Coronavirus (COVID-19) has resulted in production shutdowns in Nigeria, Africa and globally, with supply chain disruptions due to seaport and air travel cancellations in the United States, Europe and China, causing global ripple effects across all economic sectors in a rare “twin supply-demand shock.”
Uncertainty regarding the spread of COVID-19 is high and its impact on Nigeria, African countries is expected to be serious, given Nigeria’s exposure to developed countries.
Economically, the effects have already been felt – demand for Nigeria and Africa’s raw materials and commodities in U.S, Europe and China has declined and vice versa: Nigeria and Africa’s access to industrial components and manufactured goods from the region has been hampered. This is causing further uncertainty in a country and continent already grappling with widespread geo-political and economic instability.
According to Fitch ratings agency, the coronavirus outbreak will have a downside risk for short term growth for Nigeria that export commodities like mineral fuels, oil, oil seed, oleagic fruits, grain, seed, fruits distillation, lead, raw hides and skins (other than furskins) and leather products et al to China.
In a dramatic shift in fortunes, Nigeria and African countries — whose citizens often have to prove their health status to even get a visa to travel to Europe — have moved swiftly to control arrivals from European countries. Nigeria, Ghana and Kenya have announced new measures prohibiting travellers from countries affected by Covid-19, the first two African nations to put in place blanket travel bans, while Nigeria, Senegal and Kenya also announced school closures.
$5b loss from oil production decline — Ife of ECOWAS Commission
Prof. Ken Ife, Lead Consultant on Private Sector Development to the ECOWAS Commission, said the drop in crude oil price from budget benchmark alone of $57 to $30 at our production volume of 2.14mbpd over a 3-month period is well over $5billion loss.
However, the estimated loss over the next 6 months is $8.6billion. This is a moving target, Ife said, on the 2020 budget, just as the Minister of Finance has, together with President Muhammadu Buhari and Central Bank Governor, shown great leadership in fiscal and monetary policy coordination by announcing a cut in budget benchmark to $30 (from $57); 50% cut in revenue from privatisation proceeds; cut down capital expenditure by 20% across all the MDAs; 25% cut of all government expenditures and suspension of current recruitment etc.
Ife, also Co-Chair of EU – AFRICA Business Task Force Summit Group (Trade Working Group) Brussels, said the Buhari administration has shown great leadership in their pro-activity in mobilising ALL strategic stakeholders, state and non-state actors citing these:
*CBN ‘Going for Growth’ consultation of March 11 with captains of industry resolving to tackle infrastructure head-on by setting up a new InfraCo Plc (initial $3b) but targeting $100b and hopeful of government $2b rolling Sovereign Guarantee; series of meetings of Economic Management Team; Presidential Economic Advisory Council; Cabinet Ministers; National Economic Council reminiscent of a ‘economic state of emergency’; ostensibly, the acute disruption of the global supply chain puts one clear objective on everybody’s mind – ‘achieving self sufficiency in an economy without oil’.
The measures include budget benchmark reduction from $57 to $30; budget downward review by 20% – 30%; urgent review of cost of governance; CBN intervention programme interest rates drop from 9% to 5%. A package of N2.65trillon targeted as follows: CBN initial N50b increased by N100b targeted at medical and pharmaceutical facilities; CBN injects N1 trillion for other critical sectors; N1.5 trillion on “InfraCo Plc” scheme to address infrastructure in anticipation of $2b in Sovereign Guarantee; agriculture, particularly the 10 Presidential Agri-value chain heavily targeted with billions of dollars.
Time govt runs ‘Nigeria without oil’ — LCCI D-G, Yusuf
Dr. Muda Yusuf, DG, Lagos Chamber of Commerce and Industry LCCI, said the way forward, with oil price being one of the most difficult variables to predict, is to conceive of a Nigerian economy without oil revenue and construct an economic management model based on that premise. Urgent steps should be taken through appropriate policy choices to attract equity domestic and foreign private sector capital for infrastructure financing given the increasingly gloomy revenue outlook. But for this to happen the policy and regulatory environment must be right; Idle non-revenue yielding assets of government should be sold to generate liquidity; Foreign exchange market should be liberalized [as much as possible] to attract forex inflows into the economy.
Also, Public Private Partnership should be bolstered to attract private capital into the critical sectors of the economy; Urgent steps should be taken to reduce the production costs for oil producing companies to make the sector more competitive; Public Private Dialogue should be deepened to harness quality ideas on how to navigate through the current shocks in the economy and Review the spending structure of government and the cost of governance. The ballooning recurrent expenditure, in the face of declining revenue is a cause for concern.
