Strategies for Leaders’ Success in Times of Economic Crisis

Mudiaga Aluya

As the global economy becomes increasingly volatile and unpredictable, corporate leaders are faced with the daunting task of managing their organisations during economic crises.

These challenging times require them to possess a unique set of skills and strategies to successfully navigate the complexities of economic downturns. The role of corporate leaders in managing economic crises to rebound and grow cannot be given little weight. Highlighting various strategies and leadership styles that can help in steering their organisation adrift of turbulence to stimulate economic recovery is also important at this critical time. Therefore, it is apt and timely to examine the daunting task of managing during economic crises and shed light on the strategies and approaches that can enable leaders to steer their organisations and the nation at large toward success amidst the chaos of economic downturns.

The current economic crisis in Nigeria is a complex and multifaceted issue that has been exacerbated by the exchange rate unification and withdrawal of fuel subsidies. Here are some of the main factors and challenges that contributed to the crisis:

Oil Dependency

 Nigeria is heavily reliant on oil exports for its foreign exchange earnings and government revenues. According to the National Bureau of Statistics, crude oil exports account for 79.37 percent of Nigeria’s export revenue; non-crude oil exports take 20.63 percent while non-oil products contribute 10.06 percent in 2022. With the average price of Nigeria’s crude oil around $77 per barrel and an output hovering around 1.3 million barrels per day, the result could only be low revenues in dollars.

Fiscal Constraints: The decline in oil revenues and the increased spending put pressure on the government’s fiscal position. Borrowing becomes a way out, making Nigeria’s Total Public Debt above N87.91 Trillion. The percentage budget deficit is alarming stiffening funds for capital projects. This low revenue base and the high debt burden have limited the fiscal space for the government to invest in critical sectors such as health, education, and infrastructure.

Exchange Rate Management: The Central Bank of Nigeria (CBN) adopted the unification of the exchange rate regime, which aims to maintain exchange rate stability and preserve external reserves. However, the CBN has faced difficulties as the demand for foreign exchange has exceeded the supply. This resulted in high prices of raw materials in critical industries like manufacturing. The cost of energy is also impacted as they are bought in dollars for local distribution. The real sector of the economy is worst hit as many companies grapple with the high cost of production and supply chain occasioned by the high cost of fuel. This policy hampered the growth of the real sectors creating panic and resulting in some company’s exist.

Inflation and Poverty The inflation rate in Nigeria has been on the rise reaching 28.9% in December 2023, the highest level recorded in recent years. The main drivers of inflation include the depreciation of the naira, the increase in fuel and electricity prices, the insecurity and conflict in some regions, and the supply chain disruptions caused by pockets of armed militias. The high inflation rate has eroded the purchasing power of consumers, especially the poor and vulnerable, who spend a large share of their income on food. According to the World Poverty Clock, Nigeria is the Poverty Capital of the World with 4 million more Nigeria pushed into poverty in the first six months of 2023 making 133 million in multidimensional poverty and 71 million classified as extremely poor.

Understanding the Impact on Businesses

Thriving in chaotic times requires decision-makers to possess a comprehensive understanding of the implications and effects of economic crises on businesses and organisations. These crises unleash a domino effect of economic challenges that can significantly impact both the macro and micro levels of the economy. At the macro level, economic downturns lead to a decline in consumer purchasing power, causing reduced demand for products or services and financial instability for businesses. This, in turn, forces organisations to face various challenges as they struggle to adapt and remain afloat in the face of economic adversity. Businesses are forced to downsize, cut costs, and make tough decisions that can greatly affect their overall operations.

Furthermore, different industries experience distinct impacts during economic crises. For instance, the retail industry may witness plummeting sales and a decline in consumer visits, whereas the manufacturing sector may face supply chain disruptions and reduced demand for their products. The hospitality industry might suffer from booking cancellations and dwindling tourism. While there might be a counterargument that suggests economic crises could positively impact certain industries, such as those providing affordable or essential products/services, this argument falls short when considering most industries that still experience negative consequences.

