Law And Contagion: The Impact Of Pandemics On The Economy And Businesses

The battle against Coronavirus (COVID-19) spiralled to science fiction levels. Worldwide cases are at 1,930,780with as many as 120,863 deaths reported. Locally, there are as many as 343 cases and ten deaths reported by the World Health Organisation and the Nigerian Centre for Disease Control. The escalation of the outbreak has deemed it necessary for the Nigerian authorities to implement lockdown of Abuja, Lagos, and Ogun States as well as the Federal Capital Territory (FCT) for 14 days. The lockdown ran from 23:00 (local time) on March 30, 2020, which was renewed for another 14 days on April 13, 2020, in order to reduce the spread of the virus. Global economies are now in a similar state of bedlam as their public health services are all on emergency, no thanks to Coronavirus. Reports from the UN show the world is likely in a recession. Thus, COVID-19, a viral disease, has metamorphosised into an economic disease.

Nigeria, like most countries, will be hit on two fronts. First Nigeria will be hit directly as a result of cases in the country, and indirectly, due to our closeness with, badly hit China, our number one infrastructure financier and trading partner, plus our reliance on global oil prices.  Thus, the global economic impact of the COVID-19 pandemic cannot be understated for even where businesses are not closed due to the need to adhere to the social distancing stipulations of the World Health Organisation. Brookings Institute on the concerns states “not a lack of liquidity, but a temporary halt of activity due to health restrictions and a fundamental question of solvency for many firms and individuals”.  Further to the above, this paper will look at the local and international governmental economic response to COVID-19 as well the economic impact of the virus on businesses.


A range of measures has been implemented to contain the spread of the virus, including the closure of international airports, public and private schools, universities, stores and markets, and suspension of public gatherings. Work at home has also been encouraged in several states and government institutions. This is uncharted territory for many Nigerian businesses.

If one consider that the informal sector contributes about 41% of Nigeria’s economic output, how many people can stay at home and still be productive? Work-from-home policies would not apply to food vendors and artisans. Even within the formal economy, workers who are not skilled in working remotely like Nigeria’s civil servants and sectors without telework technology like manufacturing will be unable to work from home.  Thus, a shutdown of movement will lead to a massive decline in economic output, income and consumer spending.  As a result, the Nigerian Government has taken steps to help mitigate

Fiscal Measures

Contingency funds of N8 billion Naira have been released to Nigeria’s Center for Disease Control. The Government has performed a downward review of the 2020 budget and, given the expected large fall in oil revenues, has announced plans to cut/ delay non-essential capital spending by N1.5 trillion (close to 1% of GDP). A fiscal stimulus package to provide relief for taxpayers and incentivise employers to retain and recruit staff during the downturn is being designed.  Import duty waivers for pharmaceutical firms have been introduced. Regulated fuel prices have been reduced, and an automatic fuel price formula introduced to ensure fuel subsidies are eliminated.

Monetary and Macro-Financial-

The Central Bank of Nigeria (CBN) maintained its current monetary policy rate in March but introduced additional measures, including

  1. reducing interest rates on all applicable CBN interventions from 9 to 5% and introducing a one-year moratorium on CBN intervention facilities;
  2. creating a NGN 50 billion ($139 million) targeted credit facility; and
  3. liquidity injection of 3.6 trillion (2.4 % of GDP) into the banking system, including N100 billion to support the health sector, N2 trillion to the manufacturing sector, and N1.5 trillion to the real sector to impacted industries. Regulatory forbearance was also introduced to restructure loans in impacted sectors.

Many discussions have occurred on the interpretation of paragraph 1 of the CBN Circular on COVID-19 it is our belief that paragraph 1 relates only to CBN intervention facilities that are currently under moratorium such as the anchor borrower program. Beneficiaries of the intervention schemes generally enjoy a moratorium on interest and tax holidays for a few years. This Circular just continues that moratorium. It is not believed that the moratorium applies to all companies currently servicing debt and that all business may benefit from an extension to other non-CBN intervention servicing debt with conditions to protect the Nigerian economy.

However, a borrower can negotiate a restructuring under paragraph 5 of the Circular. That paragraph applies to all loans issued by DMB’s. Well-intentioned as that may be, and while one may appreciate the window, it must be noted that granting DMBs a wide discretion to consider, leaves businesses at the mercy of DMB’s. One may argue that in the current situation, the world is grappling with when one’s regulator urges one to act in a certain way; it carries with it mandatory connotations. While that is a solid argument, any Counsel advising DMB’s would simply rely on the literal rule to interpret it as discretionary.

Exchange Rates and Balance of Payments

The official exchange rate has been adjusted by 15%. This is conincided with an ongoing unification of the various exchange rates under the investors and exporters (I&E) window, (Bureau de Change, and retail and wholesale windows. The Nigerian Government is now committed to letting the I&E rate move in line with market forces. A few pharmaceutical companies have been identified to ensure they can receive FX and Naira funding. This is crucial as NAFDAC has authorised some Big Pharma players to begin producing mass quantities of Chloroquine and Hydroxychloroquine

There is also the proposed Emergency Economic Stimulus Bill 2020. The bill seeks to:

  1. Provide tax relief to companies, enterprises and individuals during the economic slowdown as a result of COVID-19;
  2. Protect the employment status of citizens by preventing mass retrenchments
  3. Provide a moratorium on mortgage obligations and
  4. Eliminate additional fiscal bottlenecks on the importation of medical and safety equipment needed to combat COVID-19.

The bill proposes a 50% income tax rebate on the total Pay As You Earn (PAYE) due or paid under the Personal Income Tax Act CAP C8 LFN 2004 (as amended). The tax rebate will apply to all companies duly registered under the Companies and Allied Matters Act (CAMA) Cap C20 LFN 2004 that maintain the same employee status from March 1, 2020, to December 31, 2020.

