5 things to do about money during this Coronavirus pandemic (Part 1)

Photo by Vincent Ghilione on Unsplash

This part is mostly technical convo. It puts context to the “5 things to do.” If you want, you can just skip to Part 2.

A bit of background

Nobody likes bad news, but in the last two weeks, Nigerians have gotten a few doses of them. Many thanks to the coronavirus and its ripple effect across borders and economies.

Firstly, there was the drop in the price of crude oil to just about $20 per barrel. Remember that Nigerian budget had benchmarked this at $57. Given the almost 65% drop in price, experts had considered these as possible options:

Quick info: This is a bit technical, but I’m sure you can handle it.

1. Tweak the budget to spend 65% less. With most of the spendings locked down in recurrent expenditure — mostly salaries, this doesn’t look like the direction the economic drivers would take, but conversations have started.
2. Re-price (devalue) our local currency — the Naira. We were selling (max) 1.78million barrels of crude in February 2020 at $60/barrel at the previous rate of say N362/1$, which comes to daily (max) earnings of N38.88billion. Now, at same production capacity, with the new rate of $20/barrel, this slashes our earnings by 66.67% to N12.96billion daily. However, if we repriced the Naira at three times what it is now, say N1,086/$1, then we could maintain the previous earnings of N38.88billion. Of course, this is not exactly how things are. Things are much better than this, plus the budget is only partly dependent on oil revenue, so the devaluation shouldn’t be as bad. This math is only a simplistic (and unrealistic) way of selling it, but you get the idea.

Take a breather. End of technical conversations. Let’s keep it simple.

Secondly, this didn’t make headlines, but just recently, S&P Global Ratings cut Nigeria’s credit sovereign credit rating from B to B- (junk rating). You’re asking why this is important? We may need to raise our RoI on debt instruments to make them more attractive to investors — and costlier for the government or corporates raising funds.

Thirdly, the COVID-19 pandemic has necessitated the shutdown of many businesses in the country’s most economic active cities — Lagos, Abuja and Ogun State. A few companies have started counting their losses by either cutting down on their workforce and revising wages downwards.

This loss of livelihood, our current GDP growth rate, the dipped crude oil price and the global (and local) economic effects of the coronavirus suggest a likely recession soon.

The common questions on the lips of so many Nigerians in the last weeks have included:

1. What should I do with my money now?
2. Should I liquidate my investments?
3. Is it a good time to invest? What should I invest in now?

Here you go! The five things you can do — are in Part 2