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Despite the significant impact of COVID-19 on the Nigerian economy, some economic and industry experts are confident that oil price, trade, transportation and manufacturing will recover. And with the right policies and diversification, the Nigerian economy may experience a quick turnaround in the midst of impending global recession
By Goddy Ikeh
SINCE the outbreak of the deadly coronavirus, COVID-19, late last year, and the death toll, which is now in tens of thousands globally, many international finance institutions have come out with analysis and forecasts on the damaging effects of the virus on global and regional economies.
In its review of the impact of COVID-19 on global economy, the IMF boss, Kristalina Georgieva said on Thursday, April 9, that the global coronavirus pandemic was causing an economic crisis unlike any in the past century and would require a massive response to ensure recovery. She warned that “global growth will turn sharply negative in 2020,” with 170 of the International Monetary Fund’s 180 members experiencing a decline in per capita income.
“In fact, we anticipate the worst economic fallout since the Great Depression,” Georgieva said in a speech previewing next week’s spring meetings of the IMF and World Bank, which will be held virtually due to the restrictions imposed due to the COVID-19.
She noted that even in the best case the IMF expects only a “partial recovery” next year, assuming the virus fades later this year, allowing normal business to resume as the lockdowns imposed to contain its spread are lifted.
But she warned that “it could get worse,” and “there is tremendous uncertainty around the outlook” and the duration of the pandemic.
Countries already have taken steps worth a combined $8 trillion, but Georgieva urged governments to do more to provide “lifelines” for businesses and households to “avoid scarring of the economy that would make the recovery so much more difficult”.
In the same vein, the World Bank says that COVID-19 is taking Sub-Saharan Africa towards its first recession in 25 years.
In a statement on Thursday, April 9, the bank explained that growth in Sub-Saharan Africa had been significantly impacted by the COVID-19 outbreak, and was predicted to fall sharply from 2.4 per cent in 2019 to -2.1 to -5.1 percent in 2020.
The World Bank explained that it based its forecast on the latest Africa’s Pulse, the bank’s twice-yearly economic update for the region.
“The COVID-19 pandemic is testing the limits of societies and economies across the world, and African countries are likely to be hit particularly hard.
“We are rallying all possible resources to help countries meet people’s immediate health and survival needs, while also safeguarding livelihoods and jobs in the longer term.
“This includes calling for a standstill on official bilateral debt service payments, which would free up funds for strengthening health systems to deal with COVID 19 and save lives.
“Social safety nets to save livelihoods and help workers who lose jobs, support to small and medium enterprises, and food security,” the statement quoted Hafez Ghanem, World Bank Vice President for Africa as saying.
According to Ghanem, the Pulse authors recommend that African policymakers should focus on saving lives and protecting livelihoods by strengthening the health systems and taking quick actions to minimise disruptions in food supply chains.
The bank noted that the authors also recommended implementing social protection programmes, including cash transfers, food distribution and fee waivers, to support citizens, especially those working in the informal sector.
The analysis shows that COVID-19 will cost the region between 37 billion dollars and 79 billion dollars in output losses for 2020 due to a combination of effects.
“While most countries in the region have been affected in different degrees by the pandemic, real gross domestic product growth is projected to fall sharply, particularly in the region’s three largest economies like Nigeria, Angola, and South Africa, as a result of persistently weak growth and investment.
“In general, oil exporting-countries will also be hard-hit; while growth is also expected to weaken substantially in the two fastest growing areas, the West African Economic and Monetary Union and the East African Community, due to weak external demand, disruptions to supply chains and domestic production,” the bank said.
But specifically, the Nigerian economy had been under serious pressure on figuring how to source funds for its 2020 budget. Speaking on the effect of COVID-!9 on the Nigerian economy, the Minister of Finance, Budget and National Planning, Zainab Ahmed, explained that prior to the outbreak of the coronavirus pandemic, the Nigerian economy was already fragile.
Ahmed said in a statement issued by her Special Adviser on Communication, Yunusa Abdullahi, in Abuja after the minister’s meeting with the leadership of the National Assembly on implications of the global economic crisis on Nigeria that the coronavirus pandemic had resulted in unprecedented disruptions to global supply chains, a sharp drop in global crude oil prices, turmoil in global stock and financial markets, the lockdown of large swath movements of persons in many countries, among others.
These outcomes have had severe consequences on households’ livelihoods and business activities, resulting from drop in global demand, declined consumer confidence and slowdown in production.
