- An Outlook on COVID-19’s Effect on Nigeria’s Economy and Development
By Stephen Isayinka (MICMC, AICMC)
The coronavirus pandemic, which brought ill wind to our national frontiers, has revealed both our vulnerabilities and the inadequacy of our economic systems and aging healthcare infrastructure. We must act quickly in response to the persisting threats we face; fortunately, the African continent is only now beginning to feel the effects of the pandemic, with the resulting loss of daily wages being the dominant source of income. The pandemic threatens not only people’s health but also their ability to make a living.
The global economic impact of the coronavirus is so severe that on 23 March, the G20 Finance Ministers and Central Bank Governors held a conference call to discuss the crisis. Unless swift and thorough action is taken, it is clear from the meeting that the country could collapse under the weight of the greatest threat to human civilization in the 21st century.
Following the call, International Monetary Fund Managing Director Kristalina Georgieva released a statement in which she outlined the outlook for global growth: “for 2020 it is negative-recession at least as bad as during the global financial crisis or worse, but she added: we expect a recovery in 2021. The pandemic has disrupted economic activities and shown that African economies are, by extension, vulnerable to external shocks with devastating consequences including death, the near collapse of the informal sector, and a lack of necessary leadership responses.
Because of the devastating global health epidemic and its negative impact on oil prices, Nigeria’s economy and, by extension, its 2020 budget, are in jeopardy. Due to falling demand and an oversupply, oil prices have dropped from $70 per barrel at the beginning of the year to close to $30 per barrel today. If we compare this to Nigeria’s 2020 budget, which is based on a benchmark of $57 / barrel, the full impact of the economic pandemic becomes more apparent. In the long run, when the price of oil has dropped significantly, this may prove an even greater challenge.
As global oil prices trend lower at $57 per barrel as of mid-February, the subsistence of the coronavirus will continue to dampen appetite, which will put a lid on oil prices well into March. If oil demand continues to fall with no OPEC intervention in the form of production cuts, tightening supply, a country like Nigeria will be negatively impacted by the downward price trend. The international oil benchmark, Brent crude, plunged to its cheapest in 18 years on Monday as it traded around $22 per barrel. This comes amid growing fears that the global coronavirus shutdown could last months and demand for fuel could decline further.
Brent crude, against which Nigeria’s oil is priced, fell by $2.83 to $22.10 per barrel as of Monday 31st of March 2020. It earlier tumbled to as low as $21.76 per barrel, its lowest since March 2002, according to Reuters. As a result of the sharp decline in crude oil prices following the coronavirus, the pandemic has forced the Federal Government to propose the reduction of the oil price benchmark for the 2020 budget to $30 from $57.
Despite the significant reduction in its official selling prices aimed at attracting buyers, Nigeria is still struggling to sell its crude oil refiner are cutting back its output while industries are considering closures.
The aftermath of the coronavirus in terms of the economy, health, and social economic variables is uncertain as of yet, and Nigeria, a developing country with a population of over 200 million people, will need strong leadership and sound policy and fiscal discipline to deal with it. When even the wealthiest countries with the best healthcare systems are struggling to contain the spread of this disease, it is easier to imagine the devastating impact the pandemic will have on countries like Nigeria than to live through it. At this point in March 2020, there have been over a million confirmed cases, 100,000 successful recoveries, and 9,000 fatalities; Nigeria cannot afford to play around with this pandemic.
A lockdown was issued by the Federal Government in Abuja, Federal Capital Territory, Lagos, and Ogun to prevent the spread of coronavirus. It’s time for a rigorous testing scheme to determine the status of the citizenry in places like Kano and Port Harcourt, where the government has issued lockdown and closure of borders.
Economic stresses, such as the collapse of markets due to panic and the inflation of prices of commodities, which creates panic and inflicts pains on Nigerians, worry me as the world struggles with the unpredictability of the spread of the coronavirus.
The market price of commodities has risen sharply as a result of Nigerians’ panic buying in light of the potential extension of the lockdown. Many people are put at risk of going hungry, which may not deter them from leaving their homes for very long. Without the government’s economic package to safeguard the peoples’ financial security during the lockdown, those who make a living in the market, on the roads, and in the food service industry are particularly vulnerable.
It has been predicted by some economic analysts that Nigeria is in the early stages of the pandemic, and indeed, some countries have already begun evacuating their diplomats and citizens from the country. Since the number of people affected by the pandemic continues to rise, it is imperative that the country takes the necessary steps to prepare for the curve’s flattening. Some have suggested that if measures aren’t taken to combat the virus, Nigeria will reach rock bottom. Indeed, Western realities, especially in Spain, Italy, the United Kingdom, and the United States of America, show clearly that while the curve may be low at the advent, it peaks within the shortest time possible. By regularly washing our hands with soap and water or using hand sanitizers, we can all do our part to combat the spread of this pandemic. Additionally, we will be using disinfectant to clean the area. If you’re experiencing any coronavirus symptoms, please visit one of the isolation centers immediately.
With respect to this plaguing pandemic, some economic analysts are calling for a devaluation of the Naira to complement other initiatives of the government.Professor of Economics, Mike Obada from the University of Benin, calls for tax cuts, rent reduction, a bailout for state governors to pay salaries to cushion the effect of low production.“Says the consequences are grave on the economy. The impact on Nigeria at the moment is a micro impact due to dependence on crude oil and exchange rate, naira revenue, and foreign exchange earnings have reduced drastically which is having an impact on the fiscal challenge on naira revenue and foreign exchange.”
- To conclude, there is a ne
8ed for a micro response in which some monetary measures can help through this aftermath period. One question still begging for an answer is: As the country’s debt financial crisis worsens due to the Corona crisis, with more borrowing, will Nigeria use more than half of the revenue to service debt?
