The sub-Saharan Africa’s largest economy relies heavily on oil as its main source of foreign exchange earnings and government revenues. Following the 2008-09 global financial crises, the banking sector was effectively recapitalized and regulation, enhanced. Nigeria is often referred to as the “Giant of African Countries”, owing to its large population and economy.
Nigeria has rarely been in such a bad position as it is today. The rising oil prices will not be sustained in the long term as oil production increases globally and demand stagnates. While, the fluctuating prices leave Nigeria’s oil-driven economy vulnerable to external shocks.
The Nigeria’s economic freedom score is 57.2, making its economy the 116th freest in the 2020 Index. Its overall score has decreased by 0.1 point, reflecting a decline in the fiscal health score. Last year, Nigeria’s economy was valued at $397 billion, while South Africa once the biggest player on the continent had a GDP of $366 billion.
With over 206 million inhabitants, Nigeria is the most populous country in Africa and the seventh most populous country in the world, which is expected to grow to 400 million by 2050 and become the third most populous country in the world after China and India. Nigeria has enjoyed relatively strong economic growth over the past seven years but poverty is still a major concern.
The economy of Nigeria advanced 2.55% year-on-year in the fourth quarter of 2019 compared to an upwardly revised 2.28% rise in the previous period. Nigeria is Africa’s biggest oil exporter and the region’s biggest economy and largest consumer base. While the government is reliant on oil and gas for its revenue, the economy itself is more diversified, with manufacturing, banking and insurance, retail and agriculture all major contributors.
Economic diversification before and during Covid-19 pandemic
Coronavirus outbreak has done great damage to the global economy of which Nigeria is not exempted. The government is stepping up its support to addressing service delivery gaps, livelihood deficits and social cohesion issues, as well as provide support to the diversification of the economy.
However, the Nigerian economy historically was based on agriculture, and about 70% of the workforce are still engaged in farming (largely of a subsistence type). Nigeria has many opportunities to transform its economy, particularly in agroprocessing. Special agroprocessing zones could promote agroindustrial development and employment. But insecurity could deter foreign investors, shrivel the domestic economy, and ultimately dampen prospects for economic growth.
Due to the reduced crude oil price and shipment, revenue expected by the Government from the ports will be reduced by 75%. This underscores the importance of diversification of the economy through non-oil exports so that the country can reverse this trend.
The World Bank view
The World Bank expects Nigeria’s economy to shrink by between 3.2% and 8% in 2020, and government oil revenues could fall by a third or possibly more than half, said Chaudhuri.
The Bank’s lead economist on Nigeria, Marco Hernandez, said even if the outbreak were contained, the situation was “unprecedented, shocking.”
Nigeria’s 2016 recession sent 13 million people into unemployment; this crisis might be “much more pronounced,” Hernandez said.
World Bank loans like the $1.5 billion often have conditions attached to them – reforms that governments must enact to secure the money.
Chaudhuri and Hernandez declined to comment on any conditions for the loan, including contentious subsidies for fuel, electricity and propping up the naira currency that cost Nigeria billions of dollars a year, report noted.
“We have been recommending a move towards a unified exchange rate and a more flexible exchange rate for some time,” said Hernandez, adding that it would help the recovery and boost investor confidence.
Buckling up developmental needs
The crude market may have rebounded in recent weeks to more than $30 a barrel, but the future remains bleak for the continent’s largest producer, which relies on the commodity for some 90 percent of its foreign exchange earnings.
The challenge may be even bigger for Nigeria than for other producers scrambling to cope with the plummet in prices unleashed by the pandemic and a price war between Saudi Arabia and Russia.
Experts and industry insiders told AFP that Nigerian oil is currently selling for around $10 less than Brent crude, the benchmark to which it is usually aligned.
In April reported that the price of Nigerian crude scraped as low as around $12, a far cry from the $57 target figure the government had based its budget on before the crisis, Bloomberg reports.
As global supplies far outstrip demand, unsold cargoes of crude from Africa’s most populous nation are sitting in tanker ships stuck out at sea as they wait for buyers before heading to refineries in Europe.
Economic words from source
Nigeria is at a disadvantage because its cost of production is relatively high around $15-$30 dollars per barrel because of corruption, widespread thefts and increased security costs.
The budget is being slashed back for a second time based on a new benchmark for crude of $20 per barrel as the country looks to “conform to the current realities”, the finance minister said.
A country’s economy goes into recession when its Gross Domestic Product (GDP) reduces for two consecutive quarters.
Nigeria also closed a large part of her economy to prevent the spread of the coronavirus. All its airports are still closed except for essential flights while businesses are only partially reopened.
Mrs Ahmed spoke while addressing journalists after the National Economic Council meeting last week.
“The National Bureau of Statistics (NBS) has made an assessment. So, it is the NBS assessment that Nigeria will go into a recession measuring at an average of -4.4%.
“But with the work that the Economic Accessibility Committee is doing bringing stimulus packages, we believe that we can reduce the impact of that recession.
“And if we applied all that have been proposed and we are able to implement it we may end up with a recession that is -0.4 per cent. In any case, we will go into recession but what we are trying to do is to make sure that it is shallow so that we will quickly come out of it come 2021,” Mrs Ahmed said.