As the world continues to battle the COVID-19 pandemic, it is becoming increasingly clearer that the economic repercussions of the pandemic could be even more drastic than anticipated. Already, the outbreak has caused severe economic and market dislocations across the globe, disrupting global supply chains and travel, and causing a crash in the price of crude oil.
The Nigerian economy has not been spared. Since the outbreak of the pandemic, the market for Nigeria’s major export, crude oil has suffered enormous losses. Furthermore, the near-term outlook of the nation’s principal export looks grim as the forecast for the rest of the year remains considerably unfavourable. Given the overall vulnerability of the Nigerian economy to volatility in global crude oil prices, the impact of the coronavirus on the future of the Nigerian economy cannot be underestimated.
Before the pandemic, the Nigerian economy was yet to fully recover from the recession it suffered in 2016, with its 2019 GDP growth tapering around 2.3 percent. In fact, the IMF had in February revised the 2020 GDP growth rate from 2.5 percent to 2 percent, as a result of relatively low oil prices and other macroeconomic headwinds. Furthermore, the country’s debt profile had also been a source of concern, with debt servicing already consuming over 60 percent of the nation’s revenue. Now with the outbreak of the pandemic, it seems inevitable that the nation’s economic indicators could get even worse, thus prompting the question – what should the Nigerian economy look like after the pandemic?
The recent shock to the Nigerian economy, caused by the disruptions in the global crude oil market, again highlights the vulnerability of the nation’s economy to external shocks, and the need to restructure and diversify the productive base of the economy, with a view to reducing dependence on the oil sector. It is a no brainer that the nation’s dependence on oil revenue as the primary source of foreign exchange needs to be addressed. Simply put, as long as the Nigerian economy remains a mono-economy totally dependent on oil revenues, the nation will continue to remain vulnerable to oil price shocks. Therefore, in the aftermath of COVID-19, the nation’s policymakers must ensure that sustainable fiscal management practices resilient to global oil price cycles are put in place, starting with the diversification of the nation’s productive base.
There is a need to ensure that the Nigerian economy is well-aligned with unfolding global realities, and strategically positioned to benefit from the post pandemic economic opportunities which might unfold to our advantage. However, this will not be possible if policymakers fail to be courageous and implement the tough policies required
Diversifying the nation’s economic productive base will require significant Foreign Direct Investments (FDI). However, attracting foreign direct investments in the post-COVID-19 world will be particularly tough, considering the predicted state of the global economy and market uncertainty. Therefore, it behoves the nation’s policymakers to engender the conditions which will incentivise investors. One major issue to address is the country’s worsening investment climate, which has been characterised by a severe infrastructure deficit, overly stringent government policies, and a weak legal framework. Furthermore, the prolonged state of insecurity in the country does little to attract foreign investors. Therefore, to attract FDI in the post-COVID-19 economy, measures must be put in place to ensure that these uncertainties and bottlenecks in the local market are swiftly addressed.
In addition to all of these, given that the nation’s revenues might remain depressed for an extended period, and with the nation’s debt spiralling, there is an urgent need to plug leakages in the Nigerian economy, starting with an assessment of the government’s finances. A cursory examination of the Nigerian government’s budgets and expenditure over the past years reveals the nation’s misplaced priorities: rather than fund the sectors critical for development such as education, healthcare and infrastructure; the biggest chunks of the Nigerian government’s expenditure are instead debt servicing, subsidy of petroleum products and the remuneration of public officials.
Currently, a chunk of government expenditure consists of salaries for civil servants across Nigeria’s bloated federal bureaucracy and remuneration of public officials. Based on available data, the federal government’s recurrent expenditure is estimated at over ₦4.5 trillion. In fact, Nigeria historically spends over most of its annual budgets on recurrent expenditure. That this situation is unideal is an understatement.
Thus, in the aftermath of the COVID-19 pandemic, there must be a complete reassessment of the government’s finances, starting with the discontinuation of the subsidy of petroleum products as well as a drastic reduction of recurrent public expenditure and the high cost of governance. Putting all of these into action help unlock liquidity, rejuvenate the nation’s fiscal and economic streams and lay the foundations for a prosperous economic future.
Overall, there is a need to ensure that the Nigerian economy is well-aligned with unfolding global realities, and strategically positioned to benefit from the post pandemic economic opportunities which might unfold to our advantage. However, this will not be possible if policymakers fail to be courageous and implement the tough policies required.
The COVID-19 pandemic has shown that the world, despite economic and technological advances, remains as fragile as ever. However, it also presents a rare, incredible opportunity for individuals, companies and nations to take advantage of the unfolding opportunities.
In every crisis lies an opportunity. Thus, we must take the current when it serves, otherwise we lose our ventures.