Economy faces uncertainty in aftermath of #ENDSARS
Cloud hangs over investment environment Economy faces possible downgrades by rating agencies Insurers continue stock taking of disaster losses Economy lost over N58bn daily to protest Crisis may roll back progress already made
THE DUST IS STARTING TO CLEAR A BIT, a week after peaceful protests by Nigerian youths under the banner #ENDSARS directed against police brutality, was met with state brutal force at what armature and professional historians are already calling The Lekki Tollgate Massacre. Not a few analysts, however, say the counting of economic losses is currently on and that no matter how much counting is done, the full loss value would never be known as the reverberation would continue to be felt months, if not years, afterwards.
Nigeria, Africa’s largest economy by gross domestic products (GDP) and the continent’s most populous nation, saw its commercial and economic capital, Lagos, slowed, disrupted and then shut over a stretch of two weeks, creating a cloud of uncertainty around its economy with an attendant erosion of confidence over incidents and accidents surrounding the development.
No doubt, there were losses of revenues, means of livelihood, properties, and, ultimately, lives. Not too quick to forget the increased capital flight and plunge in capital importation that are bound to lead to further pressure on the forex market. But what started as a peaceful protest and remained so within the ranks of mainstream participants, had unexpectedly seen tensions rise, flamed, some say, by the support received globally, allowing a hijack by hoodlums who created a nuisance, and further raised security tensions across many states of the federation.
Against it all, there was mixed market reactions as well as waning confidence of investors on the Nigerian investment environment, which analysts have suggested would result in a plunge in capital importation.
Muda Yusuf, the director-general of the Lagos Chamber of Commerce and Industry (LCCI), only recently put the estimated economic loss at N700 billion in 12 days, meaning a loss of N58 billion daily. Similarly, toll revenue loss is also estimated at about N234 million in 13 days, showing that N18 million was lost daily to the protest activities.
These losses were also accompanied by several lootings and vandalism at several shopping malls in Lagos, including Lekki ShopRite Mall, Circle Mall, Montaigne Mall, Lagos City Mall, the razing of the Lekki Toll Gate, state-owned buildings and facilities, the setting ablaze of several police stations, local government councils, invading traditional institutions, public and private transport and other facilities by some hoodlums who are said to have hijacked the peaceful protests to create chaos and a state of anarchy across the federation.
Analysts who spoke with Business A.M. on the issue lamented the impacts of the aftermath of the protest, which has ravaged the nation’s economy as well as raised insurance premium, estimated in billions. With the lootings and vandalism at major malls and business premises in Lagos as well as the razing of the Lekki toll gate, should these facilities be insured, what will be the cost of re-insurance for these facilities and an increase in insurance premiums when this event is over?
Ekerete Olawoye Gam-Ikon, a management strategy-insurance consultant, told Business A.M. that it will be very premature to mention any amount whatsoever because, with insurance, the reports on damage estimate might continue coming in within the next 30 days.
“It will be difficult to guess the quantum of insurance value but the level of damage has already been indicated in billions of naira according to industry reports,” he stated.
“Insurance is the most tested risk management mechanism and non-monetary financial instrument that addresses losses of this nature, often both financial and emotional. However, we have not imbibed the culture of insurance because we are ignorant of the value it offers and delivers per time. Let me say that all insurance policyholders with policies that have Riots, Strikes and Civil Commotion (RSCC) extension will most likely receive compensation from their insurers. For insurance of vehicles and properties, that condition exists and once fulfilled the policyholders will have their claims settled.
“Whether insurance premiums will increase after this time is really a function of the attention both the public and insurance industry pay to the issue. From previous experiences, I would say it is unlikely because if the owners do not require insurance to rebuild or repair their properties, they will not see the need for it. However, for those that will receive claims payments to fix their properties, they should expect upwards adjustments of their premium. Meanwhile, don’t forget insurance companies will appoint loss adjusters to go and verify the extent of damage before the magnitude of claims can be determined,” Ekerete said.
