By Gozie Irogboli
Since the beginning of this year, the world attention is on Corona Virus Disease 2019 otherwise known as COVID-19. What is said to have originated in Wuhan in Hubei District of China at the tail end of last year acquired a pandemic status in less than two months spreading to over 190 countries with over 700 thousand cases and over 100 thousand fatalities.
As an epidemiological response to contain the spread trajectory, factories, businesses, offices and economic activities in most countries and industrial centres have closed down fueling speculations of a possible severe global economic downturn if the lockdown persists. The COVID-19 issue has already assumed global cataclysmic dimension. As it stands today the economic future of the world is uncertain if the spread of the killer virus continues. Industry analysis indicates that the worst affected since the lockdown began are the entertainment, tourism, aviation and transportation sectors because of global travel restrictions and social-distancing measures. Commodity prices are tumbling down even the price of gold which used to provide safety net for cautious investors went down in March, 2020 according to BBC report. Stock market and the financial system may witness a devastating crash globally.
Different scenarios have been conceived by experts on the possible economic effects of the COVID-19 and they are all frightening. Although the spread is very low in Africa compared to Europe and America yet the after effect is expected to be more devastating in Africa because of the Africa’s weak economic base. According to reports from African Union (AU), there is a possibility of social unrest and job losses in the neighbourhood of 20 million if the fragile African economies are stymied by the COVID-19 pandemic. In its report, the African Development Bank (AfDB), projected that Africa may require debt reprieve and a fiscal stimulus package of between $110billion and $154billion to survive the after effect of the corona virus pandemic since it estimated African GDP loss of between $22.1billion and $88.4 representing 0.7% and 2.8% of Africa’s total GDP.
In Nigeria, the predictions of industry watchers, concerned citizens and experts have been expectedly gloomy. While many countries have announced their temporary economic stimulus package, Nigeria is yet to do that. Unfortunately, Nigeria economy has no buffer against external shocks as it is precariously tied to the vicissitude of the international oil market which at present has its price on the downward slide. Nigeria has no developed economic structures and policy levers to fall back on to help contain the damaging effects of the lockdown. Nigeria fiscal procedure seems to follow the same monotonous pattern of: make budget, sell oil to finance it and when there is shortfall, and there is always shortfalls, borrow. But this time borrowing may be difficult. With total debt stock at $84.053billion as at the last quarter of 2019, about 30% of GDP and debt/revenue ratio at over 60%, far above the World Bank recommended threshold of 20%-25%, Nigeria would most certainly renege on its debt obligations with dwindling oil price at below $25 dollar per barrel less than half of the 2020 budget benchmark of $57 per barrel, the lowest since June 2001. Again, with dwindling revenue and depleting foreign reserve at $36.69billion as at February, 2020 from $47billion in December 2018 and as export is expected to decline, Nigeria will experience balance of payment difficult as it may not be able to finance its import bills being an import-dependent economy.
Furthermore, as factories close and those operational expected to work below their installed capacities, unemployment rate, which is put at 23.1% by National Bureau of Statistics, as at the last quarter of 2019, is expected to rise as it is being experienced globally. And with a country that has no social security programmes for its economically vulnerable citizens, dependency burden will increase. There would hunger and disease in another dimension and this will have unsavory ripple social effects—crime rate will notch up.
Moreover, the breakdown in the international supply chain following the closure of factories will put a severe strain on domestic supply, Nigeria being an import-dependent economy, and produce a spiraling inflationary pressure, put at 12.5% in the last quarter of 2019, on goods and services and high cost of living. Pensioners, those with fixed income, artisans and those who survive on what they get daily may suffer great hardship. Remittances from overseas are expected to decline significantly as global economy contracts.
No doubt, the impact would be felt on all economic variables. As indicated above, domestic prices would be ruffled significantly, external balances will be affected negatively, and employment and economic growth would be adversely affected. The economic outlook will be unstable. The credit rating would drop. The economy will shrink. The 2.1% projected growth rate for 2020 would be unrealizable as the economy might slide back into recession or depression as some analyst have predicted. Nigeria has the inglorious status as the poverty capital of the world. Poverty situation will worsen; many, over 60% live below the poverty line. UNDP Human Development Report 2019 placed Nigeria Human development Indices in the low human development category as Nigeria still has cases of severe multidimensional poverty. Income and wealth distribution inequality persists as the Nigerian Gini coefficient stands at 48.8 according to the latest World Population Review.
In view of the foregoing, it is imperative that the government takes urgent steps to mitigate the effects on the citizens and stimulate economic activities swamped by the outbreak of the killer virus. The initial government disaster-relief measure was aimed primarily at curtailing the spread of the disease. In the President’s speech there was no economic stimulus package; only nebulous reference to palliatives for the vulnerable group was made. Nigeria must do a realistic review of the situation, policies, budget, strategies etc and reform the systems, structures and policy and attitudinal responses to issues. The government must act fast and avoid the debilitating hebetudinous response to issues. I may not advocate hasty response but quick, pro-active response will be more stimulating. My people have a saying that “the search for the black gold should start early.”
One of the cardinal reasons for scenario planning, economic diversification, building economic institutions, systems and structures is to prepare for contingencies like this. Now that we have what looked like an economic team, this is the time for the team to brainstorm, do proper scenario analysis and recommend appropriate economic stimulus buoy up the economy after the lockdown.
Broadly, the economic team should work to reduce the growing poverty in the land because of its obvious social-political implications. With growing poverty and rural discontent the country might be sitting on a time bomb if nothing drastic happens. Accordingly, Attention should shift from oil to other sectors, solid mineral, agriculture, services among others. Firms and SMEs should receive government incentives this time. The humongous sums paid away as fuel subsidy should be put into more productive use if our refineries are fixed and we refine our products at home. Jobs will be created and the foreign exchange wasted on importation of refined products saved. And most importantly, we need fiscal discipline. The buzz word now the world over is prudence, accountability, lean government. In the interim, we must realign our priorities and cut down unproductive investments. The budget should be reviewed downwards and all the appendages pruned down to manageable size. The #37billion budgeted to rehabilitate the National Assembly, for instance should be shelved forthwith. The NASS complex is not dilapidated.
Finally, the outbreak of this killer virus disease has shown that health is the most important of all human assets. I enjoin our government at all levels to invest in our health care system.
Gozie Irogboli is an economist and public policy analyst.