How COVID-19, Naira devaluation, inflation, VAT increase is forcing MultiChoice, Startimes, others to adjust prices

Nigeria’s current economic woes, which existed long before COVID-19 were further worsened by the lockdown and inactivity of businesses resulting from the lockdown. The World Bank forecasts that the global economy will shrink by 5.2% this year which would represent the deepest recession since the Second World War.

Earlier in the year, The International Monetary Fund (IMF) in its World Economic Outlook announced that the Nigerian economy would witness a deeper contraction of 5.4% and not the 3.4% it projected in April 2020. Gita Gopinath, IMF Chief Economist said, “Our projection for Sub-Saharan Africa overall is a negative 3.2% in 2020 with a recovery in 2021 of 3.4%.”

A number of countries such as France, Italy, Canada, Germany, the US and Japan, have already suffered a recession as a direct result of the Covid-19 pandemic. In August, the UK officially entered into a recession.

According to Tunji Andrews, an economist and analyst, “Nigeria will join soon as will most of the world. Recessions hardly ever happen in a vacuum. For Nigeria, it was the madness in the oil market and then Covid-19.”

In its 2020 Half-year Business Insights report, analysts at Naspire, a Lagos based research company, predict that the Nigerian government’s increase of Value Added Tax (VAT) which came into effect in January “is likely to cause an increase in inflation rate which in turn will erode consumer’s purchasing power.”

Naspire also projects that “the continued depreciation of the Naira will lead to increased prices of goods and services which would negatively impact the already weakened purchasing power of consumers.”

This increase in the price of goods and services is now being seen across various industries and sectors of the economy, from essential commodities like food to luxury and entertainment services like Pay TV.

Nigeria’s leading Pay TV Company, MultiChoice Nigeria, on Friday August 21, 2020, announced price adjustments for some of its DStv subscription packages effective from September 1, 2020.

The adjustments, according to the company, will only affect the Premium, Compact Plus and Compact packages with about 13% change while the price of other packages Confam, Yanga and Padi in the lower cadre will remain unchanged.

MultiChoice Nigeria said it took the hard but inevitable decision following the high cost of operating its business in Nigeria which has increased significantly in recent times due to several unfavourable economic factors.

About a month ago, Pay TV company StarTimes had announced an average of 22% increase in the price of its subscription plans to reflect the 2.5% increase in VAT from 5 to 7.5%, while also bitterly lamenting the fluctuating exchange rate.

In July, Lagos Bus Services Limited (LBSL) announced a 46% fare increase.

According to Chief Executive Officer of Lagos Bus Services Limited (LBSL), Mr. Idowu Oguntona, “The increase in the number of passengers and fare become necessary in order to enable the company sustain its operations following the negative impacts of the COVID-19 pandemic on public bus transportation.”

 Reported prices of local foodstuff indicated a significant increase in the cost per unit of these items. A 50kg bag of rice which previously sold for N18,000 is now N21,000, while a paint bucket of Garri that was N300 or N350, is now being sold for N1,300.

Common factors analysts blame for these price increases include: naira devaluation and Nigeria’s fluctuating exchange rates, the effects of COVID-19, inflation at 12.82%, and increase in VAT to 7.5%. As these economic factors threaten the survival of businesses in Nigeria, organisations are forced to either take the hard decision of reviewing their prices upwards to maintain a balance amid the turbulence, or lay off hundreds of workers to trim down their wage bill as running costs take the larger chunk of revenue.

According to the 2020 Half-year Business Insights report by Naspire, a Lagos based research company, media organizations and Pay TV operators have seen a significant reduction in major sources of revenue (advertising, events and circulations) which have led to significant drop in cash flows. A similar situation has also afflicted airlines and the travel industry which took a more direct hit from the global lockdown. Arik Airline and Air Peace and others were reported to have either laid off workers or trim down wage bills in order to keep their businesses running.

The Naspire report also says capital flow reversal, caused by the fall in global oil price, might set in as foreign investors sell-off their assets and repatriate to less challenging countries. About two weeks ago, Nigeria’s biggest retail market – Shoprite also made a shocking announcement revealing its plan to divest from its Nigerian operations after 15 years, because it was also running at a huge loss.

According to Tunji Adegbite, a business analyst and Founder, Naspire, news of Shoprite and others’ exit from Nigeria would discourage other investors. “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,” he said.

Without the needed government intervention, many local and foreign investors may be exiting the Nigerian market as the unfavourable economy continues to threaten their survival.

“The unprecedented crisis requires an equally unprecedented policy response from the entire Nigerian public sector, in collaboration with the private sector, to save lives, protect livelihoods, and lay the foundations for a strong economic recovery,” said Marco Hernandez, World Bank Lead Economist for Nigeria.

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