THE IMPACT OF COVID-19 PANDEMIC ON THE NIGERIAN ECONOMY
|The economic cost of the COVID-19 pandemic sums up to no mean value. At present, it is far easier to under-project the scale of the coming economic trauma than to exaggerate it. Economic optimism has lost currency; pessimism has become the new posture and uncertainty is the soundtrack of the times. The economy is at its knees and its clatter has been all but silenced. The Nigerian economy, already beset by fiscal challenges such as low tax to GDP ratio, high debt service to revenue ratio and low level of tax compliance, is vulnerable. The times are grim; the effects have begun to materialise, at both macro and micro-economic levels. Suggestions exist as to how best to blunt these obviously piercing effects which threaten to undo the society.|
On the macroeconomic level, the most resolute impact of COVID-19 on the Nigerian economy would be felt through the historic lows to which the global oil prices have fallen. The fall in oil prices in 2014 compromised the economy and climaxed in a recession. In comparison with 2020, 2014 was a more benign year. The country’s finance minister clearly considered these thoughts when she admitted that an extended period of the pandemic would without a doubt yield a recession. In specific terms, the nation’s GDP is projected to lose between 6.8% -8%.1
Unemployment rates are expected to climb to no less than 35% from 28.96% in 20192; businesses are struggling to remain liquid enough, to maintain a working capital and to cut costs. Around Africa, 9 – 18 million jobs would be lost due to the pandemic and a further 30 – 35 million stand to have wages cut.
Keeping on a workforce that may be unproductive due to stifling lockdowns, reduced demand or ill health does not appeal to employers. The already high inflation rate of the nation also threatens to attain frightful heights as a direct consequence of the location where the pandemic first struck. China was first country hit by COVID-19; they pioneered usage of lockdowns which restricted their vast supply chain. Nigeria is both dependent on China for a quarter of its imports and a large fraction of its raw materials and machinery used in local production.
Inflation would be bound occur in one of two ways: cost of local production would increase or production output would be significantly reduced. The Nigerian economy also struggles under the COVID-19 regime on the microeconomic front. Before the pandemic, an average of four people became poor every minute.
The times are grim; the effects have begun to materialise, at both macro and micro-economic levels. Suggestions exist as to how best to blunt these obviously piercing effects which threaten to undo the society…the Nigerian government has made legwork on combating COVID-19 on the economic front through a litany of fiscal and monetary policies
That average would become even more depressing as trade-senstive businesses, such as transport, hospitality and non-essential goods manufacture has discontinued due to government-enforced lockdowns. Added to that, over 300 million of the of 440 million-strong labour force across Africa are engaged in informal employment. Such employment is fragile even in calm times; more so in desperate times. Unpaid sick leaves are unheard of and laying off of workers is considered to be a matter of course. Workers in formal employment too face a risk. Arik Air, Nigeria’s largest commercial airline, announced an 80% cut in worker’s salaries and 90% of its workforce have been asked to proceed on an indefinite unpaid leave. Remittances from abroad, which supported many families, would fall – as COVID-19 is a global problem. In 2019 alone, US$ 25billion of such remittances came into the country. (For perspective, Nigeria’s budget for 2019 was US$ 29 billion.2) Households without their regular remittances or wages would suffer a severe welfare loss as their purchasing power and thus capacity for consuming goods. Businesses, due to lockdowns and social distancing regulations, which have reduced labour supply, have been unable to produce to capacity. Where production has been possible, low demand for goods has constituted a problem. The effects of this dual problem has been that businesses have struggled to pay salaries, taxes and other mandatory payments.
With swift and deft action, the government and its partners can reduce the devastation of COVID-19. First, a balance must be struck between lockdowns and safe, regulated economic activity. This balance must be made based on robust expert advice and vigorous metrics. This would ensure protection of not just lives but also livelihoods. Caution must be taken against hasty relaxation of lockdowns: a spike in mortality due to such measure would cause a loss of labour force thus compounding the economic crisis. Second, government must ensure that jobs are maintained through business enterprises, particularly those that have large labour forces and have potential for faster recovery post-COVID-19. With jobs, contracts would be fulfilled, tenants would pay rents and borrower-default would not be rampant. The pathway for this action is through empowering banks (by softening solvency and warranty regulations) to lend money to distressed companies and the direct provision of an appreciable fiscal stimulus by the government. Third, a reasonable monetary policy must be dispatched to capture the most vulnerable of the population and food supply chains must be kept open. Granted, the Nigerian government has made legwork on combating COVID-19 on the economic front through a litany of fiscal and monetary policies. It is an agile expedition of those policies that would mean that the policies would be anything more than legwork. The economy can yet rise again.
1. World Bank African Pulse magazine (April, 2020)
My name, Nater Akpen, is a possession that I hold dear – others, however, use it more than I do. At first glance, I would appear exceedingly charitable: owning something dear yet letting others make the most use of it. A lifetime experience of over two decades causes me to refrain from the thought. At simplest, I am a second year medical student. I am a brother – my three siblings had no say in the matter – and a friend – or so I like to think. Benue state is home.