The collapse in oil prices coupled with the COVID-19 pandemic is expected to plunge the Nigerian economy into a severe economic recession, the worst since the 1980s, so said the latest World Bank Nigeria Development Update (NDU).
According to the Minister of State for Finance,Clement Agba and the federal government the assertion by the World Bank will likely come to reality unless the nation work hard to mitigate the impacts of the corona-virus economy.
Agba had read out a written presentation by the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, titled ‘Draft 2021-2023 MTEF/FSP: Presentation to the House Finance Committee some weeks ago.
The minister said the Nigerian economy faced serious challenges in the first half of 2020 with the microeconomic environment signiﬁcantly disrupted by the pandemic.The document partly read: “The impact of these developments is about 65 per cent decline in projected net 2020 government revenues from the oil and gas sector, with adverse consequences for foreign exchange inﬂows into the economy.
“Nigeria is exposed to spikes in risk aversion in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market.“Nigeria’s Q2 GDP growth is in all likelihood negative, and unless we achieve a very strong Q3 2020 economic performance, the Nigerian economy is likely to lapse into a second recession in four years, with signiﬁcant adverse consequences”he had said.The Minister of Finance have tried to make things have a face lift by saying not too long ago that the Q2 results were not as poor as was initially thought and recently she has gone on to say that even if Nigeria falls into a recession that it would be a quick one.The position of the Minister fly on the face of truth because since 2016 when the economy fell into a recessive economy our Gross Domestic Product(GDP)has not grown up to 3% which puts the so called growth questionable as it has not been able to cancel the population growth average.The question the development experts ask then is can we sincerely then say that we are out of recession.
While predicting one of the worst recession for Nigeria,the World Bank said the macroeconomic impact of the COVID-19 pandemic will be significant, even if Nigeria manages to contain the spread of the virus.
According to the bank ”Oil represents more than 80% of Nigeria’s exports, 30% of its banking-sector credit, and 50% of the overall government revenue. With the drop in oil prices, government revenues are expected to fall from an already low 8% of GDP in 2019 to a projected 5% in 2020. This comes at a time when fiscal resources are urgently needed to contain the COVID-19 outbreak and stimulate the economy.
” Meanwhile, the pandemic has also led to a fall in private investment due to greater uncertainty, and is expected to reduce remittances to Nigerian households, which in recent years have been larger than the combined amount of foreign direct investment and overseas development assistance”.
Shubham Chaudhuri, World Bank Country Director for Nigeria“While the long-term economic impact of the global pandemic is uncertain, the effectiveness of the government’s response is important to determine the speed, quality, and sustainability of Nigeria’s economic recovery. Besides immediate efforts to contain the spread of COVID-19 and stimulate the economy, it will be even more urgent to address bottlenecks that hinder the productivity of the economy and job creation”
The report shows that the human cost of COVID-19 could be high. Beyond the loss of life, the COVID-19 shock alone is projected to push about 5 million more Nigerians into poverty in 2020. While before the pandemic, the number of poor Nigerians was expected to increase by about 2 million largely due to population growth, the number would now increase by 7 million – with a poverty rate projected to rise from 40.1% in 2019 to 42.5% in 2020.
The report notes that the pandemic is likely to disproportionately affect the poorest and most vulnerable, in particular women. School closures have reduced the food intake of almost 7 million children who are enrolled in the national school feeding program. Economic activities have been disrupted and women’s livelihoods have been particularly impacted. Over 40% of Nigerians employed in non-farm enterprises reported a loss of income in April-May 2020. In addition, the fall in remittances is likely to affect household consumption because half of Nigerians live in remittance-receiving households, of which about a third are poor. Marco Hernandez, World Bank Lead Economist for Nigeria and co-author of the report maintains that“The unprecedented crisis requires an equally unprecedented policy response from the entire Nigerian public sector, in collaboration with the private sector, to save lives, protect livelihoods, and lay the foundations for a strong economic recovery.” The National Bureau of Statistics (NBS) release which indicated that the nation’s economy recorded a 6.1 per cent contraction in its real GDP during Q2 of 2020 for the first time since the third quarter of 2017, as a result of the pandemic.
Uche Uwaleke, a professor of capital markets at the Nasarawa State University in his reaction said the huge size of the contraction put at 6.10 per cent was not a shock”because it is based on year-on-year, when one considers the 2.12 per cent positive real GDP growth this same period last year, the decline in GDP comes to as high as 8.22 per cent.
“It is easy to see why this happened. The negative impact of COVID-19 on health which resulted in lockdowns and supply chain disruptions, the collapse in crude oil price and reduction in output in compliance with OPEC + agreement, the illiquidity in the forex market and the lingering insecurity in the country which affected agriculture output are to blame” . Bismarck Rewane, the chief executive officer at Financial Derivatives Company, while commenting on the NBS data during the Q2”said ‘the end of September will bring about negative growth in the economy but not so hard as experienced during the second quarter.”Also,the Director-General of the Budget Office, Ben Akabueze,was no left out he said Nigeria may fall into recession by Q3 due to the effects of the pandemic on the economy and global crude oil demand.
Akabueze disclosed during a press parley,because according to the numbers contained in the GDP report, the performance recorded in Q2 2020 represents a drop of 8.22% points when compared to Q2 2019 (2.12%), and 7.97% points decline when compared to Q1 2020 (1.87%).The significant fall in Nigeria’s GDP numbers reflects the negative impacts of the disruption caused by COVID-19 pandemic and crash in oil prices on the Nigerian economy.Nigeria’s biggest revenue earner, oil sector, recorded 6.63% (year-on-year) contraction in Q2 2020, indicating a decrease of –13.80% points relative to the rate recorded in the corresponding quarter of 2019.Obviously,a back to back negative GDP growth per quarter would be Nigeria’s second recession since 2016. The DG said, “Because of the twin effect of COVID-19 pandemic and the drop in oil price, subsequently it is expected that Q3 will be negative and the country might fall into recession.”But are there no way of escape?For some there is no escape for others except there is a miracle.And their reasons for maintaining this view are because of the following:
1,Drop in Diaspora Remittances: remittances represent household income from foreign economies, arising mostly from the movement of people to those economies. Remittances include cash and non-cash items that flow through formal channels such as electronic wire, informal channels, such as goods carried across borders.It should be noted that diasapora remittances accounted for 6.1% of Nigeria’s GDP in 2018.
2,Drop in Oil Prices:Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed warned that Nigeria may go into recession if the coronavirus pandemic continues for the next couple of months. According to the minister, the Federal and State governments will struggle in terms of revenue, as long as crude oil price remains low.
3,Supply chains disruptions:According to Reuters, China’s exports contracted sharply in the first two months of the year, and imports declined, as the health crisis triggered by the Coronavirus outbreak caused massive disruptions to business operations, global supply chains and economic activities.Nigerian businesses that rely on imports while businesses that export goods are also affected
4,Service Sector has been affected by the virus:The service sector in Nigeria also contributes to the Nigerian economy, but presently the sector is on meltdown.