Inflation to skyrocket—Onyekpere of CPJ
Eze Onyekpere, Lead Director, Centre for Peace and Justice said proper monetary policy management will help Nigeria tidy over the challenge of reduced oil price. The spike in inflation and interest rates show that the economy is still in the woods. Progressive economies are built on single digit inflation rate of less than five percent. Monetary policy is one the greatest influencers of economic development and progress. It is one field that many developing nations including Nigeria are yet to come to terms with. With a Naira that is tied to external developments in an economy that adds very little or no value, the inflation rate is bound to skyrocket. But it need not be so if the proceeds of our foreign earnings are properly managed and infused into the economy through dollar certificates instead of the current practice of creating new money, not backed by value, as a means of infusing the foreign exchange earnings. This creates and induces excess liquidity. This is not my idea, neither is it new or novel. This is the position in Obasanjo’s National Economic Empowerment and Development Strategy blueprint. Unfortunately, the managers of the economy, over the years have not summoned the courage to implement this wonderful recommendation.
Economic decline looms, taxable incomes thinner — Shitta-Bey, Proshare Managing Editor
Mr. Teslim Shitta-Bey, Proshare Managing Editor, said it would be premature to count the cost of the fall in crude oil prices.
“Apart from the fact that the situation is still very fluid, data for Q1 2020 will not be available until April”, he said.
“Oil is sold in forwarding contracts and using spot market rates may lead to inaccurate revenue estimation. Pinning 2020 budget benchmark price at US$30 would see a widening of the budget deficit and a widening of the required deficit financing.
“Nigeria is significantly exposed to risk in terms of industrial commodity exports, such as such as oil, iron ore and copper, to China.
“The Organization of Petroleum Exporting Countries (OPEC) has dramatically reduced its outlook for oil demand this year as a result of the virus.
“Secondly, the coronavirus challenge would obviously lead to domestic supply chain and logistic disruptions. Aggregate domestic demand will fall as incomes drop and temporary and permanent worker- layoffs begin to appear in Q2 2020.
“Q1 2020 growth will be around 2% (as against the full year 2019 GDP growth of 2.27%) while Q2 2020 would likely be lower. Industries like aviation/cargo handling and hospitality will witness a slump in top line earnings while bottom line incomes may be negative.
“Technology companies and digital retail platforms may see brighter earning outcomes, but the e-commerce platforms may have problems with their fulfilment expenses and supply chains.
“Thirdly, fiscal positions of all governments in Q1 and Q2 2020 will be precarious. FAAC Revenues will obviously shrink and even IGR revenues will be chiselled down a few notches.
“The sub-nationals will have a terrible time meeting their recurrent obligations while capital spending will simply fizzle. “Only states like Lagos, Ogun, Rivers and Kano would be marginally better than their contemporaries.
“But even these states will come under severe fiscal pressure as economic activities decline and taxable incomes get thinner”.
Oil earnings may not meet spending demands -Ogundadegbe
Mr. Alex Ogundadegbe, public sector analyst and business expert, said at the current price of $24 per barrel and 1.2 million barrels per day, this may not meet the spending demands of the country.
“Over N65billion is required for FG salaries per month. This not considering other expenses and running costs and the money sent to the states”, Ogundadegbe said.
“For now, government will have to concentrate on essentials. Without resources already in place, it’s really, really hard to scale up quickly; all infrastructure development will be put on hold.
“People have to live. Salaries, medical care and logistics would be the main focus. Industries may eventually have to shut down temporarily if they cannot afford to import raw materials and additives at the new exchange rate.
Air travel disruptions may cost N160. 58bn, industry risks losing thousands of jobs —Adefunmiloye, tourism magazine publisher
Tourism expert and Publisher of African Tourist magazine, Amona Adeyinka Adefunmiloye, said air travel disruption, due to the continued spread of coronavirus, may cost Nigeria’s aviation industry over N160.58bn (using Bureau de Change rate of N370 to $1) ($434m) in revenue and 22,200 jobs, quoting the International Air Transport Association, IATA.
IATA had said on Thursday that Nigeria may also lose approximately 2.2 million passengers. The association, an umbrella body for 290 airlines globally, had, in early March, projected 853,000 losses in passenger volumes and $170m loss in base revenues in Nigeria if the spread of COVID-19 continued.
IATA said, “International bookings in Africa are down roughly 20 per cent in March and April, domestic bookings have fallen by about 15 per cent in March and 25 per cent in April, according to the latest data”.
Air Peace on Thursday said it is suspending flight operations to Dakar, Senegal and Monrovia, Liberia as a result of the global coronavirus crisis.
The airline said it would also be cutting down its Freetown, Sierra Leone and Banjul, Gambia operations to one flight a week and would suspend its Dubai via Sharjah flights from next week.
The Chief Operating Officer, Air Peace, Mrs Toyin Olajide, said the airline would also be reducing its operations into Accra, Ghana from Lagos to two flights daily and suspend Abuja-Accra operations.
The Nigerian Representatives of Overseas Pharmaceutical Manufacturers, Olumide Akintayo, said COVID-19 had impacted Nigerian pharmaceuticals as products manufactured in China before the shutdown had not been shipped and prolonged factory closures in China meant new products were not being manufactured.Read Full Story