The announcement by the World Bank and the International Moneetary Fund that the collapse of oil prices and impact of COVID-19 pandemic may plunge the Nigerian economy into a severe economic recession never experienced since the 1980s has been the buzz of the moment with both the government and the private sector taking steps to douse tempers
The two institutions like all other strategic development partners look extremely perturbed about the goings on in Nigeria particularly with the citizens having to test the bitter pills of COVID-19 pandemic since it hit the country’s shores in March 2020.
For instance, in a statement in Abuja on Thursday as part of its latest Nigeria Development Update (NDU), the World Bank from its report on Nigeria in times of COVID-19: Laying Foundations for a Strong Recovery, estimated that the country’s economy would likely contract by 3.2 per cent in 2020.
Its projection on Nigeria assumed that the spread of COVID-19 would be contained by the third quarter of 2020, noting that if its spread became more severe, the economy could contract further, even though, it had earlier projected the economy would grow by 2.1 per cent in 2020., The bank said the pandemic had led to a reduction in growth by more than five percentage points.
“The macroeconomic impact of the COVID-19 pandemic will likely be significant, even if Nigeria manages to contain the spread of the virus. “Oil represents more than 80 per cent of Nigeria’s exports, 30 per cent of its banking-sector credit, and 50 per cent of the overall government revenue. “With the drop in oil prices, government revenues are expected to fall from an already low eight per cent of GDP in 2019 to a projected five per cent in 2020.
“This comes at a time when fiscal resources are urgently needed to contain the COVID-19 outbreak and stimulate the economy.
Besides immediate efforts to contain the spread of COVID-19 and stimulate the economy, it will be even more urgent to address bottlenecks that hinder the productivity of the economy and job creation,”
The bank noted that the report showed that the human cost of COVID-19 could be high, adding that beyond the loss of life, the COVID-19 shock alone was projected to push about five million more Nigerians into poverty in 2020.
It stated that before the pandemic, the number of poor Nigerians was expected to increase by about two million largely due to population growth, the number would now increase by seven million – with a poverty rate projected to rise from 40.1 per cent in 2019 to 42.5 per cent in 2020.
According to the World Bank, the pandemic is likely to disproportionately affect the poorest and most vulnerable, particularly women.
“School closures have reduced the food intake of almost seven million children who are enrolled in the national school feeding program. Economic activities have been disrupted and women’s livelihoods have been particularly impacted.
“Over 40 per cent of Nigerians employed in non-farm enterprises reported a loss of income in April-May 2020. In addition, the fall in remittances is likely to affect household consumption because half of Nigerians live in remittance-receiving households, of which about a third are poor.
“The unprecedented crisis requires an equally unprecedented policy response from the entire Nigerian public sector, in collaboration with the private sector, to save lives, protect livelihoods, and lay the foundations for a strong economic recovery,” said Marco Hernandez, World Bank Lead Economist for Nigeria and co-author of the report.
However, ahead of the World Bank doomsday projections, the nation’s monetary authority has continued to escalate its fight to keep Nigeria’s economy running in a manner that ensures significant relief for both the Small and Medium Enterprises as well as the large corporateoperating in the country. At the inception of the pandemic, the Central Bank of Nigeria (CBN) demonstrated its commitment to make intervention funds available to business to both sustain their operations and keep workers actively engaged to minimise layoffs and redunces.
It was perhaps against this backdrop that it introduced six critical policies to simplify borrowing conditions for small and medium-sized businesses currently under its several intervention funds.
This included interest rates reduction from 9 to 5 percent and extension of the loan repayments by 12months with key beneficiaries of the apex bank’s reprieve as farmers under its Anchor Borrowers Programme and other SMEs in sectors such as textiles, food processing and power among others.
The Godwin Emefiele – led bank had included healthcare section in the econonomic relief when it made availbale a wopping N100billion to enable the sector retool and begin the production of pharmaceutical products to conserve foreign exchange devoted to importation of drugs and medical equipment from overseas.
Similarly, other coronavirus impacted businesses in the Central Bank’s intervention fund enjoyed financial privileges to broaden their impact in addition to announcing a N50 billion credit facility to support businesses and working with banks to continue lending to the productive sectors.
Other measures taken by the CBN so far included a directive that households and SMEs applying for the N50 billion COVID-19 Targeted Credit Facility, would no longer be required to provide guarantors before accessing the credit facility.
These initiatives were part of the bank’s strategic plan to forestall distortions that could impair economic activities in the various sectors of the economy in a time of emergencies to avoid the economy sliding again into another wanton recession which would worsen the fortunes of the citizens and see millions out of jobs.
However, while the CBN and the fiscal authorities have been working to avert another recession, economic experts have also been advising on what the country can do to avert the BrittonWoods doomsday prediction on the economy.
Commenting on how to avert another recession, Mr Mike Eze, CEO, Crane Securities told Daily Sun “Well the government has to act very fast because as we speak, the country’s economic system is fast sliding into recession. This was occasioned by the lockdown and the subsequent gradual ease of the lockdown. As we speak, most businesses are still closed, some are maintaining skeletal staff and skeletal operations, others are just opened but not functional.
