Why local businesses are adjusting prices of goods, services

Following the lockdown of socio-economic activities across the globe due to the COVID-19 pandemic, public and private sector institutions, as predicted by the World Bank, World Economic Forum, and the International Monetary Fund (IMF), are now facing the prospect of harsh economic conditions and a recession that could lead to potential shutdown of businesses.

After putting measures and resources in place to secure lives in the last four months, public and private sector leaders are now confronted with the new reality of protecting businesses and livelihoods that have been tilted askew by the pandemic and other unfavourable economic factors.

A number of countries, including developed and leading economies, have already suffered a recession. The United Kingdom (UK), France, Italy, Canada, Germany, the US, and Japan have all experienced slowed growth and suffered devastating losses to their economies. The Gross Domestic Product (GDP) in France has contracted 13.8 per cent, 12.4 per cent in Italy, and 12 per cent in Canada. Germany shrunk by 10.1 per cent, and the United States (US) and Japan both fell by 7.6 per cent.

In August, the UK officially entered into a recession. Tunji Andrews, an economist and business analyst, feared that, “Nigeria will join soon as will most of the world. Recessions hardly ever happen in a vacuum. One event may be the catalyst but there are usually events unfolding up to it. For the UK, it was BREXIT then Covid-19. 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, predicted that the Nigerian government’s increase of Value Added Tax (VAT), which came into effect in February “is likely to cause an increase in inflation rate which in turn will erode consumer’s purchasing power.”

It also projected 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.”

In Nigeria, in order to cope with the bite of the pandemic, along with government policies like the VAT increase and other macroeconomic challenges like oil price slump, operational costs, inflation and currency devaluation, local businesses are coming up with various survival strategies.

For example, just last month, Pay TV company StarTimes, announced an average of 22 per cent increase in the price of its subscription packages citing devaluation of Naira, increase in Value Added Tax (VAT), fluctuating exchange rates, increase in fuel price, among other economic factors are posing a huge threat to the survival of businesses in the country.

Startimes’ Brand and Marketing Manager, Viki Liu, said: “Our business is not exempted from the effect of the naira depreciation affecting all businesses in the country. All of our foreign content is bought in dollars and to continually serve our subscribers the best content, the subscription price has to be reviewed upwards.”

Also, MultiChoice Nigeria, recently announced an adjustment of prices on some of its DStv packages by about 13 per cent, effective September 1, noting that prices of subscription plans in the lower cadre would be unchanged.

According to MultiChoice, “We periodically review our pricing, taking into consideration factors such as inflation and operational costs. We acknowledge that the people of Nigeria are living under increased economic pressure and we have made efforts to freeze the subscription prices in the last year, barring any extreme factors such as devaluation of currency and changes to VAT mandated by the government.

“We remain committed to delivering the best video entertainment experience, telling the best local and international stories, giving access to nail-biting sporting action and up-to-the-minute news, as well as leading international series, movies, documentaries and children’s entertainment,” the company said in a message to customers.

In the public sector, the Lagos Bus Service Limited (LBSL) and the Bus Rapid Transit (BRT) have also increased bus fares by 46 per cent and 50 per cent respectively citing high operating costs.

According to data provided by the National Bureau of Statistics (NBS), in its latest the Consumer Price Index (CPI) report, Nigeria’s inflation has consistently increased for 11 months, rising from 11.02 per cent in August 2019 to 12.82 per cent in July 2020.

The composite food index rose by 15.48 per cent in July 2020 compared to 15.18 per cent in June 2020. Also, on a month-on-month basis, the food sub-index increased by 1.52 per cent in July, up by 0.04 per cent points from 1.48 per cent recorded in June 2020.

The NBS attributed the rise in the food index to increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, oils and fats, and fish.

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

The CBN Governor, Godwin Emefiele, recently said: “As Nigeria continues the process of the full reopening of its economy due to the lockdown over Coronavirus (COVID-19), the nation needs industrial conglomerates to support efforts aimed at growing the Nigerian economy.”

Such efforts must include financial relief mechanisms such as corporate income tax rebates, deferral of government payments, and reductions in tax rates to help corporations retain more immediate cash in their business.

According to Jonathan Lavender, KPMG’s Global Head of Private Enterprise and Head of Markets, “It has become necessary for governments to introduce incentives and economic relief programs that help alleviate business stress and bolster economies.”