Coronavirus: Effect on Nigeria’s economy
Nigeria’s Cup of Tea or Barrel of Oil
Nigeria has been able to garner widespread compliments on containing the virus. According to reports by Al Jazeera, public health professionals expressed confidence in the Nigerian health authorities to tackle the pandemic .This could be attributed to the key lessons learned during a pro-active response to the Ebola outbreak over five years ago.
However, Cameroon sharing borders with Nigeria and currently experiencing political turmoil could be a concern.
The effects of this pandemic on the Nigerian economy are becoming apparent and worrisome. With our evident economic over-reliance on Crude oil, the impact of the coronavirus outbreak has been obvious on crude oil prices, which had fallen to $36 per barrel in less than two months of the announcement of the first confirmed case.
China’s impact have being enormous in investments in Nigeria In addition to the enormous supply chain provisions, China is also funding and building the necessary infrastructure to facilitate more trade. As of May 2019, Chinese corporations had put in $20 billion in more than 150 businesses in Nigeria. The importation of Chinese-made consumables and factory-made merchandises to Nigeria buttresses the two countries' trading affiliation as Nigeria is net imports of physical Chinese goods is on the rise. All these financial perks could take a drastic dip as the funds might be diverted towards sorting the pandemic issues being faced at the moment. Foreign direct investments will definitely shrink.
Also, massive constructions going on nationwide being embarked on by the Chinese are set to be affected as well. There will be a possible pause in the continuity of these projects. The Belt Road initiative for example that would need heavy supplies might not get it due to the travel and import restrictions. This would probably have an effect on infrastructural development nationally.
Another undeniable blow that will be dealt on Nigeria is the disruption of production and trade as the supply chain is seriously meeting some obvious impediments. Access to critical raw materials may be very uncertain. Between April and September 2019, the National Bureau of Statistics reported that Nigeria’s value of Imports from China was around 2.2 trillion Naira. All these worth of supplies may not be available for the teeming Nigerian population.Since most raw materials come from China, there are possibilities of companies invariably running out of stock. This will possibly lead to a case of increase in demand and a simultaneous increase in price hence inflation.
For the real sector, production could suffer as expected. Strong virus impact in countries that produce major capital goods such as machinery and chemicals that we use in our production means we might have problems accessing critical raw materials, which will disrupt our production and our economy. Companies can't produce and can't earn, so people can't earn salaries and hence can't purchase. This will lead to lost production, incomes, taxes and if prolonged can lead to a recession.
However, the apparent hit on oil prices will definitely affect the financial sector heavily. With oil prices tumbling down to $33 dollar per barrel, Nigeria is set to experience a very evident reduction in external reserves. The reduction in external reserves could also mean the scarcity of FX. We might also see interest rates head northwards amidst fears of devaluation and probably an increase in headline inflation.
The 2020 budget also seems unsustainable at this point due to the drop in oil prices. The current price is way below the $57 dollar benchmark for crude oil. This definitely means more debts for the Nigerian Government with a very heavy debt profile already.
The depletion in these reserves could also trigger an increase in Nigeria’s borrowing costs. Credit ratings dropped last December according to Moody’s. S & P also downgraded Nigeria’s economic outlook with the heavy debt portfolio with the belief that it could be a strong indicator of the vulnerability of the economy to external shocks. This could hasten the currency devaluation process.
IMF also believes that the GDP growths of 2.5% isn’t feasible any longer, reducing its forecast to 2%. Meanwhile, Kevin Daley of Aberdeen standard investments believes the Nigerian GDP would grow GDP at the rate of 1%.
Furthermore, we also expect a dip in aviation activities. We also expect a massive reduction in flights, cargoes especially. This could lead to travel companies to urgently cut costs which may lead to job losses.