Following the COVID 19 pandemic that has brought the economies of several countries in the world to its knees, professional service firm, KPMG, has presented a report on Top Business Risks that Nigerian Business executives will grapple with in the post-COVID 19 era.
These risks according to KPMG include Foreign Exchange Volatility Risk, Fiscal and Monetary Risk, Regulatory Risk, Cyber-security Risk, Political Risk, and Technology Infrastructure Risk. Other Risks include Governance Risk, Business Continuity Risk, and Customer Attrition Risk.
According to the report, Nigerian businesses are facing enormous challenges due to macroeconomic issues. While sustaining its recovery from the 2016 recession, the Nigerian economy grew by 2.3% in 2019. This growth appears quite inadequate when compared to the annual population growth of between 2.6% and 3%.
Against the background of a challenging economic and business environment, Nigerian businesses have some key risks that they face in the course of their operations. The outbreak of the coronavirus pandemic has exacerbated some of the risks that these businesses face.
Prior to the coronavirus outbreak, the highest concerns for Nigerian businesses across different sectors were the regulatory, foreign exchange volatility, and fiscal & monetary policy. However, COVID-19 came with the risk of financial loss arising from the emergence of the disease and its impact on businesses. This risk is fueled largely by the health crisis, the lockdown measures (local and international) that have been put in place to address the pandemic and the apprehension of investors.
On Fiscal & Monetary Risk, the report posited that the fiscal policy risk has been elevated by the COVID-19 impact and a sharp drop in oil prices below the initial budget benchmark.
This has led to a downward review of the FG 2020 budget benchmark and the expenditure pattern. This will lead to a reduction in economic activities and consumer spending.
‘The risks and opportunities around monetary policies are also critical given the role that the Central Bank of Nigeria, CBN has to play in our fiscal tight environment. The channel through which the monetary policy directly impacts corporates is credit, specifically lending rates’ the report added.
Speaking on Foreign Exchange Volatility Risk, this carried extreme impact especially among multinational corporates for reasons like importation and capital repatriation.
‘The oil price movement in 2020 is expected to remain weak due to low oil demand triggered by Covid-19 and supply glut.
In 2019, Nigeria’s foreign reserves depleted by $4.42 billion ending the year at $38 billion.
Presently, the reserve is down to around $35 billion and continuous free fall of the foreign reserve increases the risk of devaluation.
Against the background of the collapse of investor confidence in the wake of the Covid-19 crisis, global financial conditions, the principal determinant of capital flows to emerging and frontier markets have tightened’ the report stated.
Speaking on Governance Risk the report stated that this risk examines the ineffective frameworks, processes, or practices by which the organization is controlled and directed.
“In today’s corporate world, a sound corporate governance system has become a strong determinant of companies’ economic fortune, operational sustainability, and longevity. It also sets the tone for the relationship between the board of directors, management, employees, and other stakeholders including the regulators. It also provides a framework for transparency, fairness, and accountability leading to profit maximization, promoting investors’ confidence, and ultimately creating jobs” the report added.
On political risk, the report stated that with the country now outside the electoral cycle, there is no expectation of the manifestation of this form of political risk which is defined by the prospects for the disruption of business on account of political instability, unlike in 2019.
‘Another way that political risk impacts the business community are through policies that emanate from the political process. The risk arises when the political harmony leads to policies that are unfavorable for businesses because, in that event, the absence of a mitigating opposing political force to contest and debate such policies or to prevent their enactment and implementation is elevated’.
The report decried the Technology Infrastructure Risk occasioned by the inadequate information technology infrastructure and ERP system to effectively and efficiently support the current and future needs of businesses.
‘This risk can be considered the highest in the financial sector despite huge investments by banks into upgrading and acquiring new digital technology tools like cloud computing, artificial intelligence, and diverse software. Technology, media, and telecommunication industry consider this risk as number 2 risk’ the report added.
