Nigeria was already struggling to shake off the long-term impact of a 2016 recession before the covid-19 pandemic hit economies worldwide. Rapid population growth outstrips economic growth, which stands at around two per cent.
At the end of December, it was clear the Nigerian economy was heading into a Triple-shock crisis. United Nations estimates that Nigeria will have a population of 400 million by 2050.
Africa’s largest economy relies for 90% of its foreign exchange on oil and the price plunge triggered by the pandemic has hammered its currency NGN=D1 and cut government revenue.
The West African country is one of the world’s largest oil producers, and the precipitous drop in world oil prices has also put the country in an economic bind. It is likely to have a significant impact on government spending, as the oil-rich nation has relied on petroleum for at least 40% of tax revenue in recent years.
Nigeria was already contending with low growth of around 2% before oil prices plummeted. The country’s failure to diversify the economy and build much needed transport and power infrastructure has stymied growth and the spread of wealth beyond a rich elite. While poor infrastructure has long held back development in the country.
The Naira fare
While, the Nigerian Naira remains firmed around 6.5% on the black market on Tuesday from a week ago after the central bank resumed U.S. dollar sales to commercial lenders following this week’s gradual easing of the coronavirus lockdown, traders said.
The currency rose to 430 per dollar on the unofficial market patronised mostly by individuals with dollar expenses abroad. The currency had hit 460 last week, its weakest in three years as dollar shortages gripped the market, a report noted.
However, the country’s apex bank have said it would sell $100 million per week to help individuals meet foreign school fees, obligations and small businesses wishing to make essential imports needed to revamp economic activities.
Struggling oil market
The International Energy Agency said, oil markets on Friday 1st of May, 2020 closed with a weekly gain. International benchmark Brent rose to $26.81 from $21.44 a week earlier. Production cuts of close to 10 million barrels per day (bpd) by OPEC+ kicked off Friday as the cartel looks to mitigate the supply glut and falling prices caused by the unprecedented dip in consumption. Oil demand is expected to fall by as much as 26 million bpd this month in the face of land and continued air travel restrictions.
With global oil prices plunging, Finance Minister Zainab Ahmed said in March that this year’s record 10.59 trillion Naira ($29.42 billion) budget would be cut by about 15%.
At the time, she said the initial assumed oil price of $57 per barrel would be reduced to a worst case scenario of $30 per barrel.
But on Tuesday, she said that the benchmark would again have to be revised down.
“We are in the process of an amendment that is bringing down the revenue indicator to $20 per barrel,” Ahmed said in a web conference about the impact of low oil prices in the country.
Budget revisions need to be approved by lawmakers before being signed into law by the president.
Ahmed also said Nigerian oil and gas projects will be “delivered much later than originally planned” due to upstream budget cuts.
In addition, the Minister of State for Budget and National Planning, Prince Clem Ikanade Agba, has said that the Federal Government expects the injection of about N2 trillion stimulus into the economy in response to the Covid-19 pandemic and the fall in oil prices.
He spoke on Tuesday at a webinar on “Citizens Dialogue Session on Government Fiscal Policy Decisions to the Fall in Oil Prices and the Covid-19 Pandemic” organised by the Federal Ministry of Finance, Budget and National Planning and supported by Partnership to Engage, Reform and Learn (PERL) and the UK Department for International Development (DFID).
Meanwhile, Nigeria will spend $311 million returned after being stolen by former military ruler General Sani Abacha on infrastructure development, a presidential spokesman said on Tuesday.
“These funds have already been allocated, and will be used in full, for vital and decades-overdue infrastructure development: The second Niger Bridge, the Lagos-Ibadan and Abuja-Kaduna-Kano expressways,” said Shehu, referring to a river crossing in the southeast and roads connecting major cities.
In another tweet, he said part of the money would be invested in the 3,050 megawatt Mambilla hydroelectric plant, which has been planned for over three decades.
The Nigerian government has also said it is in talks to discuss deferring debt service payments.
Rising from the bottom
Experts highlights that, the current Covid-19 experience presented an ample opportunity for the government and policymakers to pursue structural reforms which will put in place homegrown policies to engender a rebound of the nation’s economy.
Reforms such as the liberalisation of the petroleum downstream sector, exchange rate convergence, securitisation of government equities in joint ventures, privatising nation’s redundant assets and the PPP-led infrastructural development are critical to achieve these results.
The government must also provide the means broadening competitiveness of Agricultural production generally and specific emphasis on select produce like Cassava, Sesame Seeds, Plantain, Corn, Rice, Gum Arabic and Sorghum for processing in Agricultural and industrial towns for food security and exports for industrial uses.