Impact of COVID-19 on the Nigerian Economy
Since its first diagnosis in December 2019 in Wuhan China, COVID-19 has shaken the very foundations of global health and economy. It has claimed the lives of no less than 200,000 people worldwide and crumbled or at best halted so many businesses globally. Nigeria confirmed its index case on February 27th 2020 and have since recorded a total of over 1500 cases and over 30 deaths. As one of the measures to curb the spread of the virus, the Federal Government of Nigeria imposed a two weeks lockdown on 30th of March 2020 on Lagos state, Ogun state and the FCT, which was renewed for another two weeks upon expiration. Globally, countries with high number of cases have implemented lockdowns on activities as a measure to curb the spread of the virus. This lockdown meant one certain thing; demand for oil and other energy-driving products dwindled drastically as cars are parked at homes, planes parked in hangers and companies needing energy to produce or work are under lock and key. Oil accounts for about 90% of Nigeria’s exports, and doubles as its main source of foreign exchange. Due to extreme low demand for oil in the global market, the price of Brent crude oil per barrel – which Nigeria’s oil is traded on – has dropped to $27 as at the time of writing this article. Nigeria’s 2020 budget was drafted on an assumed price of $57 per barrel of oil. The fall in price of oil means there’s a huge fall in revenue and access to foreign exchange. It is already bad that expected revenue for the year has been affected by the pandemic, what’s worse is that government expenditure has risen – and might continue to rise as we weather the storm – than what was envisaged. Nigeria’s budget rose from 8.83 trillion naira in 2019 to 10.59 trillion naira in 2020. The onus on the government to provide palliatives to citizens and states and the overbearing cost of revamping the health care sector in a very short period which include setting up isolation and test centers will stretch expenditure further than the set limits when preparing the budget. Despite aids and support funds received from private individuals, corporate entities around the world and other governments, the cost of containing the virus will still eat deep into the coffers of the government. The United Nations Conference on Trade and Development (UNCTAD) estimated the cost of the outbreak to be about 2 trillion dollars. Although Nigeria’s economy is greatly dependent on oil, so many other produce exported by the country has been adversely affected by supply chain problems caused by the pandemic. Markets for exports and buying of raw materials have been severely affected by the outbreak; China, India, Spain, France, Italy and the United States of America being perfect examples as they are probably the country’s greatest trade allies. Export produces such as cocoa, oil seeds, ships and boats, fruits and oils, and base metal goods which contributed a collective 10% of government’s revenue in 2019 now lack viable market in locked down countries. The lockdown imposed in Nigeria by the federal government on some key states also means that a lot of businesses will be shut and income during the period greatly reduced. Some sectors like tourism, hospitality, entertainment and aviation are experiencing near-total shutdown while other sectors like banking and manufacturing are on partial shutdown. Businesses evidently can’t sustain idle workforce and retrenchment becomes inevitable. This add to an already bad number of unemployed persons in the country. Some small and medium sized businesses may never recover from the shock as their sustainability depends on daily sales and constant physical engagement with customers. This will also affect revenue derived from tax. In conclusion, various steps need to be taken by the government of Nigeria to mitigate the aforementioned effects.
Some small and medium sized businesses may never recover from the shock as their sustainability depends on daily sales and constant physical engagement with customers. This will also affect revenue derived from tax.
Although the Central Bank of Nigeria has formulated a social stimulus policy that includes a 50 billion naira credit facility to households and small/medium sized businesses, a 100 billion naira facility to the health sector and a trillion naira facility to the manufacturing sector amongst other packages. It is recommended that the CBN reduce the Cash-Reserve-Ratio from 27.5% to its former rate of 22.5% or lower so as to provide more liquidity for banks, which should in turn provide credit facilities to the people. The Loan-Deposit-Ratio of 65% can be increased a bit to ensure banks actually give out these credits. It is no news that Nigeria need to diversify its economy. The need to start local production of what the country consumes cannot be over-emphasized. It is high time Nigeria stopped depending largely on oil and its proceeds for revenue. The country’s focus should shift to the boundless arable lands in its territory for aggressive production of agricultural products. The government and the people should take technology serious and invest heavily in the sector. The government should provide affordable and fast internet access and also reduce charges on cashless transactions so as to encourage e-commerce. In a bid to lower its debts and obligations, the government can discuss with international creditors about cancellation or rescheduling payments of some of their debts. Lastly, Federal and States’ Inland Revenue Service should delay or waive tax collection for sectors who are most adversely affected by the pandemic to allow them recover from the shock while also encouraging sectors experiencing boom during the pandemic to pay on time and completely.
My name is Oluwasegun Adeoye. I am a retail marketer with Zenith Bank. I have my background in engineering; civil engineering to be precise and having worked as a facility manager and civil engineer since I graduated from the university in 2017, I decided to cross to the banking sector to pursue a professional career in the financial services sector of the economy. I joined Zenith bank in January 2020.