By AYOOLA OLAOLUWA
Nigerians have been warned to brace for a tough time in the new year as the nation’s economy crisis is expected to worsen.
The consensus of economic experts in their 2021 projections for the nation, is that the economy will record another negative result in the first half of 2021, especially from the negative effects of a second wave of the coronavirus pandemic that is shutting down global economy.
An oil market analyst, Olatunde Dodondawa, said Nigeria would lose a huge chunk of her revenue to oil glut as Covi19 continues to ravage world economy.
*For Nigeria, another wave of COVID-driven lockdown signifies a threat. The country is one of Asia and Europe’s main sources of crude and given that very few cargoes sold between September and December, Nigeria will have to give a great discount to sell off its unsold cargoes.
“Nigeria’s Brass River and Forcados have similar qualities with the US grades and the US crude is cheaper. With this second lockdown, more sales will be lost in both the short term and long term. Nigeria has to think of incentives to attract buyers. Incentives like attractive discounts which may result in loss of revenue to the country.
“I know that November and December cargoes have not been sold as at today and also remember that there was a time when crude was sold at negative prices.
For it to survive, Nigeria needs to keep its market share of the European market. The country will have to give as much discount as it can to keep her market share and reduce CIF,” Dodondawa said.
An investment banker, Dr. Segun Beckly, said the nation should brace for an extended foreign exchange rate crisis as the oil markets continues to be battered by headwinds.
According Beckly, if the second lockdown affects demand for crude, it would mean reduced forex earnings for Nigeria and an inability to finance the 2021 buget of N13 trillion and meet key government obligations.
Business Hallmark recalled that President Muhammadu Bihari had in December 2020, signed into law the 2021 budget. The government based its benchmark at $40 per barrel and production output at 1.7 million per day.
However, while crude oil price has risen beyond $50 since the beginning of the year, the nation’s output has remained largely at 1.4 millions barrels per day.
‘With a potential drop in oil prices, Nigeria is likely to face a foreign exchange crisis for longer as crude oil, its top revenue source is selling at less than $50 a barrel.
“Following the first wave of COVID-19, forex inflow into the country dropped significantly as foreign portfolio investors (FPIs) pulled out their investments from Nigeria and Diaspora funds dropped to $19billion.
Beckly warned that foreign exchange liquidity squeeze will continue for as long as oil prices are down and the country fails to diversify its economy.
Likewise, the Organisation of the Petroleum Exporting Countries (OPEC), recently warned member countries that a prolonged second wave could lead to oil surplus in 2021.
“The earlier signs of economic recovery in some parts of the world are overshadowed by fragile conditions and growing scepticism about the pace of the recovery.
‘In particular, a resurgence of COVID-19 cases across the world and prospects for partial lockdowns in the winter months could compound the risks to economic and oil demand recovery,” OPEC stated in a document obtained by BH.
Also speaking, the founder of The Green Investment Club, Mr. Tomie Balogun, predicted a downside risk to the recovery of the nation’s economy in 2021.
“The Federal Government secured two major loans in 2020; $3.4 billion emergency support loan from the IMF recently and a $1.5 billion package to help boost post-Covid-19 recovery.
“To satisfy the requirements of both loans, the Central Bank of Nigeria (CBN), recently devalued the naira so that the official exchange rates and NAFEX rates can be unified.
“Fuel prices are likely to be determined automatically based on market forces. The current VAT (7.5%) is likely to increase to generate additional revenue for the Federal Government of Nigeria. A hike in VAT will put a strain on the disposable income of medium to low-income earners”, Balogun warned.
A financial expert, Thelma Ugonna Ohiri-Anyanwu, warned that inflation rate will remain high this year, despite the re-opening of land borders and the ongoing harvest season.
“Rates regime are expected to remain low to encourage the recovery of the real sector, which would create great opportunities in the capital and alternative investment space.
*Also, to satisfy the requirements of the 2 loans secured by the government in 2021, I expect a further devaluation of the naira to unify the official and NAFEX rates”, Anyanwu stated.
She, however, said that with the deployment of Covid-19 vaccines, she expects increased investment and revenue for medical, especially pharmaceutical, logistics and refrigerator manufacturing companies.
“I also expect increased investment and acceptance of the Cryptocurrency world, with individuals and companies with technical know-how having an opportunity of higher earnings from training.
“Overall, the World Bank has forecasted that the Nigerian economy will marginally grow by 0.3% in 2021; So, I am hopeful that we will come out of the economic recession before the end of 2021.”
However, Proshare Nigeria, a financial service provider, in its latest report tittled: Nigeria Economic Outlook 2021: A Shot at Recovery (Nigeria: Tough Times, Tough Takes), projected GDP growth to rebound by 1.7% to 2.0%, buoyed by increased economic activity and some improvements in the oil market.
“Covid-19 took its toll on the Nigerian economy in 2020, after the FGN imposed widespread nationwide lockdowns in Q2-2020 to contain the virus.
“The oil market collapse wiped out export earnings and 50.0% of government revenue, even as domestic economic activities were ground to a halt in the country’s largest commercial hubs.
*The CBN devalued the Naira on its official and I&E windows in the face of the pandemic, launched a series of intervention programs, slashed the monetary policy rate and kept the system inundated with liquidity.
*Similarly, amid pressure on both oil and non-oil revenue, the FGN was forced to take bold actions. The pump price of petrol was somewhat deregulated, electricity tariffs were hiked, and the closure of the land borders was reviewed.
“Despite the concerted efforts, the economy slipped into another recession as GDP contracted in Q2 and Q3-2020. Inflation galloped to a 33-month high of 14.89% y/y in Nov-2020, amid sharp food price increases and the currency market crisis.
“Also, the CBN imposed administrative measures to curb the depletion of the external reserves, which slid to $35.4bn (down $3.2bn YTD) in Dec-2020. As such, the parallel market rate crossed N500/$ in Q4-2020 while foreign capital inflows hit rock bottom.
‘In 2021, we expect GDP growth to rebound by 1.7% to 2.0%, buoyed by increased economic activity and some improvements in the oil market.
“Although the reopening of the borders in Q4-2020 should ease pressures on food prices, other structural factors such as FX market illiquidity, potential increases in petrol price, etc. may keep general prices elevated.
‘As a result, we expect the headline inflation rate to peak at around 16.0% before pulling back, if no further policy adjustment is made.
“Again, the high base effect of the headline inflation spike in Q3 and Q4 2020 should moderate further increases in price levels. In response to rising inflation and in a bid to attract FPI inflows to the market, we imagine that the CBN would begin to tighten its monetary policy stance at some point in Q2-Q3 2021.
*Finally, on the exchange rate, we expect a potential convergence of rates when the CBN begins full intervention at the I&E window. As such, we anticipate that the parallel market will appreciate from N470/$ towards the NAFEX rate which has now been adjusted to N410/$”, Proshare stated in the report.