The year 2020 brought a fundamental market driver seldom seen in the business world – a global viral outbreak. The onset of the novel coronavirus officially labelled COVID-19 by the World Health Organisation (WHO), sent a shockwave across the financial markets worldwide. Although some countries’ immediate response to the pandemic was muted, the growing impact in Nigeria is becoming devastating. During the spell of this outbreak and economic turmoil, organisations are faced with significant challenges and risks that will alter normalcy in business. In Nigeria, there have been preventive measures to help reduce the spread of the virus, coupled with innovative strategies by organisations thrusting remote working policies to ensure business continuity. This article focuses on crucial risk profiles in the Nigerian business environment and mitigating actions to ensure business continuity in this period and beyond.
Real Gross Domestic Product (GDP) growth was estimated at 2.3% in 2019, marginally higher than 1.9% in 2018. Growth was mainly in transport, an improved oil sector, and information and communications technology. Agriculture was hurt by sporadic flooding and conflicts between herdsmen and local farmers, while manufacturing continues to suffer from a lack of financing. Final household consumption was the key driver of growth in 2019, reinforcing its 1.1% contribution to real GDP growth in 2018.
In the face of these facts, organisations in Nigeria continue to face the adverse risk of a weak monetary & fiscal policy, regulatory policy, foreign exchange volatility, political policies, business continuity, disruptive business models, cybersecurity, talent shortage and technology infrastructure amongst others. We will highlight three (3) main risks, how it affects organisations, and the actions that can be taken to mitigate them further. They include:
- Foreign exchange volatility risk
- Business continuity risk and
- Disruptive business model risks.
Foreign Exchange (FX) Volatility Risk
Nigeria is amongst the top African countries that attract foreign professionals and multinationals. There is an increased presence in multinational corporations in Nigeria, ranging from the manufacturing, Oil & Gas to ICT sector. Nigeria depends on crude oil earnings for about 90% of its foreign exchange, but the country’s FX reserves plunged by more than $1.6 billion to $36.38 billion in March 2020. The outbreak and spread of COVID-19 have negatively affected global foreign direct investment (FDI) and the foreign reserves, causing pressure on the naira as it slowly devalues. This creates a negative cascading effect on the demand and supply for goods and services. FX volatility has an extreme impact on the economy due to production and supply chain disruptions in the global value chain. All these factors create a downward trend of earnings for corporations and are likely to continue after the pandemic. We recommend organisations mitigate this risk by exploring a comprehensive cost-benefit analysis for internal processes to identify opportunities which reduce foreign-denominated outflows by either locally sourcing services or developing systems in place to accommodate backward/ forward integration.
Business Continuity Risk
Organisations globally are faced with the continuous threats of potentially disruptive and unexpected adverse developments such as FX risk, cyber-attacks, loss of sole supplier and the ravaging pandemic, in their operating environment. Organisations need to re-assess their current level of preparedness across their value chains and plans to address complexities in the aftermath. With regards to the existing situation, companies should carry out frequent business continuity exercises to critically evaluate the impact of the crisis and update strategies for continued performance.
A well-developed business continuity plan helps reduce uncertainty, instils confidence and enables competence for sustainable and superior performance of an organisation. As we have come to grips with the new reality, organisations must design and implement a robust re-boot plan to enable them to resume business operations in a cost-efficient manner with a short downtime.
Organisations can mitigate this risk by automating processes that will enhance staff training and knowledge sharing to improve productivity. They can also update existing business continuity frameworks that monitor, review, and improve the organisation’s capability to maintain growth and performance.
Disruptive Business Model Risk
This risk can be attributed to the use of disruptive innovation to dramatically transform business thinking. Organisations are now seeking the utilisation of emerging technologies to automate processes and transform business models, thereby improving operational efficiency and service delivery.
A global consulting firm has predicted that by 2022, about 60 percent of global GDP will be credited to technology and digitisation with nearly $7 trillion in investments injected into the IT sector. However, in Nigeria, this figure will be considerably lower, presenting an opportunity for organisations to put plans in place to mitigate disruptive business model risk properly.
Organisations can mitigate the disruptive business model risk by introducing more agility, adaptability, and responsiveness to emerging threats while periodically re-assessing approaches to the development of their organisation’s corporate strategy.
Organisations must prepare to absorb the adverse impact of the present global economic instability both now and in the future. The looming global recession is bound to destabilise the Nigerian economy and transform trade, commercial channels and structure of the operating environment, as well as working conditions. Under these circumstances, organisations must rely on their resilience, strengths and agility to mitigate the impact of this crisis and prepare for the next cycle of globalisation.
For further information or advice on hedging business risks amidst COVID-19 and preparedness for the future, please contact us at firstname.lastname@example.org