How far can post Covid-19 measures cope with brutal recession in Nigeria?

Sun, May 17, 2020

By publisher

10 MIN READ

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AS the nation awaits the inevitable post Covid-19 recession, there is need for collaboration between the government and the private sector to ensure that jobs are saved, while the diversification of the economy is urgently pursued.

By Goddy Ikeh

THERE is no doubt that Coronavirus has plunged the world economy into brutal recession. With the easing of the measures adopted to check the spread of the virus by many countries, including Nigeria, it is pertinent to begin to take stock of the how deep the recession will be and how soon Nigeria can expect a rebound of its economy.

Unfortunately for Nigeria, the economy was already showing some troubling symptoms, which the Minister of Finance and National Planning,

, had seen as worrisome before the outbreak of virus in the last quarter of 2019.

Speaking at a meeting with the leadership of the National Assembly on Wednesday, March 25, Ahmed explained that prior to the COVID-19 pandemic and oil price decline, the Nigerian economy was “already fragile and vulnerable”.

She added that the impact of the pandemic had put increasing pressure on the naira and foreign reserves as the crude oil sales receipts declined and the country’s micro-economic outlook worsened.

According to the minister, the federal government has undertaken cuts to 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 a space of one month, the minister had announced twice, the review of the reference price of crude oil for the 2020 budget from $57 per barrel approved in December 2019 to $30 and subsequently to $25 per barrel due to the impact of the coronavirus pandemic and the plunge in international oil prices on the nation’s economy.

In addition, the Federal Executive Council, FEC, 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 reports by Vanguard newspaper, the finance minister stated that the FEC also approved crude oil production at 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 Afrexim Bank.

“On prioritization of made in Nigeria products, as you know, the President has set up an economic stimulus committee, chaired by the vice president. The work of the committee is to develop 12 months economic stimulus plan and we are at the final stage of that work. “We have prioritized spending in that plan to use and consume made in Nigeria. “But we have got approval from Mr. President that spending as much as possible should be made in Nigeria on goods and products that are produced in Nigeria, so that it saves our foreign exchange and also helps to grow the economy.”

In his briefing, the Minister of Agriculture and Rural Development, Alhaji Sabo Nanono, said the Council approved a loan facility of $1.2 billion to finance the mechanisation of agriculture in the country. Noting that the planned mechanisation of agriculture would span 632 local government areas, the minister said: “Today, we presented a joint memo with the Federal Ministry of Finance in which we sought the approval for a loan facility of about 950 million Euros, translated probably to $1.2 billion. “This loan is for the purpose of agricultural mechanisation in this country –that will cover about 632 local governments plus 140 processing plants. This is going to be a major revolution in the agriculture sector that we have never seen before.’’

For the Minister of Transportation, Rotimi Amaechi, the council approved a memo for award of contract in the sum N683 million for the purchase of 19 vehicles for Nigeria Ports Authority, NPA. “This is the first time in four years that NPA is buying any vehicle and that is why the council okayed it. These are operational vehicles; they are not for management staff; they are all Toyota vehicles,” he said.

The Minister of Power, Mallam Sale Mamman, said the ministry sought approval for the revised estimated total cost for the augmentation of the subsisting contract in the sum N47.2 million. He said the contract was for the provision of additional critical power grid infrastructure for the full evacuation and utilisation of 40mw currently from Kashimbila via Takum-Wukari and Yendev. He said: “This is to evacuate completely 40 megawatts to the National Grid. If it is not evacuated, Nigerian government will lose not less than 130 megawatts of power, which is equivalent to almost nine million in a year.’

Apart from the 2020 budget review there are 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 a 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 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 has 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 include strengthening of loan to deposit ratio, an extension of the moratorium on loans and regulatory forbearance.

In order to secure the interest of foreign investors, Emefiele assured the security of their investments in the country in spite of dwindling revenue from the sale of crude oil globally. A statement by the CBN’s Director, Corporate Communications Department, Isaac Okorafor, on Sunday, May 10, said that Emefiele gave the assurance in Abuja that investors interested in repatriating their funds from the country were guaranteed to get their money, notwithstanding the drop in the revenue from crude oil. He assured that the bank has put in place policies to ensure an orderly exit for those that might be interested in doing so.