Importantly, Employers are not precluded from claiming the reliefs if employees die of natural cause, an employee voluntarily leaves employment service or has already indicated interest to leave before March 1, 2020, or an employee breaches the provisions of the Labour Act Cap. However, the tax rebate proposed by the bill does not extend to companies involved in the oil and gas downstream sector who are ordinarily taxed under the provisions of the petroleum profit tax act. The bill proposes to apply from March 1- December 31 but provides that the president can extend the application period. This bill passed by the lower house of the National House of Assembly is yet to be passed by the upper legislative chamber (the Nigerian Senate House) which has since gone on recess.  Assuming, the Senate can pass the bill; the next stage is for the President to sign and assent to it in order for it to become law.

Other than the above, the Nigerian Government has through various agencies made other directives. For one, SEC has suspended any new applications and all SEC correspondence is now to be done via email

Other countries have taken  crucial steps. However, if one looks at all the steps taken, one can notice patterns on all the steps taken. These patterns involve:

  1. Lowering of interest rates.
  2. Provision of income support
  3. Provision of benefits for medium and small scale business
  4. Creation of incentives for hiring and retention of employees.


This paper streamlines six critical areas of focus that concern businesses. These include crisis management and response to the virus, workforce, operations and supply chain, finance and liquidity, tax and trade, and strategy and brand.

  1. Crisis Management– Businesses are concerned about how to handle the virus best. In some cities, they handled it with kid gloves, to devastating effect. The consensus on the appropriate response in the corporate world is to institute a work from home policy. In the Nigerian informal sector, that poses a difficulty. Most business transactions are done face to face. How then does a petty trader expect to make ends meet when they “work from home” is the Million Naira Question.
  2. Workforce operations– The COVID-19 pandemic has forced businesses to close their doors, putting employers in the awkward position of what to do with staff. Millions of workers in several industries, including the travel, hospitality and retail sectors are facing months of uncertainty, with COVID-19 expected to spread further before the curve is flattened and business can resume as normal.  While employers will often assume that mass redundancies are their only course of action, other options are available and may be more cost-effective.
  3. Operations and Supply– Businesses are finding it challenging to meet their operational capabilities. Many manufacturers of non-essential goods are shut down. Some have been able to produce goods but now have no buyers. As such, they now face ruin. The supply chain is affected, and there are no consumers to purchase goods should the goods eventually reach the retailer and wholesaler. All that cooks up to make a very toxic cocktail for businesses.
  4. Finance and liquidity– This is the big one. Many businesses do not have enough liquidity to weather the storm. Many, especially those that benefitted from corporate financing to start-up are at risk of not meeting their debt servicing obligations. Finally, some businesses incurred foreign debt that they are now paying back in a Naira that has lost considerable value in the past four months. These are big concerns
  5. Taxation– Despite all the existing challenges, many businesses still fear meeting their tax obligations. It is a frightening prospect.
  6. Branding– Some businesses are now facing major problems as the virus has rendered them incapable of meeting the promises that their brand puts out.

These are major concerns, and as such, they need major solutions. The recommendations have been collapsed into for brevity. The best steps for businesses to take include:

  1. Operations– Life goes on, and business operations too must go on. Businesses must still meet their statutory requirements in holding meetings. Though Board meetings can now be done virtually via applications for meetings such as zoom or Skype. Supply chains will have to be rebuilt, and the virus creates a brilliant opportunity to utilise e-commerce and logistics platforms and thereby reduce the need for physical visits to stores
  2. Workforce- Employers have various options. Many have the impression that redundancy is a quick and cheap option. It should be a last resort and only done when it is thoroughly planned. The following below are more suitable alternatives:
  1. Employers can stand down staff without pay by putting them on furlough
  2. Re-negotiating the hours’ employees work during the downturn is one option. This could potentially reduce the staff bill 20 to 40%. An example of this agrees to a four, or even three-day workweek. Leave without pay can also be negotiated between the employers and employees.
  3. Reduced pay of employees is another alternative that can be mutually agreed to, as long as it is above National minimum wage.
  4. While letting contract staff go, maybe an easy option, it should be approached with caution. In some instances, someone who has worked for business regularly and systematically may not be a contract staff member in the eyes of the law.

All the above solutions, may have to be met within the bounds of collective barganinging agreememts and the employees unions most times. Employers will be forced to make difficult decisions over the coming months, and it is not yet ripe to take steps to see the actual raft of redundancy come into play, which would cause long term rises in unemployment.  It is common knowledge that every job is essential. The longer a society protects its jobs, the better for the economy.

c.) Finance– This has always posed some difficulty. The first step is for businesses to re-negotiate their loan agreements and debt repayment structure. It would have been preferred if there was a policy that put a moratorium on interest rates during these COVID-19 times, as there is no such policy in place, the best bet of a business is to re-negotiate the loan agreement and interest rates with their lender. Lenders may acquiesce to their borrower’s request out of fear of taking up a non-performing loan, but that may only be tied to the lender’s availability to obtain bailouts and/ or tax credits from the Government. Borrowers with foreign currency loans that are not yet at the contract stage must ensure they hedge the transaction from currency fluctuation. Those who did not may have to seek measures to convert the loans from foreign currency to Naira.

In summary, this paper briefly ran through the economic impact of the virus, the economic interventions of many governments and The challenges and some brief solutions to those challenges of Nigerian businesses. It is hoped that the Nigerian Government will continue to take proactive steps in combatting the economic impact of COVID-19, especially as it relates to the Nigerian informal sector.

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Nwachukwu Obi
Ibrahim Muhammed

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2018 Global Excellence Awards Kenna Partners