The world is currently at a time when everyone and every country continue to hope for a cure for the COVID-19 which brought the world economy to a standstill.
As an economist, my preoccupation is on the economic effects, which I call ‘ECOdemics’ of this pandemics on the economy, especially that of Nigeria, in short run and long run, and to find a way out of it. This first part of this write-up will x-ray the ECOdemics, while the second part will try to suggest some solutions.
ECOdemics of the Pandemics in Nigeria
The effects will be examined in short run and also in long run.
A. Short-term Effects
Effect on the Overall Economy.
Owing to the dependence on Oil sector, Nigeria is and will be one of the countries that will be mostly affected by the pandemics.
Despite the efforts put in place by the current administration in the country in trying to boost the non-oil sector of the economy, the economy continues to depend on the oil sector. At the end of the fourth Quarter of 2019, oil revenue accounted for N1,563.65 billion or 60.1 per cent of the Gross Federation Account Revenue.
This was when crude oil was selling at an average of $67 per barrel. Hence, with crude oil price selling below below $20, which is below the cost price, countries, including Nigeria, are not likely to sell.
More worrisome is the fact that non-oil revenue is also falling as a result of the lock-down. At the end of the fourth quarter, 2019, the non-oil revenue was N1,038.65 billion. It was below the quarterly budget of N1,341.72 billion by 22.6 per cent.
This implies that with almost zero activities in the country, the revenue is expected to be very low. Based on these, the following macro ECOdemics are likely.
1) Negative Growth
Though CBN has not released the report of the first quarter of 2020, it is expected that the country will be experiencing a negative growth. At the end of the fourth quarter of 2019, indices of industrial production increased by 3.7% above the preceding quarter to stay at 119.8.
The performance is being disrupted with this lock-down. This could have been averted if health safety needs such as face masks are produced in the country. Agriculture planting period is being disrupted currently by this lock-down. This means possible fall in agricultural productivity.
By the first quarter of 2019, GDP recorded a positive growth of 2.1%. This was a period when the Nigeria recorded average daily oil production was 1.99 million barrels per day. Hence, with the fall in production of sales of crude oil, a negative GDP growth is expected.
However, this may be offset by the activities in the oil sector in January and February when the effect of the pandemics was not yet in full scale in the world.
With the ongoing lock-down, demand is low as well as supply. However, if this continues, supply will be exhausted. With disruption in supply chain, meeting demand in the short run will be difficult. Hence, the Inflation is the result. Headline Inflation was at 11.98% at the end of December, 2019. This is going to increase.
3. Exchange Rate
Despite the fall in crude oil price, the exchange rate continues to be N360 to a dollar at official market and N388 in the parallel market. The reason for this is because there is no demand pressure on the Dollar because countries are locked down. Hence, as long as this persists, exchange rate is likely to maintain the same range throughout the pandemic period.
4. Foreign Reserve
The country’s Gross external reserves were US$38.07 billion at end of December 2019. During the period, aggregate foreign exchange inflow into the CBN experienced a decline from of 15.9 per when compared to that of 2018 fourth quarter to stay at US$13.29 billion. The Aggregate outflow from the CBN was US$15.57 billion.
With activities at standstill, outflow will be limited, if the country can secure relieves on her foreign debts servicing. Also, inflow will reduce, but with inflows of grants from international body, it may not be affected much. The major worries will be inflow of foreign exchange from Nigerians abroad. This will be highly affected.
If the lock-down persist, and the demand of crude oil remains as it is, government may be forced to deplete the foreign reserve to meet her domestic obligation.
5. Lending Rate.
Lending Rate is supposed to fall during this time because of lack of demand for loan-able funds. However, the structure of financial system in Nigeria may not allow this. Depending on what CBN does, lending rate may not change significantly.
6. Domestic refined Price of Oil.
With crude oil price falling, this is the time when pump price of oil should be going down in Nigeria. Scarcity may not be experienced any time soon because domestic demand is relatively low.
However, if the government does not have enough reserve, and the import for this is disrupted, scarcity could resort and push price higher than the regulated price. However, since it is not market driven, it may remain the same, depending on what government does.
On the micro effects, these will include increase in crimes, hunger, poverty, uncertainty in businesses, and even deaths. Sellers of essential goods will profit during this period, fixed salary earners, both in the public and private enterprises, may experience disruption in their salaries,
B. Long term Effects
The long term effect will include recession or even a depression, continued inflation, exchange rate depreciation, high lending rate, poverty, crimes, etc
These will depend on the reactions of government in the short term. If government is able to react well, the long term may be cut short. If not, the country may continue to experience the ECOdemics throughout the year and the next.