IMPACT OF COVID-19 ON NIGERIA’S ECONOMY: CAN WE DEFY THE ODDS?

The impact of this global pandemic is not far-fetched as virtually every country of the world has gotten a hit by this pandemic.

Its first case been identified in December 2019 in Wuhan, China, and has since spread globally resulting in an ongoing pandemic. The coronavirus disease 2019 (COVID-19) is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-COV-2). As of 31st May 2020 more than 6.2 million cases have been reported across 1,888 countries and territories resulting in more than 374,000 deaths. More than 2.67 million people have recovered globally. Nigeria has reported 10,162 cases of COVID-19 with 287 deaths and 3,007 discharged.

We have seen demand for oil decline amidst the lockdown, recession looming in Nigeria, layoffs, a spike in the unemployment rate in the US (a century high of 14.7%), Q1 2020 financials for companies in Nigeria showed a decline in profit margins especially in the sectors worse hit by the pandemic. “The sectors identified as most impacted by COVID-19 include tourism, leisure, aviation, manufacturing, construction, and real estate.” – Stears Business. The US lost 20.5 million jobs in April 2020 alone, it took the US over a decade to add 22.3 million jobs, all swiped up in just 2 months of the COVID-19 pandemic.

 Responses from DFI/MFI’s, corporate organizations, governments across the globe have been good so far. The IMF $50billion RPI, World bank $160billion facility, IFC $8billion relief aid, ECB €870billion pandemic emergency purchase programme, AfDB $3billion fight COVID-19 social bond, CACOVID donations of over ?27.5billion, CBN ?3.5 trillion stimulus package, donations by corporate organizations across the globe.

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Focus point: “Nigeria needs to focus on getting resources to the bottom of the pyramid and keep the food supply chain intact.” - Dr. Andrew Nevin (Chief economist, PwC West Africa).

Businessday paper dated May 11, 2020 headlines “Why investors prefer Egypt to Nigeria amid coronavirus pandemic” for the following reasons; foreign exchange liquidity, higher economic growth rate, and lower inflation.

Let’s examine these reasons individually. On foreign exchange liquidation, Nigeria has witnessed a surge in demand for dollars over the years, the pressure on the dollars has been on the increase over the years which hasn’t been helpful for the naira. Africa needs to trade with Africa, Nigeria needs to improve its trade with African countries that way we would reduce the pressure on the dollars. I believe the AfCTA is a brilliant initiative and if implemented would yield favourable returns for the Nigerian economy.

On a higher economic growth rate, “Nigeria needs to have a GDP growth rate of 6% - 8% a year to reduce poverty and alleviate unemployment. We need to grow investment to achieve this. We must invest in Nigeria. If we do not get investment up, we would not be able to bring people out of poverty. Right now, it’s too complex and too costly to do business in Nigeria. There are too many agencies, too many costs, too much complexity so people choose not to invest.” – Dr. Andrew Nevin.

When we talk about exporting physical goods, Nigeria requires a real improvement in its infrastructure to enable made in Nigeria goods more competitive in the global markets by reducing the cost of production of these goods. I believe the initiative of the CBN to establish the Infrastructure Company (InfraCo) plc with a Debt/Equity capital of ?15trillion is a brilliant idea if properly implemented as this would go a long way in addressing the infrastructure deficit in the country.

Another question we should ask ourselves is; “Where are we going to export to? The population in Europe is shrinking, the population in North America is flat, can we displace people already exporting to these countries? Well, the best advice is that we should kind of leapfrog and go back to the lessons learnt from India and export Nigerian brains without exporting the people.” – Dr. Andrew Nevin. Given the impact of the COVID-19, this is even more feasible now as physical presence is not necessarily required and people can work remotely. This is an opportunity Nigeria should exploit.

The IMF (October 2019) predicted a GDP growth rate of 6% for Kenya and 1.0% (April 2020), this shows an 83.3% decline in the East African giant growth rate, but they still get not to fall into a recession. IMF pre-COVID GDP growth rate forecast for Nigeria was 2.5%, the revised GDP rate showed a contraction of -3.4%. The importance of a double-digit GDP growth rate cannot be overemphasized as this helps Nigeria to whether the storm. “In this period of the pandemic, less diversified economies particularly oil-dependent economies will be hit harder than well-diversified economies.” – KPMG Nigeria.

To enhance economic recovery, Nigeria must increase its support to the informal sector of the economy as the informal sector is a strong bedrock of our economy. The informal sector contributes about 41% of Nigeria’s economic output. – Stears Business. The size of fiscal stimulus as a percentage of GDP for Nigeria is just 3.4% which is not enough.

On a higher inflation rate, there has been pressured demand (most especially for consumables) in this period of the pandemic as households have been stocking up. With disruptions in the global supply chain, demand for goods exceeds supply for these goods. Hopefully, as the world economy reopens and the global supply chain gets working, we are likely to see a price equilibrium for these goods and subsequently a decrease in the inflation rate.