The recent reports of the International Monetary Fund (IMF), suggesting that Nigeria’s economic woes will deepen in 2020 can be everything but good news for a nation struggling to recover from the shocks of the Coronavirus (COVID-19) pandemic. But it is also a wake-up call to the nation’s economic managers to redouble their efforts in order to save the economy from total collapse.
The Bretton Woods Institution, which oversees the world’s monetary system’s stability, reversed its projections on Nigeria’s economy recently when it said the gross domestic product (GDP), would drop by 5.4 per cent contrary to earlier target of 3.4 per cent. If the projection is anything to go by, the country will experience its deepest recession in decades.
Nigeria is currently fighting on many fronts, having also been battered by the sudden plunge in oil prices. The situation has been compounded by the fact that many of the country’s major trade partners (including China, India, the United Kingdom, and the United States) have also been affected by the negative effects of the pandemic.
Nigerian stocks have since fallen to an 8-year low even as external reserves continue to plummet, standing at about $34.5 billion as of April 10, 2020. The country had just recently emerged from the aftershocks of the 2016 recession, which was also caused by a severe long-term fall in crude oil prices. Crude oil makes up about 90% of Nigeria’s export earnings and 60% of government revenue.
The minister of finance, Mrs. Zainab Ahmed, said the economy could shrink by as much as 8.9 per cent in 2020 in a worst-case scenario. But the global lender expects Nigeria’s economy to rebound by 2.6 percent in 2021.
Meanwhile, the cost of living in Nigeria has risen steadily as annual inflation rose for the ninth straight month in May, to a two-year high of 12.4 percent. IMF said the higher than expected GDP decline is a sign that poorer economies are being hit harder because, “for many countries that are staring out at lower per capita income levels when you have a growth hit of 3 percentage points, the distress that it causes in people’s lives is in a bigger magnitude than a similar decline for an advanced economy so these are very difficult times.”
“With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting,” IMF said in its revised World Economic Outlook.
But the downturn in economic performance is not peculiar to Nigeria’s economy as it is a global phenomenon. For instance, the IMF also said Sub-Saharan Africa’s GDP is expected to shrink by 3.2 per cent in 2020 due to the impact of the COVID-19 pandemic, up from 1.6 1per cent previously estimated.
The developed economies are also not spared. According to IMF, the GDP of United States is set to take an 8 per cent hit in 2020, compared to 5.9 per cent earlier predicted; 2021 growth forecast is pegged at 4.5 per cent. The Euro Area is expected to shrink by 10.2 per cent in 2020 and grow 6 per cent in 2021.
Changing the gear
Central banks all over the world have announced stimulus plans up to $11 trillion, which is $3 trillion higher than April estimates. These plans are expected to cushion the effects of declining economic activities and reduce cost of borrowing.
The Central Bank of Nigeria (CBN) has rolled out a stream of strategic measures to tackle the impending recession, leveraging on its previous experience garnered during the 2016 downturn.
Given the complexity of the COVID-19-induced economic mess, the CBN in its response, has also adopted multifarious approaches, incorporating health and finance remedial measures to mitigate and manage the impending development.
Last month, the apex bank announced the disbursement of N93.2 billion out of N1 trillion intervention funds targeted at manufacturing and agribusiness sectors with optimism that it will make the impact of the COVID-19 pandemic less severe than feared.
The various CBN COVID-19 intervention funds include, the N100 billion healthcare sector intervention, the N1 trillion intervention targeted at agriculture and manufacturing firms, and the N50 billion targeted credit facility (TFC) for households and small and medium enterprises (SMEs).
The N50 TFC is in recognition of the fact that small businesses and low-earning householders will be at the receiving end of the expected recession, and the pivotal role MSMEs play, coupled with the contributions of households as end- users of manufactured domestic products.
On the N1 trillion targeted at agriculture and manufacturing companies, the CBN disbursed N93.2bn under the real sector support fund to boost local manufacturing and production across critical sectors. This consists of over 44 Greenfield and Brownfield projects.