The truth is that this is a situation where major components of the economic system are near comatose. Most of the tier -1 bank branches are closed as we speak and the implication of this is that our economy is gradually running into the ground. Across sectors of the economy, it is hard to pin-point which one is doing well. Those who are going to work in the different enterprises that are operational have no guarantee of receiving their remunerations at the end of èach month, others are on half pay, while the rest of the staff are on commission or allowances. As at today, the number of unemployed Nigerians have reached an unprecedented level never ever attained in our history. Therefore, to avert another form of recession, government should begin to roll out stimulus packages for all sectors of the economic system. In times like this, the onus lies on the present administration to re-jig all spheres of the economy .
I am not talking on just the loans to Small and middle level businesses which the CBN is giving out at 6 per cent interest rate, but I am saying that it should also be extended to bigger businesses and corporations. They should also be supported with incentives that will help their businesses bounce back, to avoid the type of recession that will be worse than what we witnessed during the 1st tenure of this administration.”
Also offering his opinion on how Nigeria can avert another recession, a member, Ghana National Petroleum Corporation, Prof Wunmi Iledare, urged the Federal Government to spend borrowed money judiciously on infrastructure while cutting unnecessary concurrent spending on personnel emoluments.
He equally advised the government to do better with petroleum resources management by making subsidies illegal and giving incentives relevant to energy investment for powerwhile decentralising same.
‘’In addition, government must work to decentralise economic activity from the Federal Government. There is no need to pay VAT into federation account’.
Also advising the government on how to avert another recession, the Lagos Chamber of Commerce and Industry (LCCI) noted that the collapse of crude oil price remains the single biggest shock the Nigerian economy had seen in recent past.
The Chamber therefore urged that the focus of government’s economic diversification going forward should be on resource-based industries – agro allied, oil and gas, manufacturing with high local content.
LCCI Director General, Muda Yusuf, believes that diversifying these sectors would strengthen the capacity of the economy to create jobs, drive inclusive growth, promote income redistribution, and generally impact positively on the economy.
He said, “A great deal of potential still needs to be unlocked in the oil and gas sector – refineries, fertiliser plants, gas-based industries, petrochemicals. We need to put an end to being just a crude oil exporter to becoming self-sufficient in petroleum products and export of refined products and other gas related products.”
Yusuf also listed three critical factors crucial to driving economic diversification in Nigeria to include quality of infrastructure, the quality of policies and quality of institutions, adding that getting these key parameters right would be crucial for achieving sustainable development.
“The LCCI boss further stated that the monetary policy for instance should be designed to drive domestic investment through a moderation of the monetary tightening stance of the Central Bank of Nigeria (CBN).
According to him, this is needed to moderate interest rate in the economy, noting that it would be difficult to drive domestic investment at current levels of interest rate at well over 25 percent for most economic players, his call on the management of the Central Bank of Nigeria led by Mr Godwin Emefiele to ensure a moderation of lending rate to guard against the private sector being crowded out of the financial system.
He argues that the Nigerian economy needs investment, especially domestic direct investment to drive diversification.
“Happily, this is beginning to change with the recent policy measures introduced by the CBN with the various interventions in the development finance space,” he said.
The LCCI DG, said the foreign exchange policy is another very important policy component which impacts economic diversification, warning that a forex regime that perpetuates a rent economy would not serve the cause of diversification but rather create opportunities for arbitrage, corruption, resource misallocation, impede the inflow of investment, and create transparency issues in the allocation of forex.
He added, “The multiplicity of rates in the foreign exchange markets is inimical to sustainable economic diversification since Inappropriate forex policies could impede the inflow of foreign exchange into the economy and contribute to the weakening of the currency.
“It is also important to avoid a forex policy regime that penalises domestic production and incentivises imports. Such policies inadvertently undermine the country’s drive towards self-reliance.”
For its part, the Nigeria Employers’ Consultative Association (NECA) while commending President Muhammadu Buhari for the various initiatives and achievements listed as milestones of his administration during his June 12 address, the association expressed it believed much more could have been achieved.
NECA Director General, Timothy Olawale said his association had hoped that after five years, the security issues and a clearer path to the diversification of the economy would have been decided and followed to put Nigeria on a stronger growth trajectory.
“It appears that insecurity is now the order of the day, the Northwest region has now turned to hub of banditry, kidnapping and armed robbery are a concerns to Nigerians across the country, especially in the South.
The issue of insecurity should be addressed to avoid it crippling socio-economic activities in the country,” he said.
The NECA boss said the business community “respectfully urge Mr. President with the same passion and conviction of his address focus on resolving issues that have remained an albatross to business competitiveness, job creation and the attraction of foreign direct investment.”
According to him, while COVID-19 disrupted global economy, economies that are making hay are able to do it based on the strength of how well prepared and resilient the business environment had been.
He expressed concern that for Nigeria, the GDP has remained below the desired targets (growing below population growth rate) despite 11 consecutive quarters of positive growth averaging 1.87 per cent from Q2, 2017 to Q1, 2020.
He said, “With the tepid growth of GDP in Q1, 2020 coupled with declining foreign reserves, a fall in the price of crude oil & the outbreak of COVID-19, the Nigeria economy will contract in Q2, 2020. “However, for this contraction to be averted in subsequent quarters thereby avoiding recession, there must be synergy between Fiscal & Monetary Policy mechanism to revive and stimulate economic activities.