There’s growing anxiety over an economic relapse which is set to force Nigeria to dust the cobwebs of much needed reforms after at least four years of delay, according to sources close to the government.
With the exception of militant attacks on oil pipelines, some of the factors that contributed to Nigeria’s economic recession are circling again.
Oil prices are falling as demand slows, inflation is headed north with the controversial border closure and economic growth looks poised to be tested by problems of old as well as the more recent Coronavirus outbreak which will have big implications for oil demand and trade in Nigeria, given China is the country’s biggest trading partner.
The International Monetary Fund is said to be planning a fresh downgrade of Nigeria’s economic growth forecast to 2.1 percent in 2020 from an earlier estimate of 2.3 percent. Economists are carefully studying what the Coronavirus outbreak if sustained will mean for commodity dependent economies like Nigeria and most of their initial thoughts are negative and could see them return with downgrades for Nigeria’s economic growth this year.
As dark clouds gather over the economy, sources close to the government say critical reforms on how to grow the economy sustainably are being considered with renewed vigor.
Although no timeline was given, some of the reforms likely to happen include a unified exchange rate as well as the revival of plans to sell down some of the government’s stake in Joint Venture oil assets, refineries and other downstream subsidiaries such as pipelines and depots.
“The economy is in worse shape than even the data shows and the government is set to do something about it,” one of the sources said.
Over time, Nigeria has shown a penchant for delaying action until there are no other options left.
Ditching the long standing N306/$ rate which the government continues to use for its transactions despite being much weaker than the N364/$ market rate would help lift inflow of Foreign Direct Investment according to investment bankers while the sale of JV assets will be a boost to government revenue.
While these are good first steps, they may not be enough to forestall an economic relapse, according to economists who say the government must find a way to incentivize private investment on a large scale and end its wasteful subsidy on petrol.
An economist who did not want to be named in order to speak freely said the economy was always toeing a dangerous path by failing to restructure the economy and diversify the revenue base.
“Data shows Nigeria has made little progress in achieving structural reforms and that is always going to be a problem when things with big implications for oil happen out of nowhere like the Coronavirus outbreak,” the economist said.
Stale promises to reduce the economy’s over reliance on oil exports have failed to materialize and Africa’s largest oil producer could be facing a similar crisis like in 2016 when oil prices bottomed and the economy slumped into a first recession in 25 years.
Four years later and oil is under pressure again, this time from the deadly Coronavirus disease that is spreading across Europe from China.
The disease which has interrupted economic activity in China, the world’s second largest economy and biggest buyer of crude oil, has put a huge dent in demand for oil and dragged prices down.
That’s a blow for oil dependent Nigeria which continues to depend on exports of the commodity to fund around 70 percent of its annual budget and for foreign exchange inflows.
The price of Brent Crude has already crashed below the budget benchmark of $57 per barrel. It fell as low as $54 Sunday, February 9, according to Bloomberg data.
The five quarter long economic recession that happened on the back of low oil prices in 2016 is still fresh in the mind of the current government.
It was during the first tenure of President Muhammadu Buhari, who, in 2019, secured a second four year tenure that runs until 2023.
Economists, who point at key macroeconomic indicators from GDP per capita to FDI, say the economy hasn’t fully recovered from the recession.
The economy averaged 2.2 percent growth within three quarters in 2019, with fourth quarter GDP release data slated for the 24th of February.
