Lamentations as COVID 19 threatens Nigeria's fragile economy

Sat, Mar 21, 2020
By editor

Economy, Health

While the battle to prevent the spread of COVID 19 is ongoing and the measures being adopted to ameliorate the effects of the virus on the economy, the Nigerian government should for once take the issue of diversifying the economy seriously so that the nation’s economy will return to full health

By Goddy Ikeh

THE clamour for the diversification of the Nigerian economy did not just start with the present government led by the All Progressives Congress, APC. The call for the diversification of the Nigerian economy started late in the 1970s, but about a decade ago, it was topical for most national and professional conferences in the country.

Precisely in 2013, the Nigerian Guild of Editors, NGE, joined the bandwagon when Femi Adesina, who was the President of the NGE, stated in his welcome address at the NGE’s 9th annual conference in Asaba entitled ‘Diversify or Die’, Adesina went ahead to paint a graphic picture of the dire consequences that await the country in the face of dwindling oil revenue.

Unfortunately, that period also revealed the attitude of our politicians, especially the governors to development and savings, when the state governors waged unrelenting campaign against the Sovereign Wealth Fund initiated by the federal government and opted to share every kobo that was earned from the sale of crude oil.

It was also the era of low oil prices and the threat posed by the emerging Shale oil of the United States. But seven years after, our politicians are still campaigning for the diversification of the Nigerian economy with little or nothing to show for the past efforts made to move the economy away from its reliance on oil wealth. The coronavirus pandemic has further exposed our fragile economy and it has been lamentations from government officials, while the economy is sliding to another phase of recession with oil price dropping below $30 a barrel.

The first alarm from Nigeria was raised by the Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, Mele Kyari, when he said that off-takers could not be found for about 50 cargoes of Nigerian crude due to the drop in demand and the effects of the Coronavirus pandemic.

Kyari told the participants at the Central Bank of Nigeria Round table discussion in Abuja that there were 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,” he said. Speaking on crude oil production in the country, Kyari said that the NNPC was ready to strategically put in place measures that would reduce the cost of crude oil production in Nigeria to create market for Nigerian crude and make the country a choice destination for Foreign Direct Investment.

“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 said.

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 explained that in the face of the Coronavirus global pandemic, countries like Saudi Arabia have given discount of $8 and Iraq $5 to their off-takers in some locations and that when crude oil sells at $30 per barrel, countries like Saudi Arabia is selling at $22 per barrel and Iraq selling their crude at $25 per barrel. He assured that the NNPC was working round the clock to increase the country’s daily production to 3 million barrels per day and shore up the crude oil reserves to 40 billion barrels.

In his remarks at the round table,�the Chairman of Dangote Group, Aliko Dangote, stressed the need�for more seriousness in handling diversification of the Nigerian�economy.�Dangote, who lamented that he had been hearing about diversification of the Nigerian economy as far back as 1979, and that now was the time to take things more seriously.

Diversification of this economy is very important. Since I got to Lagos in 1979, people have been talking about diversification of Nigeria’s economy.

“I think we really need this time around, be more serious so that we don’t just keep talking about diversification. It is possible but people are not really focusing on it. We need to find a solution as to how to make our country to be producing things that we consume,” he said.

He suggested that more attention should be paid to the agriculture and manufacturing sectors in any drive to diversify the economy and that the Nigerian government should look into such issues as reduction in the cost of doing business, high interest rates and inconsistency in economic policies. As the pandemic rages, Nigeria has joined other countries to announce measures to ameliorate the effects on their economies. The governor of the CBN, Godwin Emefiele, has announced a number of measures to tackle the impact of coronavirus on the businesses and the nation�s economy.

The measures include granting a one-year moratorium on all of its intervention funds and providing a total of N3 trillion to the Small and Medium Enterprises sector of the Nigerian economy. According to Emefiele, the CBN has also unlocked N2 trillion credit to the economy through the LDR. The loans are given through the Commercial Credit Guarantee Scheme and the Anchor Borrowers Programme, among others. He disclosed that the CBN has agreed to reduce the interest rate on all of its intervention funds from 9% to 5% for a one-year period beginning from March 1 this year.

The CBN will also provide a N50bn credit facility to boost the economy which will be disbursed through the NIRSAL Microfinance Bank for households and SMEs that had been particularly hard hit by Covid-19,� he said.�This is in response to the devastating impact of the coronavirus pandemic. Emefiele said that the intervention would 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, the CBN announced N100 billion loan support for health laboratories in the country. Emiefele directed all commercial banks in the country to support pharmaceutical companies and the Healthcare industry. He said that the CBN would in the days ahead continue to reel out its support for the economy.

According to the CBN, the credit, which will be extended to hoteliers, airlines, service providers, and health care merchants etc, will have a one-year moratorium to reduce the burden of loan repayment by businesses.

The implication is that any intervention loan currently under moratorium has been granted additional one-year period. The CBN also said that it will grant loans to pharmaceutical companies intending to expand their drug manufacturing plants in Nigeria through its intervention facilities to meet potential increase in demand for healthcare services and products.

This facility will be extended to hospital and healthcare practitioners intending to expand or build first-class health centres. The oil and gas, agriculture, and manufacturing are among the major beneficiaries of CBN�s new policy measures to contain the pandemic�s impact on the economy. At the global level, the IMF says it stands ready to mobilize its $1 trillion lending capacity to help our member countries. As the first line of defense, the Fund can deploy its flexible and rapid-disbursing emergency response toolkit to help countries with urgent balance of payment needs. These instruments could provide in the order of $50 billion to emerging and developing economies.

Up to $10 billion could be made available to our low-income members through our concessional financing facilities, which carry zero interest rates. The Fund already has 40 ongoing arrangements both disbursing and precautionary with combined commitments of about $200 billion. In many cases, these arrangements can provide another vehicle for the rapid disbursement of crisis financing. We also have received interest from about 20 more countries and will be following up with them in the coming days. In addition, the Fund’s Catastrophe Containment and Relief Trust, CCRT, can help the poorest countries with immediate debt relief which will free up vital resources for health spending, containment, and mitigation. At the government level, President Muhammadu Buhari has set up a committee to assess the impact of the pandemic on the economy of the country.

The committee has the ministers of finance, petroleum resources, the CBN governor and the group managing director of the NNPC as members. The finance minister has said that the 2020 budget would be slashed because of the low oil price, which has dropped below $30 per barrel, is far below the budget�s benchmark of $57 per barrel.

Apart from setting up a�Special Committee to coordinate Federal and State governments� responses to the Coronavirus pandemic by the National Economic Council, which is made up of state governors and chaired by Vice President Yemi Osinbajo, the federal government has announced the closure of all federal schools, while many state governments have also ordered the closure of the state schools�as a proactive step to prevent the spread of the dreaded Coronavirus.

The federal government has also announced entry bans for travelers from 15 countries as well as the plan to close the Murtala Muhammed International Airport Lagos and the Nnamdi Azikiwe International Airport Abuja.

Mar. 21, 2020 @ 16:59 GMT |