Impact of COVID 19 on the Nigerian Economy
Today, the world combats an unusual problem, a global health pandemic. This pandemic stems from the emergence of an unknown strand of Coronavirus, an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). First identified in Wuhan, China, today, the virus has spread to over 200 countries, infecting over three million people and killing over two hundred thousand people. Unfortunately, Nigeria is no exception as the giant of Africa is well on its way to record its first two thousand cases and sixty deaths. However, while this pandemic has had an enormous toll on the global health sector, its sphere of impact has been even more extensive. Various countries in a bid to combat the pandemic have imposed either a partial or total lockdown, travel restrictions, and border closure. Although geared towards reducing the spread of the virus, these measures have also resulted in an economic lockdown. Again, Nigeria is no exception as its economy continues to suffer hugely from the pandemic-arising. Furthermore, while the impact of the COVID-19 pandemic on the Nigerian economy is alarming, it is further foregrounded when considered from the lens of the tourism and oil sector. On tourism, the industry represents one of the most crucial areas of the world economy as it currently accounts for 10% of global GDP and jobs. It has also played a significant role in the globalization process of the transportation industry, communication, and financial systems. Similarly, this relevance is the case with Nigeria, where the sector contributes 35% to the Nigerian GDP, provides jobs for over 20% of the newly employed Nigerians, and yield substantial tax receipts. However, following the outbreak of the COVID-19 pandemic, a 300 to 450 billion dollars loss is estimated, including a 50 million job-cut worldwide. Precisely, the COVID-19 pandemic will reduce tourist travels by 290 to 440 million people, an equivalent of 5 to 7 years loss in the number of tourists. More disturbingly, it could take up to ten months for the industry to recover. As such, it becomes evident that the Nigerian tourism industry suffers hugely from the pandemic. One which will, in turn, affect government revenue and the availability of jobs to members of the public at large, even post COVID-19.
Precisely, the COVID-19 pandemic will reduce tourist travels by 290 to 440 million people, an equivalent of 5 to 7 years loss in the number of tourists. More disturbingly, it could take up to ten months for the industry to recover. Also, while this would have been less worrisome, the fragility of the oil sector compounds the woes.
Also, while this would have been less worrisome, the fragility of the oil sector compounds the woes. Presently, over 90% of Nigeria’s foreign exchange earnings are from crude oil and gas. Nigeria also bases its budgetary calculations on revenue from oil sales. In fact, the approved budget had estimated a 20% increase from its 2019 revenue and pegged its 2020 estimate at N8.24 Trillion. Nigeria then based these projections on increased global oil demand resulting in a 2.18 Million Barrels per day at the price of $57 barrel. However, following the COVID-19 pandemic, there has been a drastic drop in oil price and oil demand. The Brent Crude currently sells at $26.05 per barrel, while oil producers need to cut production by almost 20% per day. As such, it becomes evident that the Nigerian economy faces a substantial budgetary problem. This problem is because it might be unable to realize the necessary revenue needed to maintain its expenditure and, consequently, the economy. Worse, the COVID-19 pandemic continues to create a cost, not earlier budgeted. Also, while COVID-19 has affected Nigeria’s budgetary predictions, these realities imply that SMEs and businesses would struggle for survival. This possibility becomes probable because the Nigerian economy is merely still recovering from the 2016 economic recession. Already happening, Access Bank Plc plans to cut staff salaries by as much as 40% to avoid laying off staff. As such, it becomes evident that the private sector is not left out has the economy stumbles. The pandemic is likely to result in massive layoffs that will affect the sustainability of individual families across the country. Even worse, in the coming weeks, this will likely result in predatory mergers and acquisitions. Foreign and larger companies will then acquire smaller companies struggling due to the COVID-19 pandemic. This acquisition will, in turn, result in less competition, job loss, and higher cost for consumers. In turn, this situation will result in harmful long-term economic consequences in Nigeria. Conclusively, the impact of the COVID-19 pandemic on the Nigerian economy has been foregrounded above. While these are daunting, these issues remain surmountable. First, to battle the impending budgetary deficit, Nigeria must revise its budgets downward in line with the current realities. However, it must ensure that it bases its assumptions and benchmarks on realistic figures, with a focus on the non-oil revenue constituent like agriculture and services sector. Through this, it can fuel economic diversification while sailing through its current difficulties. Secondly, to protect SMEs and domestic industries, I recommend the implementation of competition laws that will prohibit predatory takeover. This measure will grant SMEs and local companies protection from foreign and larger companies that can better cope with the economic downturn. This measure will ensure that there is no reduction in competition, reduce job loss, and combat higher costs for consumers. Although this measure has this possibility to lead to bankruptcy as it reduces the likelihood of cash infusion in exchange for equity, a complementary initiative avoids this. As such, for sustainability, I recommend that economic stimulus is given to SMEs and struggling businesses to enable them to stay afloat. This stimulus should come in the form of a reduction in interest rates and cost of borrowing, tax holidays, and tax cuts. These will enable them to reduce debt and financial distress in a bid to avoid bankruptcy. In turn, all of this will allow individuals to keep their jobs and contribute to the Nigerian economy.
I am Godanointing Aderibigbe, a student of law at the University of Ibadan, and an Associate Accounting Technician of the Institute of Chartered Accountants of Nigeria. I am keen on international law and diplomacy, precisely the use of policies to affect both social and economic changes. I write on Education, Policy, Economy, and Law.