret it as discretionary.

EXCHANGE RATE AND BALANCE OF PAYMENTS- The official exchange rate has been adjusted by 15%, with an ongoing unification of the various exchange rates under the investors and exporters (I&E) window,(Bureau de Change, and retail and wholesale windows. (About time, if you ask us)

The Nigerian Government is now committed to letting the I&E rate move in line with market forces. (Best news of this entire debacle) A few pharmaceutical companies have been identified to ensure they can receive FX and naira funding.

This is crucial as NAFDAC has authorised some Big Pharma players to begin producing mass quantities of Chloroquine and Hydroxychloroquine

Other than the above, the Nigerian Government has through various agencies made other directives. For one, SEC has suspended any new applications and all SEC correspondence is now to be done via email

There is also the proposed Emergency Economic Stimulus Bill 2020. The bill by virtue of section 1 seeks to:
a)Provide tax relief to companies, enterprises and individuals during the economic slowdown as a result of COVID-19;

b)Protect the employment status of citizens by preventing mass retrenchments
c)Provide a moratorium on mortgage obligations and
d)Eliminate additional fiscal bottlenecks on the importation of medical and safety equipment needed to combat COVID-19.

Under the proposed bill, there will be a 50% income tax rebate on the total Pay As You Earn (PAYE) due or paid under the Personal Income Tax Act CAP C8 LFN 2004 (as amended) for companies duly registered under the Companies and Allied Matters Act (CAMA) Cap C20 LFN 2004

that maintain the same employee status from March 1, 2020, to December 31, 2020.

Importantly, Employers are not precluded from claiming the reliefs if employees die of natural cause, an employee voluntarily leaves employment service or has already indicated interest to leave before March 1, 2020, or an en employee breaches the provisions of the Labour Act Cap

However, the tax rebate proposed by the bill does not extend to companies involved in the oil and gas downstream sector who are ordinarily taxed under the provisions of the petroleum profit tax act.

The bill proposes to apply from March 1- December 31 but provides that the president can extend the application period.

This bill passed by the lower house of the National House of Assembly is yet to be passed by the upper legislative chamber (Senate) which has since gone on recess.

Assuming, the senate can pass the bill, the next stage is for the president to sign and assent to it in order for it to become law.

That wraps up Nigeria's economic response.

We now delve into the "New Country" to many young Nigerians, Canada-
New Canada Emergency Response Benefit (CERB) The CERB merges two previously announced federal income support programs, the Emergency Care Benefit and Emergency Support Benefit.

CERB provides financial relief to workers whose employment status has been affected by reasons relating to COVID-19.

A part of CERB is temporary income support of $2,000 for workers who have been out of work for 14 consecutive days in any four-week period for reasons relating to COVID-19.

Importantly, the benefit is taxable but the payment is differed to a date yet to be announced. The income support is to last from March 15, 2020, until October 3, 2020, with application period scheduled to begin from April 6, 2020, and the processing is to an average of 10 days.

Apart from CERB, the Canadian government also announced a moratorium on student loans for a period of 6 months.

The Canada Revenue Agency will allow all taxpayers to defer payment of taxable income earned before September 2020, until after August 31, 2020. This Tax payment deferral until September 2020 is for corporate and individual taxpayers.

Canada’s COVID-19 Economic Response Plan provides up to $27 billion in direct support to Canadian workers and businesses.

The United States-
The President of the United States on March 27, 2020, signed a USD2 Trillion economic stimulus after the ratification of the stimulus bills passed by Congress.

Individual income support of up to USD1, 200. Eligibility criteria is for individuals for a recent tax return to disclose an earning of $75,000 or under in the previous year and for couples, who can receive a maximum of $2,400, the cutoff is $150,000.

Those who earned more than the stated amount has the benefit reduces by $5 for every $100 increase in salary. So a person who makes $85,000 would get $700 while a person who makes $95,000 would get $200.

Additionally, Taxpayers will be given $500 per child listed as a dependent on their latest tax return.
The stimulus bills disclose no provision on paid leave and treatment of symptoms of COVID-19.

While debt collectors lobby to maintain business operations, representatives of firms that issue credit cards, car loans, and online consumer loans, are lobbying for access to bailout money.

Earlier this week, the American Financial Services Association, which represents lenders, sent a letter to congressional leaders, urging them to loosen standards for the Federal Reserve’s Term Asset-Backed Securities Loan Facility.

It is a taxpayer-backed initiative that began in 2008 to support securitised consumer debt. The program was relaunched in recent days, one of several programs industry officials hope to utilise.

Australia- Payments have been made to small businesses to encourage hiring. Business subsidies have also been given to businesses in industries such as tourism, which have been hit hardest by the coronavirus

On March 19, Reserve Bank of Australia, Australia's central bank lowered interest rates to 0.25% and created a $54 billion lending facility for small and medium-sized business.

United Kingdom- Lowered interest rates to 0.5%
Lowered capital requirements for banks to allow nearly USD400 billion that would have been used in reserves be invested in the economy.

