Given the looming recession concerns and the fact that there are apparently no clear structures put in place ahead of the reopening the economy, the policymakers and the organized private sector should come together to rescue the economy from total collapse at this critical time
By Goddy Ikeh
SHORTLY after the World Health Organisation, WHO, declared coronavirus a global pandemic in February 2020, many multilateral institutions and some financial analysts came out with forecasts of the effects of the pandemic on global economy and that of Africa.
In its forecast, the World Bank warned that sub-Saharan Africa could slip into its first recession in a quarter of century because of the coronavirus pandemic on the world’s most impoverished continent.
“We project that economic growth in Sub-Saharan Africa will decline from 2.4 percent in 2019 to -2.1 to -5.1 percent in 2020, the first recession in the region in 25 years,” the bank said.
It noted that the virus has arrived late in Africa compared to elsewhere and that it is spreading rapidly in some countries, and the continent is highly vulnerable to declining trade and tourism as well as falling prices for oil and mineral exports.
“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,” said Hafez Ghanem, the Bank’s vice president for Africa.
Barely a month later (March), the effects of the pandemic began to manifest in Nigeria with the initial shocks from the crisis in the global oil market. The Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, Mele Kyari, was the first to announce that Nigeria has about 50 cargoes of crude oil that have not found off-takers for them due to the drop in demand and the effects of the Coronavirus pandemic.
Kyari said at the Central Bank of Nigeria Round Table discussion in Abuja that “Today, I can share with you that there are over 12 stranded LNG cargoes in the market globally. It has never happened before. LNG cargoes that are stranded with no hope of being purchased because there is abrupt collapse in demand associated with the outbreak of coronavirus.
“At the moment the cost of crude oil production in Nigeria is within the range of $15 to $17 per barrel and that some leaders in the Industry such as Saudi Arabia’s cost of production is between $4 and $5 per barrel.”
He noted that due to the uncertainties of the global crude oil market, countries that produce at the cheapest price would remain in the market, while jurisdiction with high cost of crude oil production would not be able to cope with the competing prices.
Kyari called on governments at all levels, captains of Industries and the organized private sectors to brace up for the new low regime of global crude oil prices and that realistic estimates must be made to reflect the current realities of the crude oil market.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, followed with the declaration that the outbreak of Covid-19 has negatively impacted Nigeria’s oil revenue, saying that a mid-term review of the 2020 budget would be carried out to reflect the realities on ground.
Ahmed, who described the drop in crude oil price as a shock to the government, however, said there was no need for Nigerians to panic.
“The sudden and unexpected drop in crude prices to just over $30 comes as a shock and great surprise.
“These strong headwinds will reinforce the wakeup call to a life without oil. But that should not spread panic and speculation in our economy,” she said.
Following the development, President Muhammadu Buhari had in March set up a committee with the mandate to make a quick assessment of the impact of coronavirus on the country’s economy.
Buhari asked the committee to urgently evaluate the effect of the pandemic on the economy, especially as it affects the prices of crude oil.
The members of the committee included the Minister of Finance, Budget and National Planning, Zainab Ahmed, Minister of State for Petroleum Resources, Timipre Sylva, the NNPC boss, Mele Kyari and the Governor of the Central Bank of Nigeria, CBN, Godwin Emefiele.
As Nigerians were struggling to figure out how to cope with the effects of the pandemic on their lives, the finance minister announced that falling oil prices could force the Nigerian economy into recession.
Ahmed said after the National Economic Council, NEC, meeting in Abuja on Thursday, May 21, that COVID-19 had resulted in the collapse in oil prices.
“This will impact negatively, and the impact has already started showing on the federation’s revenues and on the foreign exchange earnings.
“Net oil and gas revenue and influx to the federation account in the first quarter of 2020 amounted to N940.91 billion. This represented a shortfall of N125. 52 billion or 31% of the prorated amount that is supposed to have been realized by the end of that first quarter,” she said, adding that the economic contraction would multiply the misery of the poor.
According to the minister, the GDP could in the worst case scenario contract by as much as –8.94% in 2020 and that the best case, it could be a contraction of –4.4%, if there is no fiscal stimulus. “But with the fiscal stimulus plan that we are working on, this contraction can be mitigated and we might end up with a negative –0.59%,” she said.
But before the announcement of the recession, the federal government had undertaken cuts in revenue-related expenditures for the Nigerian National Petroleum Corporation, NNPC, for several projects included in the 2020 Appropriation Act passed by the National Assembly in December, 2019.
In addition, the Federal Executive Council, FEC, had on Wednesday, May 13, revised the 2020 Budget from N10. 594 trillion signed into law by President Muhammadu Buhari to N10. 523 trillion. The FEC also approved the amendment of the Medium Term Expenditure Framework, MTEF for 2020-2022.
According to the finance minister, the FEC also approved crude oil production of 1.94 million barrels per day and an exchange rate of N360 to $1. On financing the budget deficit of over N5 trillion, Ahmed said: “The deficit to this budget is N5.365 trillion and this will be financed by both domestic as well as foreign borrowing. The foreign borrowing we are doing for 2020 are all concessionary loans from the International Monetary Fund, IMF, which have already been approved and have crystallized, from the World Bank, Islamic Development as well as the AfreximBank.
Apart from the 2020 budget review there were numerous interventions announced by the Central Bank of Nigeria, CBN, and the federal government between March and May to revamp the economy. For instance, the CBN in March announced plan to raise its intervention in all critical sectors of the economy by another N1 trillion.