The strategy-insurance consultant further told Business A.M. that the Lekki tollgate and other affected properties namely branches of banks and leading supermarket brands would have appropriate insurance contracts in place with RSCC extension as this is not the first time we are experiencing the destruction of properties.
Economic costs, impact of #ENDSARS protests Several analysts have lamented the uncertainties clouding the economy, as they say the unrest has further dampened the confidence and appetite of investors and also the outlook on Nigeria, considering the partial curfew placed in some states which will disrupt the supply chains and lead to panic-induced inflation rate amid efforts aimed at restoring normalcy.
Uche Uwaleke, a professor of capital market at Nasarawa States University explained to Business A.M. that, “One of the impacts of the protest is that it may attract downgrades by rating agencies, as the crisis has potential to roll back gradual progress being made in economic recovery. Also, a bearish stock market is likely to result. The curfew and more restrictions will disrupt supply chains, induce panic buying and worsen inflation rate.”
The capital market professor said the government should do everything to restore normalcy, including the demonstration of willingness to listen to the genuine demands of the protesters.
Still, on the impact on the economy, Mutiu Yekeen who is the head of corporate communications, Primero Transport Services (PTS) Ltd, owners of BRT Buses, said the company lost over N100 million in six days resulting from the protest, which has had the nation’s economic capital ravaged.
In similar view with Uwaleke and Gam-Ikon, Garba Kurfi, managing director at APT Securities and Funds Limited, in a note to Business A.M., said there will be some economic impacts from the protest; especially from the grounds of closing the economic nerve centre (Lagos) for over three days, is a great loss.
In his words: “Remember, Lagos controls about 50 per cent of the Nigerian economy. It’s a great loss as this will affect all flights take-off and landing, which centres around Lagos, as well as other economic activities that have to be postponed. It’s a huge loss to the economy. The impacts are many because most other parts of the country are linked to Lagos in one way or the other.”
Speaking on the market expectations, Garba said “The market reflects the happenings in the economy; however, we are expecting the
market to move upward because of the Q3 result which are expected to be better than Q2 because of the opening of the economy from COVid-19. Also, many investors will like to stay in the capital market, because there is no better alternative to invest than the capital market.
“We need to know the total loss before one can advise recovery,” the securities expert continued; “Take the case of BRT which are not enough with the burning of many of the buses will only compound the difficulty in transport; increase the cost of local transport and increase the traffic especially as small buses will try to augment the shortfall we are currently facing coupled with the third mainland bridge repairs.”
Ayo Ibaru, the chief operations officer and director of research at NorthCourt, Abuja said: “In terms of the naira value to the loss, it is going to be difficult to place value on the damages done. But it is until we meet some of the mall owners to find out the monetary value of the loss incurred from the lootings and vandalism; because some have lost N50 million, others N100 million, etc, and also the credibility lost in the face of their foreign investors.
“However, within the next 3-6 months, we will see the rents and renovations aspects revisited or moved in certain degrees than had been expected in the short term. But at the end of the day, what is the average purchasing power of the average Nigerian. This will give Nigerians more alternatives. When we have seen all these and can attribute the costs, the major question to ask becomes what the value of human life is?” Ayo stated.
The research director also revealed that investment in emerging and frontier markets such as Nigeria is always a risk but this level of carnage or level of security will make prosecuting the arguments to investing in Nigeria harder than it already has.
Meanwhile, speaking with some of the developers in the retail investor space, they were of the opinion that in 18-36 months, we might see a different scenario as there is the need to begin investing in the protection of affairs of both public and private properties which will be for the benefit of all concerned stakeholders to show that investors do not regret coming into Nigeria.
A way forward is to deal with the short term disruptions and consequences, and then in the midterm, we move into restructuring, while developers are given the assurances required and then we seek ways to deal with the social infrastructure and reforms.
Fundamentally, a situational analysis of the environment where these looted and vandalized small businesses are located revealed that it is a free and opened environment for both residential and industrial use. However, every investment is a risk and as the people trust the government to provide the enabling environment; this can provide investors with the confidence to pull in their funds for investment.