She confirmed that prior to the outbreak which had led to decline in crude oil prices, the Nigerian economy was already fragile, vulnerable and deteriorating.
The minister said the global economic downturn had forced international oil prices to drop to as low as $22 per barrel and that international travels and trade had been severely disrupted, while demand for goods and services is deteriorating as a result of the social distancing policies.
“Central Bank of Nigeria, just as in other countries, has resorted to quantitative easing, by reducing interest rates to support economic activity and governments announcing fiscal stimulus plans for healthcare and social safety nets,” she said, adding that the government was working on a fiscal stimulus package to cushion the impact of the crisis on the most vulnerable individuals and communities.
Following the lockdown imposed on Lagos, Abuja and Ogun by the federal government and the follow up action by some states and the accompanying shut down of economic activities nationwide, the finance minister and the central bank came up some palliatives and interventions to prevent a total collapse of the economy and minimize the impact of the lockdown on the people, especially the vulnerable in the society.
The minister has therefore proposed the review of the oil benchmark for the 2020 budget from the initial $57 to $30 per barrel due to the impact of the coronavirus pandemic and the plunge in international oil prices on the nation’s economy.
Ahmed told the leadership of the National Assembly in Abuja that prior to the COVID-19 and oil price decline, the Nigerian economy was already fragile and vulnerable.
She added that the impact of the pandemic has put increasing pressure on the Naira and foreign reserves as the crude oil sales receipts declined and the country’s micro-economic outlook worsened.
In addition, the Central Bank of Nigeria reeled out some interventions in support of the economy. The CBN governor, Godwin Emefiele, announced a N100 billion loan support for health laboratories in the country.
This, according to Emiefele, is part of the bank’s intervention in the economy following the impact of COVID 19. He further stated that that the apex bank has also increased its intervention in the manufacturing sector by N1 trillion and directed all commercial banks in the country to support pharmaceutical companies and the Healthcare industry.
Emefiele also said that N50 billion had been earmarked to support families and businesses affected by the impact of the coronavirus in the country. He added that the interest rate for loans will be reduced from nine to five percent for one year effective from 1st March 2020.
According to Emefiele the healthcare sector will receive credit support in a bid to help them produce medications that can help contain the spread of the virus. Other policy interventions announced by the apex bank governor include strengthening of loan to deposit ratio, an extension of the moratorium on loans and regulatory forbearance. He explained that the intervention will boost local manufacturing and import substitution in the economy as well as providing succour to the people impacted by the deadly virus and creating more jobs.
The Nigerian government is also seeking concessionary loans of $6.9 billion from the World Bank, the IMF and the African Development Bank, AfDB to support the implementation of the 2020 budget. According to Ahmed, the federal government applied for the loans on behalf of the states and Federal Government, while $1 billion is expected from the AfDB.
While the impact of these measures and interventions are being expected, the country’s forex reserves remained under pressure, declining by $578.06 million to $34.59 billion on Wednesday, April 8, 2020, as offshore outflows intensify in the face of weak inflows. Consequently, the naira remained under pressure, weakening by 0.5% and exchange for N384.83 to the dollar.
Following this development, Fitch Ratings downgraded Nigeria’s long-term foreign-currency issuer default rating to ‘B’ from ‘B+. The slump in the international oil price is not unconnected with the downgrade and negative outlook by the rating agency.
Speaking on the effects of COVID-19 on the Nigerian economy, Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry, LCCI, said that Nigeria’s economy was expected to loss about N5 trillion to the 14-day lockdown of the FCT, Lagos and Ogun States ordered by President Muhammadu Buhari. Yusuf said that his estimate was based on Nigeria’s nominal Gross Domestic Product, GDP, value of N146 trillion as of December 2019 released by the National Bureau of Statistics, NBS.
“From an economy-wide perspective, the contraction in the economy over the two-week lockdown, coupled with the various restrictions at the state level, is estimated to cost the economy a loss of N5 trillion over the period. The prognosis is that if the lockdown persists, the impact will be more pronounced and there would be heightened job losses,” local media reports quoted Yusuf as saying.
The reports added that Yusuf attributed the loss to the consequences of the tumbling aggregate demand, the dip in investment spending, the slump in export and the plunge in government spending. “All these are the key drivers of output in an economy. Activities in practically all sectors have been grounded – manufacturing, transportation, aviation, trading, entertainment, hospitality, financial services, real estate, printing, and publishing, etc.
