True to projections, the collapse in oil prices and the COVID-19 pandemic recently plunged the Nigerian economy into another economic recession, the worst since the 1980s. Unlike the previous recession, where Nigeria recklessly borrowed its way out, this present recession demands fiscal discipline, and urgent policy response for the country to scale through.
The COVID-19 fiscal stimulus of about $5 billion, provided by the Federal Government, to recover the economy can not solve the problem as the fund is very minimal. Some countries such as India, Malaysia and Singapore are spending around $250 to $400 billion to help their nations exit the recession, out of which about $100 billion is to support small businesses.
Suffice it to say that Nigeria’s economy will bounce back if government supports small businesses. As a development economist and former Anambra state governor Peter Obi recently stated, “When government supports and empowers small businesses, there will be greater productivity which will reduce unemployment, generate more revenues for the government and increase development in the country”. For instance, China finances most of her budgets with taxes from small businesses, because they have a strong MSME sector that contributes greatly to their economy.
Furthermore, a private sector driven economy would lift many financial burdens from the government. Government can partner with private companies on road construction and maintenance and other public utilities under the Public-Private Partnership (PPP) arrangement. Apart from generating more revenues for the government such moves would help curb wastage and financial impudence associated with the public sector.
A recent World Bank report titled: “Nigeria In Times of COVID-19: Laying Foundations for a Strong Recovery,” estimates that Nigeria’s economy would contract by 3.2 percent in 2020.
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This projection assumed that the spread of COVID-19 in Nigeria would be contained by the third quarter of 2020. If the spread of the virus becomes more severe, the report stated, the economy could contract further, the recent recession has therefore confirmed this projection. Before COVID-19, the Nigerian economy was expected to grow by 2.1 percent in 2020, which means that the pandemic has led to a reduction in growth by more than five percentage points.
Oil represents more than 80 percent of Nigeria’s exports, 30 percent of its banking-sector credit, and 50 percent of the overall government revenue. With the drop in oil prices, government revenues fell from an already low 8 percent of GDP in 2019 to a projected 5 percent in 2020. This came at a time when fiscal resources are urgently needed to contain the COVID-19 outbreak and stimulate the economy.
Meanwhile, the pandemic also led to a fall in private investment due to greater uncertainty, and is expected to reduce remittances to Nigerian households, which in recent years have been larger than the combined amount of foreign direct investment and overseas development assistance.
Given the fact that the long-term economic impact of the global pandemic is uncertain, the effectiveness of the government’s response is important to determine the speed, quality, and sustainability of Nigeria’s economic recovery.
Beyond the loss of life, the COVID-19 shock alone is projected to have pushed about 5 million more Nigerians into poverty in 2020. Whereas before the pandemic, the number of poor Nigerians was expected to increase by about 2 million largely due to population growth, the number would now increase by 7 million – with a poverty rate projected to rise from 40.1 percent in 2019 to 42.5 percent in 2020.
Already the pandemic has disproportionately affected the poorest and most vulnerable, in particular women. School closures reduced the food intake of almost 7 million children who were enrolled in the Federal Government’s school feeding program. Economic activities were disrupted and women’s livelihoods were adversely impacted. Over 40 percent of Nigerians employed in non-farm enterprises reported a loss of income in April-May 2020. In addition, the fall in remittances affected household consumption because half of Nigerians live in remittance-receiving households, of which about a third are poor.
We join other well meanings Nigerians to warn that, if urgent remedial efforts were not taken, the recession may bite harder because the country already has underlying economic conditions ranging from extreme poverty to high unemployment rate, high number of out-of-school children estimated to be close to 20 million, highest infant mortality rate and soaring incidences of drug abuse, among others.
Looking ahead, the following should be the policy options in five critical areas that can help Nigeria recover from the current recession. These include, enhancing macroeconomic management to boost investor confidence; safeguarding and mobilizing revenues from all resources including non-oil sectors; reprioritizing public spending to protect critical development expenditures and stimulate economic activity; adopting fiscal discipline and prudent resources management as well as protecting poor and vulnerable persons.
