Though some initiatives are being undertaken by the Federal Government to mitigate the effect of the coronavirus pandemic on the economy, members of the Organised Private Sector (OPS) have asked economic managers to deploy far-reaching coping mechanisms as global recession looms.
According to the stakeholders, if the outbreak persists in the short and medium term, the economic outcomes for Nigeria can be seen in the decline in oil revenue due to reduced demand from key foreign customers, fall in forex reserves as a result of a fall in oil export oil revenue, which might impact forex stability. Furthermore, they envisaged that the cost of imports from key trading partners such as Italy and China are likely to spike, resulting in cost-push inflation, while the rate of unemployment may increase due to slow down in economic activity.
They added that the potential fall in tax revenue and soaring debt, which would impact developmental outcomes is inevitable, while potential decline in aggregate GDP due to slow down in economic activity should be expected. The President of the Lagos Chamber of Commerce and Industry (LCCI), Mrs Toki Mabogunje, while speaking at the chamber’s forum on the implications of covid-19 outbreak on the Nigerian economy, said the Covid-19 outbreak has dealt a severe blow to the global economy and if the spread is not curtailed at least in the near term, the global economy might slip into recession.
According to her, the disease has disrupted and still disrupting businesses, economic and financial activities across the globe. “Businesses are shutting down operations. Factories are closing. Schools are on recess. Conferences, sporting events, football matches, music concerts and business meetings have all been suspended. Countries are imposing wide-range travel restrictions. Trade activities are on hold. “Global airlines have cancelled flight to affected areas. Global equities and commodities markets have been severely affected. Oil prices have been hit hard due to drastic cut in global oil consumption, compounded by the on-going price war between Saudi Arabia and Russia. Putting these together, the outlook for the global economy looks bleak”, she added.
Partner, Tax, Regulatory & People Services, KPMG in Nigeria, Ajibola Olomola, urged the government to intensify efforts towards building domestic capacity across critical sectors such as manufacturing and ensure that tax enforcement practices do not stifle business growth. He identified many vulnerable points in the economy stating that more than 90 per cent of the country’s foreign exchange earnings are from crude oil and gas, adding that the huge gap between the foreign exchange supply and demand leads to price distortions and increased demand in the parallel market.
He added that despite the introduction of multiple windows in 2017 that led to an increase in foreign exchange supply from $21.4 billion in 2017 to $38.1 billion in 2018, foreign exchange demand still exceeds supply. Indeed, the parallel market rate hit a low of about N390/$1 in mid-March 2019 as a result of panic buying triggered by Covid-19. Furthermore, Olomola stated that crude oil accounts for over 70% of Nigeria’s export, and with the outbreak of Covid-19, the demand for oil products have reduced significantly.
“China is the world’s second largest consumer of oil and its demand for oil alone has reduced by 20%. Goldman Sachs forecasts Crude Oil prices to remain at $30/barrel for the second and third quarters of 2020. The estimate will increase Nigeria’s deficit to an estimated ₦3,197.54 billion from N2,175.20 billion. “Nigeria imports over 70% of its manufactured goods and China represents Nigeria’s biggest trading partner, with about 19% of its imports sourced from China. The outbreak of Covid-19 will have significant impact on retailers and consumers in Nigeria. “The impact on agricultural products and raw materials may be minimal as total trade for these materials is less than 5%”, he added.