Editorial
Editorial: Falling oil prices, COVID-19 and the Nigerian economy
The world economy is in dire straits. And Nigeria is not excluded. At the moment, there is a consensus that the world economy will certainly plunge into recession sooner or later. The implication is that almost every country would have her fair share of the economic depression that is strongly lurking around the corner.
The International Monetary Fund, IMF at its on-going spring meetings has revised downward the growth projections of not only the world economy but also that of most countries. According to the revision, the United States of America’s economy is expected to shrink by about- 6 per cent from a growth of 2.5 per cent, the Euro area to shrink by -7.5 per cent while China may grow at a miserly 1.2 per cent.
In sub-Saharan Africa, the IMF projected that her economy will ease downward by -1.6 per cent and 4 or 5 per cent, in per capita terms. On its part, the World Bank expects the African economy to shrink this year by -2.1 Per cent to –5.1 per cent.
For the sub-Saharan African economy, which had lately recovered after the fall in oil prices in 2014, this is indeed a big blow as unfortunately, the economy is again being plagued by the devastating effect of the ubiquitous Coronavirus plague and the crash in the price of crude which was as low as $14.19 as at Tuesday, April 21st, 2020.
Whereas, the developed economies may be able to better face the lingering effects of the crisis given their sophistication and productive capacity, the developing countries that very much depend on primary commodity products to survive may be in really dire straits. Unfortunately again, the prices of these primary commodities are determined by the developed economies. Therefore, there is fear that the future of the economies of developing nations hangs in the balance. Sadly too, they lack the creativity and capacity to avert and hedge against the deeper effects of the imminent recession.
On its part, the deadly virus has caused the death of more than 170,000 people and infected over 2.4 million persons all over the world even as it has exposed the yawning gaps in the global health care system.
With the world and sub-Saharan African economy in a quagmire, it is difficult to expect Nigeria, the largest African economy to be bullish, and push against the whirlwind of recession.
The Bretton-Woods institution does not expect the already weak Nigerian economy to perform magic in this period of crisis. Unfortunately, the IMF projects that Nigeria’s GDP will slide by -3.4 per cent in 2020, but might grow by 2.4 per cent in 2021.
Though this position has since been re-echoed by the Minister of Finance, Zainab Ahmed, it is instructive to note that it is even coming after warnings by several analysts and even the Central Bank of Nigeria that the marginal growth Nigeria had recorded since exiting recession in 2018 was still feeble and could relapse to another bout of recession if the right things were not done to avert it.
Indeed, though there is consensus that the Nigerian economy has been grossly mismanaged for a very long time but this has become worse since 2015. Bad economic management has massively dampened the prospects for the Nigerian economy whose average growth rate had stood at 7 per cent before 2015. The Covid-19 lockdown in which there is presently very little economic activity will further devastate the economy in addition to the pre-existing challenges of a lack of infrastructure and a generally non-friendly business environment.
A direct fall-out of this is that after plunging the economy into recession in the governance era of President Muhammadu Buhari for about 18 months, the GDP which stood at 2.55 per cent at the end of 2019 has only barely grown.
Disappointingly, many do not seem convinced that there has been any conscious and serious effort to grow the economy from the government side even as the administration has racked up total debts by over 100% in the last five years, moving from about N12 trillion in May 2015 to about $27.4 trillion in 2019.
At the moment, and in deference to the current situation, the earlier signed 2020 Appropriation Act which encompasses a budget of N10.59 trillion consisting of N4.84 trillion recurrent expenditure, N2.46 trillion capital expenditure, N2.72 trillion for debt servicing, N2.28 trillion for fiscal deficit and deficit-to-Gross Domestic Product (GDP) ratio of 1.52 per cent has been revised downwards. However, expectations are high on the need for better and even more focused management of the economy than the current administration has thus far been unable to supply.
In the new outlay, the oil benchmark is now $30, while the production volume has also been reviewed downward to 1.7million bpd by OPEC; putting government’s revenue in deeper trouble. Indeed, this newspaper believes that the Buhari administration has not done enough to boost the national economy, even before the pandemic. In our view, Nigerian governments should always save when the price of crude is high, and work on an essentially non-oil budget template since oil contributes only about 10 per cent to the nation’s GDP. As we see it, the oil price budget benchmark should even have been $15 instead of the initial $57 and subsequent $30, in addition to corresponding cuts in recurrent expenditure.
In our view also, the fiscal authorities which have been largely missing in action should rise to the challenge and support if not take up, a lot of the developmental goals that are presently being championed by the CBN, while also working aggressively at encouraging greater productivity, in terms, of a renewed focus on manufacturing. It will also be most helpful to build massive infrastructure and ensure there is peace between herdsmen and farmers to enhance productivity in the agriculture sector. Education and health facilities must also be adequately funded. The government should also reverse the increase in the value-added tax, gradually inch towards staggered but a well-advised loosening of the current lockdown and then working at guiding people to safely continue undertaking their business activities. These will help to reset the economy and give us a better fighting chance going forward.
