The Impact of the Covid-19 Pandemic on the Nigerian Economy
The Coronavirus Pandemic (“Covid-19” or “the Pandemic”) has created global economic crisis like never before. According to International Monetary Fund (“IMF”), its impact will be worse than the global financial crisis of 2008-09. Furthermore, the World Bank predicts that Sub-Saharan Africa will suffer the most and millions will be left in abject poverty. Nigeria is not exempt. Even before the Covid-19 outbreak, Nigeria’s economy was beset by rising external shocks and falling per capita GDP levels. Now with 1932 Covid-19 cases, 58 deaths and almost 5 weeks of lockdown, McKinsey & Company believes that Nigeria’s GDP growth could decline by between 6% and 11% in 2020 depending on the severity and timespan of the Pandemic. And a recession is in the offing. While most recessions are triggered by demand, supply or financial shocks, Covid-19 promises to deliver all three in a single package. This essay will address some economic impacts of Covid-19, and proffer relevant mitigating measures with Nigeria in focus.
Foremost, Nigeria’s major export is oil. It accounts for 90% of our foreign exchange accrual, and 31% of the 2020 budget revenue was expected from oil sale at the time it was $57 per barrel. But due to the global decline in the demand for oil, prices have crashed to less than $30 per barrel. And for Nigeria, this means reduced government spending (unattainable budget goals), reduction in global trade in oil (causing exchange rate instability), and depletion of the foreign exchange reserves.
Secondly, the lockdown has its own economic downsides. For instance, air travels are grounded and Nigerian travel agencies have lost over ₦180 billion due to lost ticket sales, plus about 30,000 jobs are at risk. Furthermore, the informal sector which makes up 60% to 70% of the Nigerian economy is badly hit – as individuals and households here live in daily wage. With the lockdown, they cannot earn a living. Even the formal sector is having a hard time with the disruption in working condition – resulting in less productivity. All of these mean: less economic output, massive job losses, delayed schooling, reduced consumer spending, rising crime rates, tax defaults, and declining government revenue. In fact recently, the FIRS publicly appealed to companies in specific sectors to pay taxes earlier than their due dates.
Cutting cost of governance: This has been ignored for too long. In the 2018 budget, ₦3.6trillion (38% of the entire budget) was earmarked for recurrent expenditure. This increased in the 2019 budget to 46%. Whereas in both budgets, less than 30% of the expenditure was earmarked for capital expenditure. This is a good time for the FG to slash governance costs and channel the excess money to cushion the effects of Covid-19
Thirdly, Nigeria is severely affected by the global supply chain disruption because of our import-dependent economy – causing shortage of crucial supplies like pharmaceuticals, spare parts, and manufactured goods. In 2019, Nigeria’s biggest imports were from: China – ₦4.3trillion (25 per cent of total imports), and the United States of America – ₦3.8trillion; while manufactured goods took up about 70% of total imports. However China and the United States are among the hardest hit countries by Covid-19 and they have resorted to closing down factories, imposing travel bans and lockdowns. This could put pressure on Nigeria’s inflation numbers (12.26% year-on-year for March 2020) going forward as cost of local production soars.
To soften the effects of the Pandemic, the Federal Government of Nigeria (“FG”) has taken some steps, namely: interest rates cut, loan interventions, credit reliefs, employment of 774 000 youths, waiver of import duty on specific goods, injection of ₦3.6trillion stimulus package into the banking system, reduction of petrol price, and most recently, securing a $3.4billion in funding under the Rapid Financing Instrument from the IMF. Our proposed measures include:
• Immediate passing into law of the Emergency Economic Stimulus Bill. This is long overdue.
- Cutting cost of governance: This has been ignored for too long. In the 2018 budget, ₦3.6trillion (38% of the entire budget) was earmarked for recurrent expenditure. This increased in the 2019 budget to 46%. Whereas in both budgets, less than 30% of the expenditure was earmarked for capital expenditure. This is a good time for the FG to slash governance costs and channel the excess money to cushion the effects of Covid-19.
- Since the informal sector suffers from the lockdown. FG can use registered phone numbers, voters register, and Bank Verification Numbers to disburse some of the funds secured from the IMF to individuals most affected. This will keep purchasing power and food supply chains intact, and crime rates reduced.
- Deeper Tax Reliefs: Since companies in worst-hit sectors (e.g. transportation and tourism) will not make profits in the 2020 financial year due to Covid-19, requiring such companies to pay minimum tax may be discouraging. Thus, it is proposed that the minimum taxation provision in Section 33 of the Companies Income Tax Act be suspended to allow taxable companies recover from the impact of the Pandemic. Furthermore, the FIRS should suspend the new 7.5% VAT rate on all goods – this will stabilize household consumptions.
Finally, states are already in a financial crunch. FG may need to support each state with grants and low interest loans in order to expand healthcare capacity, access to healthcare solutions, and to ensure effective quarantine methods in each state.
 International Monetary Fund, https://blogs.imf.org/2020/04/20/a-global-crisis-like-no-other-needs-a-global-response-like-no-other/ accessed on April 30, 2020
2 The World Bank, https://www.worldbank.org/en/news/video/2020/04/13/africas-pulse-the-economic-impact-of-covid-19-coronavirus-in-africa accessed on April 30, 2020
3 As at April 30, 2020
4 McKinsey & Company, “Covid-19: Impact on Nigeria’s Economy & Implications for CPG” (April 30, 2020)
6 Nairametrics, https://nairametrics.com/2020/03/05/fg-to-adjust-2020-budget-as-coronavirus-affects-crude-oil/ accessed on April 30, 2020
7 Central Bank of Nigeria, https://www.cbn.gov.ng/IntOps/Reserve.asp?MoveDate=3/25/2020%201:12:23%20PM  Ruth Olurounbi, https://www.theafricareport.com/26578/coronavirus-nigerias-travel-industry-shaky-after-n180-billion-loss-from-pandemic/ accessed on April 30, 2020
8 PwC Nigeria, “Covid-19: Economic Implication and Policy Responses” – Webinar (April 2020)
9 Federal Inland Revenue Services, https://twitter.com/firsNigeria/status/1253821484713345031?s=20 accessed April 30, 2020
10 KPMG Nigeria, ”Covid-19 Business Series (Issue 1): Economic Impact & Pandemic Planning” (March 30, 2020)
11Proshare NG, https://www.proshareng.com/news/MARKET%20UPDATES/What-To-Expect-From-The-Markets-This-Week—270420/50657 accessed on April 30, 2020
13 This Bill was passed on March 24, 2020 by the House of Representatives but is still not law. That was 5 weeks ago – an awfully long time considering the rapid effects of the Pandemic.accessed on April 30, 2020
My name is Chidiebere Obialor – a law graduate from Obafemi Awolowo University and Bar II Candidate at the Nigerian Law School.