COVID-19: Conversations with an Owner-Manager in Nigeria

LBS Insight

COVID-19: Conversations with an Owner-Manager in Nigeria

These are difficult times for organisations, governments and individuals in Nigeria. The standoff on oil supply between Saudi Arabia and Russia over disagreements on supply of crude oil quantities into the international market has created an unprecedented fall in the price of crude oil, the first of its type since the 90s. This is a big blow to Nigeria, a country with a mono-cultural economy which derives the bulk of her foreign exchange earnings from crude oil. The entire market is apprehensive about currency devaluation, inflation and trade imbalance as a result of lower dollar earnings.

As if the oil crises are not enough, Nigeria reported its first case of the novel coronavirus, COVID-19 on February 27, 2020. Since then, we have recorded a total of 190 infections with two mortalities across Lagos, Abuja, Osun, Oyo, Akwa Ibom and parts of the North (Source: Nigeria Centre for Disease Control –NCDC April 3, 2020). The various state governments have put together several measures – social distancing, isolation of suspected cases, treatment of victims – to curtail the spread of the virus. The Federal Government announced a total lockdown of activities (with the exception of essential services) in Lagos, FCT and Ogun states which took effect from March 31, 2020.

While multinational companies have continuity and disaster management plans, they also belong to various trade groups and can get support from their headquarters on response strategies, small and medium enterprises, on the other hand, do not have such support. Some are facing existential crises for the first time since they commenced business. Who can they lean on?

A small business owner/manager and alumnus of Lagos Business School (LBS), who for the purpose of this article will be named John Kolawole reached out to LBS Strategy faculty, Isaac Orolugbagbe for advice. Kolawole established an advertising agency about 16 years ago after working in several agencies for over a decade. His firm, Johnson Agencies is a specialist agency with a focus on company brochures, annual reports, brand design and building, and product packages. Five years ago, he did a backward integration by establishing a subsidiary printing press (Johnson Prints Limited) to handle internal printing jobs for the agency and those of third parties. Kolawole attended the LBS Owner-Manager Programme ten years ago thus gaining access to expert advice and consultations with faculty members.

Below are excerpts from the conversation between Kolawole and Orolugbagbe.

John:   “Good morning Isaac, I need advice on how my company will cope with salaries during this stay-at-home period instructed by the Federal Government. Physical production has stopped. Revenue has stopped flowing. Although many clients are still requesting ideas and design concepts for their annual reports, those with dates around May and June 2020 are apprehensive. Some already have rescheduled their Annual General Meeting because of the lockdown. It has been very difficult responding to enquiries due to the limitations imposed by COVID-19. While I have been indoors since the lockdown was announced, technology has made remote work possible. We are to come up with designs and share with a few clients. Unfortunately, not all our design artists have been able to respond to the needs of clients to my satisfaction. How should I handle salaries during this difficult time?”

 

Isaac:  Your question is loaded. I need to understand the full context of your business before I can volunteer an answer.  First, in your opinion, how long do you think this crisis may last?

 

John:   I am preparing for the two weeks announced by the government.

 

Isaac:   What will you do if it lasts more than two weeks?

 

John:   I have not given a thought to that. But I am sure that things will get more complicated.

 

Isaac:  If the human, social and economic disruptions in 203 countries led by China, USA, Italy, Iran, and the UK are anything to go by, then the crisis will be prolonged. If the lockdown achieves the desired objectives, Nigeria may be able to limit the number of infections, identify infected people quickly and assist in their treatment. However, new infections may still take place during the 14 days of lockdown thus bringing about a need to extend the order. This scenario is based on the assumption that people understand their responsibilities and take appropriate actions. But the realities of our society are complex. Majority of citizens are engaged in daily work for daily pay. The quantity of food consumed in cities is huge, the supply chain is complex and below the radar of our planners. These complexities will jeopardize the stay-at-home order. It would take some time before regulators understand the full implications and implement a workable strategy. Therefore, my first advice is for you to project a 3-month period of stay-at-home. By the second month, we would see improved coordination and exceptions would be announced to encourage normal life and motivate compliances.

 

John:   Thank you.

 

Isaac:   I have another question. For how long do you think the company can survive if it continues to pay full salaries while staff remain at home?

John:   I haven’t given it a thought.

Isaac:   Do you have a union?

John:   No

Isaac:   If you do not pay staff salaries for a 3-month period while employees are at home, can you guarantee that they will come back and work for you after the lockdown?

John:    That would be a difficult issue. How would their children and other dependents cope without food and money? Some may have relocated to their villages or found another vocation during the period.

Isaac:   You have arrived at the dilemma. You have to look after the company’s survival. You also must also look after the employees. The challenge you have now is how to strike a balance. The business needs to survive now and after for sustained success.

Let’s begin by looking at what you can do about employees. First and foremost, health is wealth. The safety of employees must not be compromised. Share health and safety guidelines from the World Health Organisation or Nigeria Centre for Disease Control among your staff. Just as you have acknowledged, there are a lot of technology solutions you can deploy to engage staff – for information update, employee motivation and training during the compulsory vacation. Interestingly, you already have an artist who is profitably engaged. You have to find ways to get others engaged by providing them laptops, airtime and data Your employees can be categorised as follows; working remotely (artists), partially working (client services & finance) and resting at home (others). Determine how much percentage of salaries you can pay for each category after a financial analysis.

You can continue to carry on some part of your business, through the client services and the creative department. It is not all bad news considering that your business is driven by intellect. It is interesting to note that clients are still in touch with you, which implies that they are working remotely so you have to continue to service them.  Indeed, you should inform all your clients that you are able to offer some services on a remote basis. Some revenue can still trickle in. Even in these difficult times, clients’ communication needs are still essential.

Let your accountant conduct a stress test on your financials. What would the income statement look like with various scenarios on revenue (50%, 30% or 10% drop) and what would the profitability look like if you pay various percentages of salaries during the lockdown.

We can have these conversations again after you consider some of the points and conduct additional analysis. I have a feeling that on closer look, you may actually have some windows of opportunities within this crisis.

John:   Thank you, Isaac. I am a bit relieved now. I will implement your suggestions and provide feedback.

 

 

 

Isaac Orolugbagbe teaches Strategy and Corporate Governance at Lagos Business School

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