On the part of the federal government, the vice president noted that the coronavirus (COVID-19) pandemic has created an opportunity for the Nigerian people and government to have a reset in critical sectors of the economy and social services.

Speaking on Thursday, May 14, at the virtual launch of the Nigeria Solidarity Support Fund, NSSF, Osinbajo said the establishment of the Fund would support the creation of a stronger, more resilient, and more inclusive political economy and healthcare system.

“This is a creative, forward-looking, and thoughtful response to what is perhaps the most profound global and domestic challenge to health and the economy in human history.

“We need not belabour the point that the COVID-19 challenge is also an unprecedented opportunity for us as a nation and people to reset in critical sectors of the economy and social services,” he said.

He also revealed the efforts being made by the Federal Government to ensure that Nigeria was properly positioned to deal with the fallouts of the pandemic.

Osinbajo also announced the following palliatives for the Medium and Small Enterprises (MSMEs):

E-Registration of MSMEs/products at 80% discounted rate over a period of six months.

Zero tariffs for the first 200 micro and small businesses to register on the E-platform.

Waiver on administrative charges for overdue late renewal of expired licenses of micro/small businesses products for a period of 90 days.

For President Muhammadu Buhari, there are plans to tackle Nigeria’s poor power issue by installing a large scale of residential solar systems.

A statement on Thursday, May 14, the Presidency noted that Buhari plans to have large-scale installation of residential solar systems, utilizing mainly local materials.

According to the statement signed by presidential spokesman, Femi Adesina, the President also plans to tackle Nigeria’s weak health system through the establishment of standard laboratories, intensive care units, and isolation centres.

The other post Covid-19 measures taken by President Buhari to assuage some apprehensions of Nigerians include:

An economic team, headed by the Minister of Finance, Budget and National Planning has been set up to examine the impact of COVID-19 on the economy.

Economic Sustainability Committee headed by the Vice President to define a post-COVID-19 economy for Nigeria.

Task force set up on free movement of farm produce headed by the Minister of Agriculture and Rural Development.

Plans afoot to tackle weak health systems and infrastructure through the establishment of standard laboratories, intensive care units, and isolation centres in all states of the Federation. The health infrastructure will eventually be recalibrated for the good of the people, and in readiness for future emergencies.

As long term measure, emphasis will be placed on integrating local content in proven researches in cure, and production of materials in the heath sector.

A Fiscal Sustainability Plan to complement the suite of monetary and banking interventions recently announced by the Central Bank of Nigeria.

A mass agricultural programme to be put in place; Major rural road construction programme and Mass housing programme.

Large scale installation of residential solar systems, utilizing mainly local materials and Expansion of the Social Investment Programme.

The 2020-2022 Medium Term Expenditure Framework and the Budget 2020 assumptions and targets have already been revised.

Time-sensitive expenditures are to be prioritized over less critical spending, while Extant financial controls are to be strengthened to detect, eliminate and sanction instances of waste, funds misappropriation and corruption.

But the concerns of the private sector, which has been worst hit by the pandemic appear to be different from the priorities of the government. For instance, the Lagos Chamber of Commerce and Industry wants the policymakers and the organized private sector to come together to rescue the economy from collapse at this critical time.

The chamber requests for adequate stimulus and intervention to preserve investments and save jobs and that over 54 percent of business owners want banks to reduce interest rate and give moratorium on loans, while 29 percent want a reduction in tax liabilities and 17 percent want waivers on import duties and demurrages.

The Chamber also makes a case for “a year tax break for healthcare and pharmaceutical companies, airlines, manufacturers, agro-processors, SMEs and hospitality players as well as the temporary suspension of a 50 percent increase in VAT rate till year-end, while “P.A.Y.E tax should be suspended for the next six months.

According to the chamber, these measures will help boost the purchasing power and aggregate demand and stimulate the economy. The completion of critical infrastructure projects nationwide was also on their demand, improvement in the power sector as well as the diversification of the economy