IMPACT OF COVID-19 ON THE NIGERIAN ECONOMY.
The outbreak of Covid-19 also known as Corona virus in Wuhan, China and its entry into Lagos state, Nigeria on February 27,2020 has already disrupted the economy, health, Education sector of the country but to name a few. As viruses know no borders, the impacts will continue to spread. In fact, 94 percent of the Fortune 1000 across the globe, and businesses in Nigeria have been impacted and are already seeing COVID-19 disruptions. We pray and expect that the COVID-19 threat will eventually be history, as the Ebola, Zika, and Severe Acute Respiratory Syndrome (SARS) viruses have in recent years. However, social-economic impact will still be felt long after the battle is won. With over 2.39 million corona virus cases and 110,382 deaths globally, the world continues to battle the COVID-19 pandemic. Even before the outbreak, the outlook for the world economy and especially developing countries like Nigeria was fragile, as World Bank projected GDP growth at an estimated 2.5 percent in 2020. While many developed countries have recorded severe cases, Nigeria currently has 1095 confirmed cases and 32 deaths as of this write up, the weak capacity of health care systems in the country is likely to exacerbate the pandemic and its impact on our economy.
Nigeria, like all the nations of the world, is navigating uncertain times. However, for Nigeria, a country as we are whose major source of economy depends on oil, this is a Twin Shock: COVID-19 Pandemic Global & Domestic Shock, and Oil Price Shock.
Nigeria’s vulnerabilities to the impact of these external shocks is due to continuous dependent on global economies for fiscal revenues, foreign exchange inflows, fiscal deficit funding and capital flows required to sustain the nation’s economic activities.
The Supply Channel, in 2019, Nigeria’s imports from China was N4.3trillion (25 percent of total imports), while imported manufactured goods took up about 70 percent of total imports. This has already suffered as China and the rest of the world have resorted to closing down factories, imposing travel bans and even total country lock-downs, as they struggle to contain the spread of the virus. This could put more pressure on inflation numbers (12.2 percent year on year as at February 2020) going forward as cost of local production goes up.
Also, before the pandemic, the Nigerian government had been grappling with weak recovery from the 2014 oil price shock, with GDP growth tapering around 2.3 percent in 2019. In February, the IMF revised the 2020 GDP growth rate from 2.5 percent to 2 percent, as a result of relatively low oil prices and limited fiscal space. Added to the fact that the country’s debt profile has been a source of concern for policymakers and development practitioners as the most recent estimate puts the debt service-to-revenue ratio at 60 percent, which is likely to worsen amid the steep decline in revenue associated with falling oil prices. These constraining factors will aggravate the economic impact of the COVID-19 outbreak and make it more difficult for the government to weather the crisis.
Another challenge is the fall in Aggregate demand and rise in government expenditure as efforts were already being made to bolster aggregate demand through increased government spending and tax cuts for businesses.
Another challenge is the fall in Aggregate demand and rise in government expenditure as efforts were already being made to bolster aggregate demand through increased government spending and tax cuts for businesses. The public budget increased from 8.83 trillion naira ($24.53 billion) in 2019 to 10.59 trillion naira ($29.42 billion) in 2020, representing 11 percent of the national GDP, while small businesses have been exempted from company income tax, and the tax rate for medium-sized businesses has been revised downwards from 30 to 20 percent. Unfortunately, the COVID-19 crisis is causing all components of aggregate demand, except for government purchases, to fall.
Furthermore, there is already fall in household consumption in Nigeria which has stem from partial (or full) lock down on movement, thus causing consumers to spend primarily on essential goods and services; low expectations of future income, particularly by those whose income depends on economy that are engaged on a short-term/contract basis, as well as the working poor in the informal economy; and the erosion of wealth and expected wealth as a result of the decline in assets such as stocks and home equity. The federal government has imposed a lockdown in Lagos and Ogun states as well as Abuja (which have the highest number of corona virus cases combined). Recently the governor’s Forum has also announced a 14-days interstate lock down to further tide the steam. These movement restrictions have not only reduced the consumption of nonessential commodities in general, but have affected the income-generating capacity of most Nigerians, thus reducing their consumption expenditure.
Also, Investments by firms will be impeded largely due to the uncertainties that come with the pandemic-limited knowledge about the duration of the outbreak, the effectiveness of policy measures, and the reaction of economic agents to these measures—as well as negative investor sentiments, which are causing turbulence and spelling further doom in capital markets around the world. Indeed, the crisis has led to a massive decline in stock prices, as the Nigerian Stock Exchange records its worst performance since the 2008 financial crisis, which has eroded the wealth of investors. Taking into consideration the uncertainty that is associated with the pandemic and the negative profit outlook on possible investment projects, firms are likely to hold off on long-term investment decisions.
Lastly, the restrictions on movement of people and border closures hovers a decline in exports. Already, countries around the world have closed their borders to nonessential traffic, and global supply chains for exports have been disrupted. Although the exports of countries that devalue their currency due to the fall in the price of commodities (like Nigeria), will become more affordable, the limited markets for nonessential goods and services nullifies the envisaged positive effect on net exports.
Government should therefore look at ways to ameliorate some of the impact of Covid-19 on the Economy. Although some plans are already in play like the central Bank stimulus loan of 50billion Naira to credit facility, federal government Grain distribution and the conditional cash transfer but more can be done, which includes the expansion of the cash transfer and making the process more digitized and transparent, waiver of tax for corporate bodies and individuals, making loans available by the bank of Agriculture in line with the government’s anchor borrowers scheme and lastly is a more integrated response spanning several sectors including the health, finance, and trade sectors are required to address structural issues that make the country less resilient to shocks and limit its range of policy responses. In the long term, tougher decisions need to be made, including but not limited to diversifying the country’s revenue base away from oil exports and improving investments in the health care sector in ensuring that the economy is able to recover quickly from difficult conditions in the future.
Akinyele Sadiq Opeyemi is Writer from Bauchi State. He can be reached on 07069128649