Impact of COVID-19 on the Nigerian Economy
1.0. My love for my country inspires this piece.
2.0. ABSTRACT: About a hundred years ago, the world walked out of a major war. Today, the world can only pray for so much-to walk out of a similar, yet so different war. One fought not with guns and explosives; but with wit, science and strategy. One with medical officers at the battle front. In the wake of this war, lacerations have been made on not only the medical health, but as well the economic health of the world’s countries. Such was the pressure that led the German Minister of Finance to committing suicide. As if that was not enough, the virus has claimed the life of the Chief of Staff to the Nigerian President . Many states have declared states of emergency, or emergency lockdowns. For once, everything appears to be still. This research thesis will in terms as crystal as black and white, probe the impact of the novel Coronavirus Disease, “the COVID-19”, on various aspects of the Nigerian economy, using facts and policy objectives as instances, and recommending ways out of the haze. THE ROAD THROUGH A PANDEMIC. Perhaps a better imagery of the nature of pandemics would be mirrored by a short journey down the memory lane. As far back as the 14th Century, the Black Plague bedeviled the world and claimed nearly half of the world’s population. Around 1918, the Spanish flu broke out, and ravaged the earth. It left with over 20% of the world’s population. In a similar yet novel fashion, the Coronavirus Disease, ‘the COVID-19’, struck Wuhan, China in December 2019. While the world celebrated Christmas, China battled with what would later become a global concern. At present, the virus has spread all over the world, and is now Nigeria’s biggest problem. The future is most of all now uncertain, as while it is true that pandemics come and go, the same cannot be said of their economic degradations, which stay well a long time after.
3.0 Nigeria on Trial. To the Director-General of the ILO, Guy Ryder, the COVID-19 is not just a medical crisis, but a social and economic one too. It is almost becoming imperative however, that the ILO’s estimate that as many as 25 million people could become unemployed with a loss of workers’ income of as much as $3.4 trillion, in fact underestimates the magnitude of the impact.
Today, the world can only pray for so much-to walk out of a similar, yet so different war. One fought not with guns and explosives; but with wit, science and strategy. One with medical officers at the battle front. Nigeria’s vulnerabilities to the impact of the virus on external trade is linked to increased dependency on global economies for foreign exchange inflows, fiscal revenues, fiscal deficit funding and capital flows required to sustain the nation’s economic activities.
4.0 Way beyond unemployment challenges, there could be a twin shock to the Nigerian economy as a result of this pandemic: to foreign trade; and crude oil price. Nigeria’s vulnerabilities to the impact of the virus on external trade is linked to increased dependency on global economies for foreign exchange inflows, fiscal revenues, fiscal deficit funding and capital flows required to sustain the nation’s economic activities. The lockdown policy implemented by many economies to hamper the spread of the virus has had a toll on demand and supply. In 2019 as of fact, Nigeria’s imports from China was 4.3 trillion naira (25% of total imports). As we can see, this is already affected as China and other countries like the US have resorted to closing down factories and imposing travel bans. This would put more pressure on inflation numbers going forward as cost of local production would go up .
5.0 This twin shock introduces a dearth in the financial channel and global capital flows to emerging markets including Nigeria in FDIs and FPIs. Depressing global capital flows will put significant negative pressure on Nigeria’s foreign exchange reserves and exchange rates, evident already in the hike of dollar-naira exchange rate from 366 to 400 naira per dollar as of 25 April 2020. In fact, the CBN has migrated to a single exchange rate and collapsed the multiple exchange rate policy . Could things get any worse?
6.0 Furthermore, the pandemic has brought a devastating impact upon the country’s crude oil sector, since the top six major oil export destinations: India, Spain, the Netherlands, South Africa, France and Italy are all grappling with the pandemic. This development is further complicated by the oil market price wars (between Saudi Arabia and Russia) which upset the demand and supply dynamics in the global oil markets. Oil prices have fallen below $12.40 per barrel , below the government’s $57 budget target, below the nation’s fiscal breakeven oil price of about $133 and below a production cost of $22 per barrel. This is tragic as earnings from oil sales account for 90% of forex earnings and more than half of government income.
Conclusion and Recommendations:
• The FIRS as well as various SIRSs should waive payments on personal and corporate income tax for at least the second quarter of 2020, and completely delay tax collection in the worst-hit sectors like tourism, the airline industry, and hoteliers to enable them properly recover from the steep decline in demand and encourage those that retained their employees;
• The CBN’s decision to increase the cash reserve ratio from 23.5% to 27.5% in January should be reviewed to provide liquidity for banks providing credit to the private sector. Also, the CBN should re-establish a swap facility with the US and China to provide additional dollar and yen liquidity in the forex market;
• To combat the crude oil price crash, it is imperative that the country’s crude oil reserves be increased, and that storage space for excess unsold barrels be created.
Odinaka Akpamgbo is a Writer from Enugu State. He can be reached on 2348115834427