The year 2020 is one year humanity would love to forget at the same time would remember for years to come.
The reasons are obvious. Corona or Covid-19 impacted the globe in a negative manner; people are still reeling from its effects. Ghana as a country was not spared its fangs. This is how the pandemic has impacted on the country’s economy.
Covid-19 & the Oil Sector in Ghana
The reduction in oil prices implies loos in oil revenue for the country, postponing of developmental projects across the nation. Suspension of new investments in the oil and gas sector by major oil companies, notably Tullow oil and Aker Energy amounting to over USA $4B.
The oil revenue had been consistent in the nation economic growth by contributing 6.3% annually. This is a huge loss to a country that is in dire need of direct foreign investment.
Further, Tullow Ghana has also suspended some investments it was supposed to have made to optimize its fields. These consequently have untold impacts, in the medium term, on service companies and Ghanaian enterprises that would have benefitted from procurement this year, but are no longer going to.
Government, in the wake of these developments, has had to revise its calculations for the year and consider exploring alternative sources of revenues to fill in the gap from the loss in the expected oil income.
Experts estimate current crude oil production in the country to bounce back in 2021 and then subsequently experience a steady decline if no new developments come on stream in a two-three-year window.
Low Oil Prices & Development Financing Higher crude oil and gas output have been deemed critical to sustaining Ghana’s growth drive.
Since December 2010, Ghana has received more than US$7 billion in oil revenues. This amount has been a fundamental consideration and support to the national budget since commercial production of oil in the country.
Ghana’s oil receipts come from royalties, Carried and Participating Interest (CAPI), income tax and surface rentals.
The reduction in oil prices at any point in time, therefore, significantly impacts the amounts that will be allocated to these funds.
The COVID’19-inspired downturn in oil prices has, thus, dealt a heavy blow to the cash flow of companies and revenue of the state.
The Government of Ghana, in its 2020 budget, projected to receive US$1.567 billion from oil revenues, founded on a price prediction of US$62 per barrel. Oil receipts for the country will experience a plunge of about 53 per cent, according to the Africa Centre for Energy Policy, (ACEP). This decrease in revenues will affect funding for major infrastructure developments in the country
It could be deduced that diversification the economy in future would be of immense benefit to the country, the above report has led to wage cuts, unemployment, lack of training and much needed research in the sector.
Impact on the Banking Sector
Before the emergence of Covid-19 in Ghana majority of its citizens had lost confidence them, this loss steamed from high interest rates, lack of support for businesses, high cost of transaction on depositors, delay in attending to customers, low rates of return investment on banks and their financial instruments. Lastly but not the least would be insecurity of depositors funds and inability of government to secure depositors monies.
Amid the pandemic the following surfaced in the banking sector:
The first major impact of the spread of this virus and lockdowns is the inability of loan customers to settle their indebtedness as they fall due.
Most customers with monthly repayment structure will begin to have a negative impact spanning from turnover challenges.
Many companies who are into fast-moving commodities have begun to have a downwards turnover trend due to the call for people to stay at home.
Sales have begun to slow down whiles overhead costs remain almost the same.
Revenues of these customers are being impacted seriously especially Schools and churches.
Schools and churches with assets at commercial banks will begin to have difficulties in the coming weeks servicing their loans.
I have read with a bit of concern about how a section of Ghanaians on Social Media are lambasting some Pastors who initially exercised concerns when the President directed for the partial shutdown of churches.
Some of these churches have taken loans from banks that will require repayment in March and April.
No physical church service will lead to a reduction in revenue to these churches thereby causing defaults.
Their concerns are therefore genuine and should not be “rubbished”.
However, with technology and innovation, these churches should educate their members to give in support of the running of the ministry.
The slow growth of revenue, suspension of some businesses among others should be of great concern for commercial banks in Ghana.
Run on Banks
The second impact of the Covid-19 on the banking sector is the negative deposit growth of financial institutions.
Many Ghanaians have started stocking their homes and wallets with rumors of Accra and Kumasi shutdown.
The more these rumors gain root, the more customers will begin to withdraw their savings from the bank to buy consumables in anticipation of restricted movement.
This will impact negatively the liquidity positions of most banks.
The Central Bank to manage this challenge has reduced the Primary Reserve Requirement from 10 to 8 percent as well as the Capital Conservation Buffer (CCB) for banks from 3 to 1.5 percent. Banks should continue to engage and educate their customers on financial management measures in times like these to manage a possible run on them.
The President of Ghana in his directive advised against the public gathering of people not exceeding 25 persons.
This call has led to most banks resorting to staff rationing.
Most branches have divided their staff into two groups with one team working for a week while the other team works from home.
This is a laudable initiative but can negatively affect the business development.
The productivity of staff working from home is obviously very questionable in our setting.
Most of the staff have a family at home hence; divided attention and home-like mood can lead to low productivity.
We are not in normal times and as such, this step is commendable.
Unplanned Operational Expenses
Almost every bank has purchased precautionary and safety items at the various offices to manage the spread of this Virus.
Some of these items are gloves, facemasks, Veronica Buckets, Sanitizers, and Extra detergents.
None of these banks considered these during their budget session.
No matter how small the total costs of these items are, it will influence the P&L of these banks.
Efficiency is therefore needed in the utilization of these items.
The picture is not all gloomy for the banks. Reports have indicated that the Virus will have a positive effect on the usage of digital services like online banking, mobile wallets, etc.
Consumers’ desire for digital banking services will most likely increase, forcing many traditional financial institutions to fast-track digital innovation efforts.
As a result, many banks and financial institutions will have to look to fintech firms for assistance in bringing better digital banking solutions to the marketplace.
I will end by advising bank staff to work extra hard in times like these as the revenue of the bank will hit badly by this Virus.
Your life is precious to your employer. Revenue is also important to your employer so work at matching your life to the revenue expected from you.