The Impact of COVID-19 on the Nigerian Economy
The saying, “The world is a global village”, though now cliché, remains very valid and true. The ease of the movement of people, goods, services and money around the world emphasizes this point. This ease of movement, unfortunately, contributed to the ease and speed at which the Corona Virus Disease 2019 (Covid 19) spread globally, leading to the pandemic. This disease currently affects almost 200 countries of the world with Nigeria not being left out. Nigeria accounts for 1728 of over 3 million confirmed cases of infected persons worldwide as at April 29, 2020. The ratio of the Nigerian cases might seem little but the impact on the economy is just as magnificent as it is worldwide. In subsequent paragraphs, the impact of this pandemic on the Nigerian economy will be briefly examined. The biggest impact of the pandemic on the economy is the decline in the value of the Gross Domestic Product (GDP). The GDP is the value of all the goods and services produced in a country during a particular period. According to the data reported by the Nigerian Bureau of Statistics, real GDP was 19.53 trillion naira as at the end Q4 2019 and this value is expected to experience a download slide leading to an economic recession by the end of 2020. This decline in the GDP is as a result of various factors influenced by the pandemic. In a bid to contain the spread of the virus, the government issued a lockdown order on Lagos, Abuja, Ogun State and recently, Kano State. The implication of this is that buying and selling in the open market and other forms of business activities were halted, manufacturing factories were closed and many sectors of the economy were shut down. Some of the specific sectors affected include the Hospitality and Tourism sector, transportation and aviation among others. The reduction of business activities in the country translates to a reduction in cashflow and revenue and ultimately the decline in the value of the GDP Another factor causing the decline is the decline in the price of crude oil in the international markets. Nigeria is an oil dependent economy. Oil accounts for 90% of Nigeria’s export despite only accounting for about 8% of the GDP. The decline in the oil price translates to a decline in government revenue. The Brent oil price as at 30th of April was a little above $25. This is a sharp reduction in the $57 benchmark set by the Nigerian government in the 2020 Appropriation Act. The decline in the price of oil is primarily due to the reduced demand for oil as a result of global economic shutdown and the excess supply.
In a bid to mitigate the hardship on the economy, it is recommended that the Central Bank of Nigeria reviews the Monetary Policy rate and reduce the interest rates. This will make it cheaper for businesses and individuals to borrow money from the banks to meet various economic needs.
The Nigerian economy is further affected by this as the country will be forced to reduce its production output from the regular 2 mb/d, further leading to a decline in government revenue. In order to mitigate the harsh effects of this dip in revenue, the government is planning to raise capital from the domestic capital market. The pandemic also poses a bigger threat to the already high rate of unemployment in Nigeria. According to the last data provided by the Nigerian Bureau of Statistics, unemployment rate in Nigeria stood at an alarming rate of 23% in 2018. Unemployment is expected to grow in the country owing to the effects of stalled economic activities from the pandemic. Many businesses which have been shut down, with little or no revenue and increasing fixed costs will find it difficult to maintain their workforce, eventually leading to the retrenchment of many workers. In order to control the increasing unemployment in the country, the government is implementing policies to this effect including a policy giving an income tax rebate to organisations that do not lay off workers between March and December 2020. The global effect of the pandemic also has a ripple effect on the Nigerian economy. As a result of the pandemic, there has been a disruption in the global supply chain which has a negative effect on the importation and exportation of goods and services. Nigeria is an import dependent country as manufactured goods accounted for 70% of total imports in 2019. China and the United States of America; who are among the worst hit states by the pandemic, are Nigeria’s biggest import partners. This reality poses a threat to the availability of goods and services for importation, thereby affecting the economy more negatively. In closing, the effects of the pandemic on the Nigerian economy is devastating to say the least. It is an unexpected crisis which poses a lot of hardship to the Nigerian populace. However, in a bid to mitigate the hardship on the economy, it is recommended that the Central Bank of Nigeria reviews the Monetary Policy rate and reduce the interest rates. This will make it cheaper for businesses and individuals to borrow money from the banks to meet various economic needs. This, in turn will make the economic recovery faster. Another recommendation would be for the government to review the 2020 appropriation act to meet the demand of the current realities and explore to the fullest the capacity of the domestic capital markets to raise capital. In the long run, the proper diversification of the economy is also recommended. The effect of the current dependence on oil is depressing and it is advisable to explore and exploit the prospects of other sectors including Agriculture, Technology, Services and Entertainment in the building of a strong economy. It is also recommended that the government put adequate measures in place to promote foreign direct investments while improving foreign portfolio investments.
My name is Elijah Joseph and I am a Law graduate from Obafemi Awolowo University, Ile Ife, Osun State. I am currently enrolled in the Bar Part II program of the Nigerian Law School. In addition to my interests in law, I have a growing interest in finance and career development.