Impact of Covid-19 on the Nigerian economy
A law undergraduate with a demonstrated interest in the financial and economic policymaking process, my name is Emmanuel Chiemerie Igbokwe, 22 years of age. Motivated by lack of opportunities growing up, and recognizing the underestimated benefits of internet and technology on the economic scene, I have also aligned my affinity for economics and finance to the developing internet sector in Nigeria.
Confirmed cases of the COVID-19 coronavirus have surpassed 3 million globally, with death figures more than 200 thousand. Fortunately, Nigeria has had a much slower rate of infection and death rate. Nevertheless the devastating effect on commerce and the economies have been felt in both the well affected Nations, and the lesser affected ones. Most countries around the world has a form of lockdown and movement restrictions, which are measures utilized to curtail the spread of the deadly virus. These restrictions has had a devastating impact on the global economy and commerce around the world, including Nigeria as it has disrupted the supply and demand chains of economies.
Specific implications and impacts could vary, for instance the service industry which deals with a lot of human interaction has been hit extensively by the restrictions. The service sector dominates the economy of Nigeria, as it accounts for roughly 60% of Nigeria’s GDP. According to the National Bureau of statistics, Nigeria’s unemployment rate is at 23.1%, while rated as the poverty capital of the world with an estimated 87 million people living on less than $2 per day. With a very small formal economy, and a large workforce employed in the informal economy, the impact of this pandemic could wipe out the ‘less than $2’ per day population which amounts to roughly 87 million people, rendering almost half of the country’s population jobless, exasperating the already precarious employment situation in the most populous country in Africa.
Furthermore, before the pandemic, the Nigerian government was doing a weak job grappling with the effects of the 2016 recession in the aftermath of a slowing growth rate, as a result of dip in oil prices brought by sole dependency on oil revenues. Related to this is the fact that most of its budget was prepared with grandiose oil revenue expectations, which many has criticized as lacking feasibility, the emergence of COVID-19 causing further unprecedented slump and plummet in oil prices-NNPC cut its production output due to lack of storage spaces, means the country’s revenues would be drastically cut down, leaving most of the intended expenditures in the budget unrealizable.
The world bank had issued a report last year of the vulnerability of debt ridden developing countries “with increased access to international capital markets, many low- and middle-income countries shifted away from traditional sources of financing and experienced a sharp rise in external debt, raising new concerns about sustainability”, Nigeria’s government had before this pandemic, been pushing for the approval of its plan to borrow up to $29.96 billion which would’ve have brought the total external debt of Nigeria to $113.7 billion. Nigeria had another loan of $8.3 billion approved by IMF to help in its fight against COVID-19. According to the ministry of finance, Nigeria had utilized 54% of its revenue in both 2018 and 2019 in servicing external debt, thus establishing its external debt at 3% of its GDP. The fall in oil prices caused by the pandemic, has tipped the fall in Nigeria’s revenue, which deceptively poses a great danger to the Nigeria’s economy in lieu of the absence of debt servicing as a result of fall in revenue.
Again, the observational analysis of the impact of Foreign direct investment (FDI) on Nigeria’s economic growth have proven that FDI has had a positive impact on Nigeria’s economy, as its investment has mainly focused on other sectors of the economy away from the oil sector. An impact that had the effect of propelling Nigeria’s economy as it reels from the oil slumps of 2014, which plummeted the country’s foreign exchange reserves. While countries like China, Germany and USA, which form some of the leading investors in Nigeria, have had their economies contracting as a result of the pandemic, it has led to negative investment feeling. Indeed, the Nigerian stock exchange has recorded its worst loses since 2008. With oil revenues gone, and foreign investment gone too, it begs to see the devastating impact the virus has had on Nigeria’s economy.
Given the uncertainty surrounding this health crisis, and seeing the devastating impact it has on both human lives and on the economy, it is important that certain measures are made to help the economy recover. Recommending some measures, the federal inland revenue service, along with that of the state should waive the collection of taxes, while the central bank should increase its cash reserve, and give banks fiscal space in other to extend credit lines to the private citizens. This would help to keep money in circulation, boosting the private sector as it spearheads the overturn of the increase in unemployment. Recognising the unattainable nature of its budget due to fall in revenue, the government should introduce stimulus packages for small to medium scale businesses, along with subsidized credits for small businesses, this would preserve incomes and productivity in other to offset the lack of investment from the budget. Nigeria’s former minister Ngozi Okonjo iweala, had called for debt reliefs from both bilateral and multilateral Partners of Nigeria and Africa, to cushion the effect of this pandemic. While this is welcomed, the government shouldn’t just rely on begging, but should do well to abandon its proposed $29billion dollar loan, cut its excessive unnecessary expenditure, and maintain its debt servicing, this way the economy wouldn’t be overburdened by debt as it tries to recover from this crisis. Furthermore, private investment should be encouraged through tax incentives, as we envisage a dry up of foreign direct investment. Quick and bold policies should be designed and the uncertainty of this crisis should be taken into account.