Reduced consumer spending across various sectors remains a pervasive issue that cannot be negated. Therefore, to effectively navigate the challenges posed by economic crises, corporate leaders must not only comprehend their multifaceted impact on businesses and organisations but also develop strategies for crisis management during periods of economic downturns

Leading in Daunting Times

Corporate leaders play a critical role in managing during economic crises, as their oversight and strategic decision-making skills are crucial for the success and survival of businesses, and organisations by extension the country. One of their key responsibilities is to assess the potential impact of economic crises on the organisation and develop appropriate strategies to mitigate risks. This entails analysing market conditions, industry trends, and economic indicators to make informed decisions.

In addition, directors of corporations must consider the effects of economic crises on various stakeholders and ensure effective resource allocation and financial planning to navigate these challenging times. Despite the argument that managing during economic crises is better suited for executives or senior management, it fails to recognise the unique responsibilities and oversight role of directors in corporate governance.

Directors have a fiduciary duty to act in the best interests of the organisation and its stakeholders, which includes managing the organisation during economic crises. Therefore, directors must possess the necessary skills, knowledge, and abilities to navigate these challenging times effectively. With their proactive and strategic approach, they can contribute to the resilience and success of businesses and organisations in the face of economic turmoil.

Thriving in Trying Times

Leaders in organisations face inherent challenges during economic crises; however, their ability to effectively manage and steer their organisations through turbulent times plays a critical role in ensuring resilience and sustainability. To do so, they can employ a myriad of strategies that enable effective crisis management during economic downturns. Perhaps the most vital strategy is proactive risk assessment and contingency planning.

By thoroughly analysing potential threats and vulnerabilities facing their organisations, directors can anticipate challenges and develop appropriate response plans. For instance, during the COVID-19 pandemic, successful corporate leaders implemented measures to reduce costs, improve cash flow, and diversify revenue streams. By directing resources toward research and development initiatives, they were able to identify emerging market opportunities and adapt their business models accordingly.

It is essential to acknowledge the argument made by critics that crisis management strategies are only reactive rather than proactive. However, while crises cannot always be predicted, leaders who engage in proactive risk identification and planning are better prepared to respond promptly and mitigate potential damages. By conducting scenario planning exercises and stress-testing financial models, directors can effectively anticipate the impact of economic crises and implement pre-emptive measures

Adaptive Leadership Style

Managing during economic crises is a formidable challenge that requires strong leadership styles and qualities. Leadership styles, such as transformational, servant, and autocratic, have proven to be effective tools in managing economic crises. By adopting these different approaches, leaders can provide guidance and inspiration to their teams, fostering a sense of unity and purpose.

For example, transformational leaders can motivate and inspire their employees, encouraging them to embrace change and contribute innovative solutions to the challenges at hand. Servant leaders prioritise the well-being of their team members, recognising that their success is integral to the organisation’s overall success. By genuinely caring for their employees and creating a supportive work environment, these leaders can mitigate the negative impacts of an economic crisis. An autocratic leader, while often criticised for their assertive decision-making style, can be effective in times of crisis due to their ability to make swift and decisive choices that maintain stability and ensure the survival of the organisation.

In addition to leadership styles, successful crisis management requires certain qualities, such as decisiveness, agile decision-making, long-term perspective, resilience, and adaptability. Decisiveness and agile decision-making are particularly crucial during economic crises, as corporate leaders must make difficult choices amidst uncertainty and limited resources. Resilience plays a vital role, enabling directors to bounce back from setbacks and persevere in the face of adversity. This is in alignment with the thought of renowned leadership expert, Simon Sinek, who stated that “In times of crisis, leadership is defined by clarity, authenticity, and the ability to connect.” This quote highlights the key elements that leaders must embody to successfully navigate economic downturns.

Aluya, a Research & Advocacy Officer, is a member of the Chartered Institute of Directors Nigeria