By Rita Okoye
As lockdown measures were put in place and people stayed indoors to weather the storm of the COVID-19 pandemic, borders were closed, businesses shut down, economic activities ground to a halt. In order to save humanity, economic growth had to be sacrificed.
The Nigerian economy at the time when the pandemic began sweeping across the world was struggling at best, with only faint hopes of recovery. Being a largely oil dependent economy, oil representing over 80% of Nigeria’s exports and 50% of the overall government revenue, Nigeria was already facing a global reduction in oil price (below $30) and a reduction in global demand for oil, as the pandemic hit.
Micro, Small and Medium Enterprises (MSMEs), the backbone of the Nigerian economy, which according to a 2017 report by the National Bureau of Statistics employ over 59 million of the 69 million workers in the country, have been severely affected by not just the lockdown and inability to operate, but recent government policy decisions as well.
Earlier in the year, the federal government announced the new Value Added Tax (VAT), increasing it from 5% to 7.5%. This was done in order to boost government revenues. Beginning in March, the Central Bank of Nigeria (CBN), in order to unify the collective exchange rates across the I&E, Bureau de Change, single and multiple-unit commodity trading sectors adjusted the foreign exchange rates from N307 per dollar to N360. The rate has since increased to N381 per dollar from N360. In the parallel market, a dollar currently exchanges for about N475.
According to the National Bureau of Statistics (NBS), inflation rate increased to 12.82% (year-on-year) in July compared to 12.56% in June, representing the highest rate recorded in 27 months since March 2018 when inflation was 13.34%. The report also shows that Nigeria’s inflation has consistently increased for 11-months, rising from 11.02% in August 2019 to 12.82% in July 2020. The composite food index rose by 15.48% in July compared to 15.18% in June. Also, the food sub-index increased by 1.52% in July 2020, up by 0.04% points from 1.48% recorded in June 2020.
The NBS reports that rise in the food index was caused by increases in prices of essential goods such as bread and cereals, potatoes, yam and other tubers, meat, fruits, oils and fats, and fish.
Going by comments from Nigeria’s leading Pay TV operators, a combination of these four key factors: VAT increase, COVID-19, naira devaluation and inflation, along with an unbearable spike in operational costs are seen as being majorly responsible for the price adjustments effected by both Multichoice and Startimes in the past few weeks.
Startimes, a joint venture between Nigeria Television Authority (NTA) and Chinese investors recently announced an increase in subscription fees effective from August 1. The company introduced an average of 22% increase across its various bouquets. Startime’s Brand and Marketing Manager, Viki Liu, said: “Our business is not exempted from the effect of the naira depreciation affecting all businesses in the country. All of our foreign content is bought in dollars and to continually serve our subscribers the best content, the subscription price has to be reviewed upwards.”
Just a month after, MultiChoice Nigeria in a message to its GOtv and DStv customers announced an adjustment to some of its subscription packages effective September 1, 2020. According to the company, DStv’s Premium, Compact Plus and Compact packages will see a change of about 13%, while lower tier packages Confam, Yanga and Padi will retain their normal prices.
“We periodically review our pricing, taking into consideration factors such as inflation and operational costs. We acknowledge that the people of Nigeria are living under increased economic pressure and we have made efforts to freeze the subscription prices in the last year, barring any extreme factors such as devaluation of currency and changes to VAT mandated by the government,” the company’s statement reads.
Beyond media and entertainment, there have also been significant increments in the price of foodstuff as well. The 50kg bag of rice that previously sold for N18,000 is now N21,000, while a paint bucket of Garri that was sold for N300 is now N1,300 in the market. Pundits say these price adjustments, in light of Nigeria’s present economic reality – VAT increase, inflation, devaluation, have been deemed necessary by affected businesses in order to ensure their survival.
Speaking on what governments should do to support businesses as the world emerges from the lockdown, Jonathan Lavender, KPMG’s Global Head of Private Enterprise and Head of Markets said, “It has become necessary for governments to introduce incentives and economic relief programmes that help alleviate business stress and bolster economies. Additional financial relief mechanisms include corporate income tax rebates, deferral of government payments, and reductions in tax rates to help owners retain more immediate cash in their business.”
The Nigerian Pay TV market with an estimated 6.5 million customers and the entertainment and media industry, which according to PwC is expected to become a $10.5 billion market by the end of 2023, has also not been spared the impact of the pandemic and other unfavourable economic conditions.
The 2020 half-year Business Insights published by Naspire, a Lagos-based research company, reports that media organisations and pay TV operators have seen a significant reduction in major sources of revenue (advertising, events and circulations) which has led to significant drop in cash flow, leading to exits or divestments, lay-offs, pay cut and increase in prices of some media products and services.
Reacting to the recent news of large retailers exiting the Nigerian market, Tunji Adegbite, a business analyst and founder, Naspire, said: “The ‘exits’ send a negative signal to foreign investors, which Nigeria is in dire need of. Woolworths, Mr. Price, and some other foreign businesses have left while rumours are flying that Multichoice (DStv) is also thinking of pulling out of bidding for the EPL Rights for Nigeria. Truthfully, Nigeria is a problematic place to do business. The opportunities may be huge but no investor wants to deal with potential anymore. It is about the reality on the ground. Investment decisions are no longer about ‘how sweet the pot is but also about how easy it is to get meat from the sweet spot’.”