“The prognosis is that if the lockdown persists, the impact will be more pronounced and there would be heightened job losses. The informal economy has been practically grounded. This segment of the economy provides the source of livelihood for over 60 percent of the economically active population. This segment of the economy is the main pillar of the non-oil sector of the economy – the trading, road transportation, and agricultural sectors. Together they account for 40 per cent of the nation’s GDP.
“The lockdown has compounded the problem of weak aggregate demand. The travel restrictions and the closure of state borders have completely crippled domestic economic connectivity, which is at the heart of trade and commerce in the country,” he said.
Yusuf advocated the immediate implementation of import duties and tax waivers for medical equipment, pharmaceutical products, food processing, raw materials, and intermediate products and other essential items.
“All customs bottlenecks to these sectors should be removed without delay. The Central Bank of Nigeria should prevail on the banks to give concessions on pending private sector credit liabilities with the deposit money banks over the period of this economic crisis. The Nigerian Customs Service, the terminal operators and other agencies of government should extend similar concessions to port users at this time,” he said.
In the same vein, Mansur Ahmed, president, Manufacturers Association of Nigeria, MAN, expressed concern over the survival of the manufacturing sector after the pandemic and urged the federal government to roll back the implementation of the new Value Added Tax, VAT, which took effect on February 1, in order to enable businesses, especially the manufacturing sector, to cope with the aftermath of the pandemic on the economy. He stressed the need for the CBN to inject liquidity into the financial system, restructure facilities granted to the real sector and reduce interest rates on credits to enable the economy bounce back in the post-COVID-19 era.
“We are talking with the Ministry of Industry, Trade and Investment on how to ensure the operation of the critical manufacturing sector like food and pharmaceuticals in spite of the lockdown. We have also written to the federal government to roll back the implementation of the new VAT rates.
“Moreover, we have called on the government to use fiscal and monetary tools to keep the economy running because the whole sectors of the economy will need a bailout after this COVID-19 era,” he said.
He added that MAN had been meeting with governments and other stakeholders to ensure the survival and sustenance of Nigerians by allowing the operation of the critical manufacturing sector in food and pharmaceuticals, which “has indeed yielded positive results”.
Speaking on Nigeria’s economic recovery in post COVID-19 era, Ebrima Faal, Senior Country Director of the AfDB, offered Nigeria what he described as all inclusive approach to address economic challenges arising from Coronavirus (COVID-19) pandemic.
FAAL told the news Agency of Nigeria, NAN, on Thursday, April 9, in Abuja that the measures would comprise short-term and long-term responses to address difficulties that the country would be facing as a result of COVID-19.
He noted that around the world, countries at more advanced stages of the outbreak were announcing liquidity relief, debt restructuring, forbearance on loan repayments and initiatives in the order of 10 to 15 percent of Gross Domestic Product (GDP).
The director added that in the short term, similar stimulus would be needed in Nigeria.
“We have seen the CBN introduce policies to mobilise private sector resources and lend support to the government in its efforts to contain the virus.
“It is also supporting private and public healthcare institutions in the country, while providing liquidity for the private sector and SMEs to continue to operate.
“We have also seen some responses from the Government, including a reprioritization of expenditure to help address the pandemic.
“In the long term measure, the country needs to diversify the economy and increase social infrastructure.
“In the longer term, the government’s strategic thrust through the Economic Recovery Growth Plan, ERGP, seeks to push the transformation agenda for Nigeria.
“The ERGP builds on previous initiatives and other industry specific strategies and programmes, including the National Industrial Revolution Policy, NIRP, and National Enterprises Development Policy, NEDP, among others.
According to him, growing non-oil revenues will insulate the economy from the cyclicality of oil revenues and create stability in government budget.
“The assets under management about N10 trillion by pension funds and other institutional investors could be mobilised to create a pool of investment resources to transform the country.
“This means improving efficiency and ability of the financial sector, including the capital market, to attract such funds, and channel them to productive uses,” he said.
And for quick post COVID-19 recovery, it is necessary that the interventions reeled out by the CBN and the palliatives announced by the federal government are faithfully implemented, while the nation pursues its long awaited diversification policy.
– Apr. 11, 2020 @ 18:57 GMT |
A.I
Tags: COVID-19: Can Nigeria escape impending global recession? Ebrima Faal