The government announced tax breaks for retailers and monetary grants to small businesses together with increased. On March 17, the UK government announced $23 billion in business tax cuts and grant funding to businesses hit worst by the virus, such as retail and hotel businesses

The Government also announced a program to issue incentives to companies that covering up to 80% of worker's salaries rather than laying employees off. The incentives are up to $3,046 a month per person and are expected to cost USD95.1 billion.

Other countries have taken steps. However, if one looks at all the steps taken one can notice patterns
The conclusion of steps taken by the world's governments
Lowering of interest rates.
Provision of income support

Provision of benefits for medium and small scale business
Creation of incentives for hiring and retainment of employees.

The Effect of COVID-19 on Businesses
We have streamlined six key areas of focus that businesses are concerned about. These include crisis management and response to the virus, workforce, operations and supply chain, finance and liquidity, tax and trade, and strategy and brand.

Crisis Management- Businesses are concerned about how to best handle the virus. In some cities, they handled it with kid gloves, to devastating effect. The general consensus on the appropriate response in the corporate world is to institute a work from home policy.

In the Nigerian informal sector, that poses a difficulty. most business transactions are done face to face. How then does a petty trader expect to make ends meet when they "work from home". That dear reader is the question.

Workforce operations- The COVID-19 pandemic has forced businesses to close their doors, putting employers in the difficult position of what to do with staff.

Millions of workers in a number of industries, including the travel, hospitality and retail sectors are facing months of uncertainty, with COVID-19 expected to further spread before the curve is flattened and business can resume as normal.

While employers will often assume that mass redundancies are their only course of action, other options are available and may actually be more cost-effective.

Operations and Supply- Businesses are finding it difficult to meet their operational capabilities. Many manufacturers of non-essential goods are shut down. Some have been able to produce goods but now have no buyers. As such, they now face ruin. The supply chain is affected

and there are no consumers to purchase goods should the goods eventually reach the retailer and wholesaler. All that cooks up to make a very toxic cocktail for businesses.

Finance and liquidity- This is the big one. Many businesses do not have enough liquidity to weather the storm. Many especially those that benefitted from corporate financing to start-up are at risk of not meeting their debt servicing obligations.

Finally, some businesses incurred foreign debt that they are now paying back in a Naira that has lost considerable value in the past 4 months. These are big concerns

Taxation- Despite all the existing challenges many businesses still fear meeting their tax obligations. It is a frightening prospect.

Brand- Some businesses are now facing a major problem as the virus has rendered them incapable of meeting the promises that their brand puts out.

These are major concerns, and as such, they need major solutions. We will for a time split our recommendations into three.

a. Operations
b. Workforce
c. Financing

Operations- Life goes on, and business operations too must go on. Businesses must still meet their statutory requirements in holding meetings. Though Board meetings can now be done virtually via applications for meetings such as zoom or Skype.

Supply chains will have to be rebuilt and the virus creates a brilliant opportunity to utilise e-commerce and logistics platforms and thereby reduce the need for physical visits to stores

Workforce- Employers have various options. many have the impression that redundancy is a quick and cheap option. It should be a last resort, and only done when it is thoroughly planned.

1. Employers can stand down staff without pay

2. Re-negotiating the hours' employees work during the downturn is one option, This could potentially reduce the staff bill 20 to 40%. An example of this is agreeing to a four, or even three-day workweek. Leave without pay can also be negotiated.

3. Reduced pay is another alternative that can be mutually agreed to, as long as it is above minimum wage.

4. While letting contract staff go, may be an easy option, it should be approached with caution. In certain cases, someone who has worked for business regularly and systematically may not be a contract staff member in the eyes of the law.

Employers will be forced to make difficult decisions over the coming months, and we’re not yet seeing the true raft of redundancy coming into play, which would cause long term rises in unemployment.

We believe that every job is essential. The longer we can protect them, the better for the economy.

Finance- This has always posed some difficulty. The first step is for businesses to renegotiate their loan agreements and debt repayment structure.

It would have been preferred if there was a policy that put a moratorium on interest rates during these COVID-19 times, as there is no such policy in place, the best bet of a business is to renegotiate the loan agreement and interest rates with their lender

Lenders may acquiesce to their borrower's request out of fear of taking up a non-performing loan but that may only be tied to the lender's availability to obtain bailouts and/ or tax credits from the government

For foreign loans- Those who are at the contract stage must ensure they hedge the transaction from currency fluctuation.

Those who did not may have to seek measures to convert the loans from foreign currency to Naira.

Wow! look at the time. Today we took the scenic route through the economic impact of the virus, the economic interventions of many governments and The challenges and some brief solutions to those challenges of Nigerian businesses. It was our pleasure to host today's discussion

and wrap up our three-part series on Law and Contagion. We hope it was helpful and educative. We hope everyone continues to stay safe and healthy. We will be back in a fortnight to continue our discussions. Goodnight!

@threadreaderapp unroll please.