The CBN package also includes a gamut of other provisions designed to impact on the nation’s dilapidated infrastructure, including power, health, roads and research, among others.
At the monetary level, the apex bank has reduced interest rates, a critical variable affecting cost of capital required by manufacturers, either to procure raw materials, machinery, or as working capital.
CBN Governor, Mr. Godwin Emefiele, said, “But what is important is the extent we are able to manage this situation. There have been predictions of recession, but we think that as we ease the lockdown and begin to take actions to ensure that we move very fast out of the situation, get businesses back again, get the health sector back again, get our farmers to get back to the farm to conduct their planting and farming activities, we would be able to escape a recession.”
In the same vein, the federal government has approved N2.3 trillion (about $6bn) stimulus plan for Nigerians.
“The total package that we presented today is in the sum of N2.3 trillion”, Mrs Ahmed said while unveiling the scheme. N500 billion of this is a stimulus package that is already provided for in the amended 2020 Appropriations Act. These are funds that we have sourced from special accounts.
“We also have N1.2 trillion of these funds to be sourced as structured low-cost loans which are interventions from the Central Bank of Nigeria (CBN) as well as other development partners and institutions.”
“We have N344 billion that will be sourced from bilateral and external sources and additional funds that we can source locally.”
The Federal Executive Council (FEC) also approved the Nigeria Economic Sustainability Plan (NESP) as recommended by the economic sustainability committee led by Vice President Yemi Osinbajo as a means to distribute the stimulus to help the dwindling economy.
The goals of the NESP are to create jobs, pump money into the economy and hopefully stop it slipping into recession, support small businesses and prioritise local content (Made-in-Nigeria). The NESP is a 12-month ‘Transit’ Plan between the Economic Recovery and Growth Plan (ERGP) and the ERGP-successor-plan currently being worked upon.
“There is a strategy that has been adopted and this whole plan is to enable us respond to the triple problem of low exchange rate, youth unemployment as well as negative growth which is facing us now,” Mrs. Ahmed said.
“The plan has to also support small businesses that have suffered severe impact of COVID-19 as a result of lockdowns, especially, the hotel industry; private schools, restaurants as well as the transport sector have been very well impacted by this.
“We have also seen a significant impact on the poor and the vulnerable and even people that were okay as small traders, have been hard hit,” she said.
What analysts think
Mr. Cletus Onuoha, a financial analyst, stressed the need for the government to stimulate the economy at this point, through relevant investment in infrastructure while also providing lasting a lasting solution to the power crisis in the country.
“In order to fend off recession post-COVID-19 pandemic, the Nigerian government would need to stimulate the economy by investing strongly in relevant infrastructure development as this would increase employment in both the formal and informal sectors of the economy, expectedly translating to increased spending and economic growth.
“Furthermore the government should urgently improve power supply and the energy sector in general as this would certainly lead to the growth of the production of goods and services. It’s well known that a stable power supply would reduce the cost of running business significantly, and lead to the development of the manufacturing and industrial sector in Nigeria.
Victor Opara, an economist, believes that efforts towards diversifying the economy should be intensified.
“The need to diversify the Nigerian economy from its harmful dependence on crude oil cannot be over-emphasized. Therefore critical agencies/ministries such as the Agriculture, Science and Technology, Trade and Investment, Education among others need to rise up to the challenge to develop and drive such diversification programs in the coming years.”
For Peter Ajayi, an investment advisor, there is an urgent need for more incentives targeted at key sectors of the economy.
“There’s a need for incentives (like intervention funding and zero duty on essential raw material imports) to keep primary sectors like agriculture and manufacturing sectors running in Nigeria. Considering that these are the primary employers of labour, this will keep the labor force active, retain production and domestic demand.
“But the problem with implementing these things in Nigeria from experience is that incentives tend to get misappropriated and/or end up not having desired effects.”