According to the governor of the CBN, Godwin Emefiele, this is in response to the devastating impact of the coronavirus pandemic and to boost local manufacturing and import substitution in the economy as a way of providing succour to the people impacted by the deadly virus and also create more jobs.
As a major focus of the package, Emefiele announced a N100 billion loan support for health laboratories in the country and directed all commercial banks in the country to support pharmaceutical companies and the Healthcare industry.
The CBN also announced that N50 billion had been earmarked to support families and businesses affected by the impact of the novel coronavirus in the country.
Speaking to journalists in Abuja on Monday, March 16, Emefiele explained that six key initial policies would be introduced to help combat the Covid-19 scourge on the nation’s economy.
He added that the interest rate for loans would be reduced from nine to five percent for one year effective from 1st March 2020.
Emefiele also said that the healthcare sector would 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 included strengthening of loan to deposit ratio, an extension of the moratorium on loans and regulatory forbearance.
And in preparation for the post covid-19 reopening of the economy, Vice President Yemi Osinbajo on Thursday, May 21, constituted a committee on the reopening of the economy.
According to the resolution of the National Economic Council, NEC, meeting, Dr. Ifeanyi Okowa, the Delta State governor, is to lead a committee of seven, which will work with the Presidential Task Force on COVID-19. Other members include the Governors of Lagos, Kano, Bauchi, Anambra, Plateau, and the FCT Minister.
The council resolved to work toward the growth and development of the Nigerian economy by ensuring massive productivity in several sectors, including agriculture, power, infrastructure, technology among others.
According Laolu Akande, the spokesman for the vice president, the NEC agreed to cooperate with the Economic Sustainability Committee, ESC, towards the development of a national Economic Sustainability Plan and that the NEC would now meet with the ESC.
In addition, the minister of Information and Culture, Lai Mohammed, has inaugurated the Post-Covid-19 Initiatives Committee for the Creative Industry, with a call on all members of the industry to support the committee in the interest of the industry.
“The Committee’s membership, as announced two weeks ago, has now been expanded to include as many sectors as possible. This is to ensure a fair representation,” the minister said, while inaugurating the committee in his office in Abuja on Tuesday, May 19.
He described the Creative Industry as a very critical sector of the nation’s economy and a major plank of the economic diversification policy of this administration.
But as good as these committees may appear, there may not be needed now due to the urgency that the post Covid-19 economic recovery requires. Before now, the Manufacturers Association of Nigeria and the Lagos Chamber of Commerce and Industry, LCCI, and a host of other stakeholders had at various occasions made their recommendations and demands known on how best to tackle and quickly return the economy to the path of growth after the pandemic.
For instance, the LCCI had demanded for a one-year tax break that would enable businesses to navigate the storms as well as preserve jobs. The LCCI President, Toki Mabogunje, had warned during a recent press briefing that majority of business owners were planning to cut down salaries, downsize the workforce or have a combination of both.
She maintained that policymakers and the organized private sector need to come together to rescue the economy from collapse at this critical time.
“Businesses therefore request adequate stimulus and intervention to preserve investments and save jobs. More than half (54%) of business owners want banks to reduce interest rate and give moratorium on loans, 29 percent want a reduction in tax liabilities, while 17 percent want waivers on import duties and demurrages.
“A year tax break for healthcare and pharmaceutical companies, airlines, manufacturers, agro-processors, SMEs and hospitality players,” she said.
The chamber also called for the temporary suspension of the 50 percent increase in VAT rate till year-end, and also, “P.A.Y.E should be suspended for the next six months”.
This, according to the chamber, would help boost the purchasing power and aggregate demand, thereby stimulating the economy.
For the aviation industry, LCCI asked for support towards augmenting insurance premiums, which are dollar-denominated due to lack of local capacity.
The chamber also called on the government to focus on the completion of critical infrastructure projects nationwide such as the Lagos-Ibadan expressway, Lagos-Ibadan rail project, Enugu Airport, the Second Niger Bridge, East-West Road, among others.
And for the country’s leading industrialist, Aliko Dangote, more attention should be paid to the agriculture and manufacturing sectors.
“Manufacturing creates a lot of jobs and transforms countries. These are the areas I think we really need to focus on,” he said. Speaking at a recent forum for economic revival, Dangote also advised that more attention should be paid on the local market to boost exportation.
“We import almost every single thing that we consume in Nigeria. We need the sales industry,” he said and dismissed the belief that the diversification of Nigeria’s economy was impossible.
He stressed that it can be realised through a joint effort of entrepreneurs and the Nigerian government. He assured that “by the time we start our refinery, Nigeria will be the largest exporter of petroleum products in Africa”.
Given the looming recession concerns and the fact that there are no clear structures put in place ahead of the reopening the economy, the federal government should therefore be focused and liaise with all the stakeholders, who at different occasions tabled the crucial challenges of the different sectors of the economy and posited the way forward and desist from setting up all kinds of committees that will rather compound the problems while the economy and the people suffer.
The CBN should reflate the economy with increased financial support and direct incentives to local businesses in order to stimulate local production, save jobs, and reduce the country’s ever-rising import bills.
Obviously, the Covid-19 pandemic has exposed the real developmental gaps and skilled workforce in different sectors, especially the health sector and policymakers, should as a matter of urgency, implement reforms in the oil and gas sector to attract large investments into the upstream sub-sector as well as revamp the downstream sub-sector of the oil industry while taking seriously the diversification of the nation’s economy.
– May 25, 2020 @ 12:35 GMT |