• Wednesday, May 22, 2024
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Looming global recession tests Nigeria’s readiness for economic diversification

Looming global recession tests Nigeria’s readiness for economic diversification

Nigeria is standing feebly on wet floor and vulnerable to harsh economic realities, with the global economy down on its knees, as markets across the world take a beating from the coronavirus pandemic that has seen countries announce restrictions that will put a strain on economic activity this year.

Containment measures have resulted in drastic reductions in international and domestic transportation around the world as countries respond to the rapid spread of the virus, according to the International Energy Agency in its Oil Market Report (OMR) for March. The report further says while data are far from complete, in the first quarter, the visible decline in transport, industrial and commercial activity points to a massive drop in global oil demand of 2.5 mb/d compared with the first quarter of last year. This includes an estimated annual decline of 4.2 mb/d in February, of which 3.6 mb/d was in China.

From being a China problem, the pandemic has become an oil market problem, and invariably a potential nightmare for Nigeria if the situation is not resolved in the nearest future. Oil has traded $20 below Nigeria’s budget benchmark for 2020, with a deficit already in sight and likely to be worsened if the country will not even find buyers at the already low price.

Earlier in the week, it was revealed that Nigeria had about 50 cargoes of crude oil with no available buyers due to drop in demand. “Today, I can share with you that there are over 12 stranded LNG cargoes in the market globally. It has never happened before,” said Mele Kyari, group-managing director of the Nigeria National Petroleum Corporation (NNPC) during a roundtable session by the Central Bank of Nigeria (CBN).

In 2019, data from the National Bureau of Statistics (NBS) revealed Nigeria’s Crude oil exports with a value of N3.6 trillion accounted for 76.08 percent of total exports, while on the import side, manufactured goods were 73.13 percent of total imports with a N3.9 trillion value.

On one hand, Nigeria’s economy depends on the export of crude oil for the country to keep running, while on the other hand, the country also relies on importation of manufactured goods, especially machinery for the local economy to be productive. However, with more countries restricting economic activities as they try to contain the spread of the Coronavirus, Nigeria is left exposed; finding it hard to sell its crude oil, and at the same time, difficult to import manufactured goods for the use of industry and ordinary Nigerians.

“Our import last year was almost $47billion. It is not sustainable. We cannot have 200 million people, growing at an average 2.7 percent and we are importing most of the things we consume,” said Aliko Dangote, Africa’s richest man and president of the Dangote Group during the CBN roundtable event. “We need to be more serious so we don’t keep talking about diversification. It has been very elusive.”

In China where the outbreak started and has recorded more casualties, economic activity has been reported to plunge in February, setting the stage for what could be the country’s first economic contraction since the 1970s.

This is compounding an already fragile global economy, with Bloomberg reporting that the economies of Japan, Germany, France and Italy were already shrinking or stalled before the virus outbreak, and the U.K. is wobbling amid Brexit uncertainty.

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The ‘Trade and Development Report’ for 2019 by the United Nations Conference on Trade and Development (UNCTAD) noted that, a spluttering North, a general slowdown in the South and rising levels of debt everywhere are hanging ominously over the global economy; these, combined with increased market volatility, a fractured multilateral system and mounting uncertainty, are framing the immediate policy challenge.

With the coronavirus, more people are encouraged to stay at home and avoid travel, countries are announcing visa, flight and other forms of travel restrictions to keep people contained in a way, and sporting events are getting cancelled. Added to this, factory shutdowns in China and other countries and the possibility of more disruptions in other parts of the world, have heightened uncertainty in supply chains. All of this will impact the global economy as every naira or dollar not spent, is money the global economy may never recover again.

Years of rhetoric on economic diversification in Nigeria have not become a reality, as the country’s near-absolute dependence on crude oil does not appear to have improved in recent years.

“We can diversify the economy through agriculture and manufacturing. Manufacturing creates a lot of jobs, creates middle class and transforms families,” said Dangote. “These are the areas we need to focus on. But how do you diversify into manufacturing and make it an inclusive growth? You need to do more of backward integration or import substitution.”

The IEA’s report says “the immediate outlook for the oil market will ultimately depend on how quickly governments move to contain the coronavirus outbreak, how successful their efforts are, and what lingering impact the global health crisis has on economic activity.”

However, the question for Nigeria remains how long the country plans to keep its survival at the mercy of the uncertainties synonymous with the international oil market. For years, successive administrations had expressed plans to diversify the economy by focusing more on agriculture, but growth in the sector has not shown this is happening.

In an earlier eight-year analysis by BusinessDay, between 2011 and 2018, for every year the agric sector recorded a growth, it would decline the following year, and as abysmal as this was, it became an established pattern for six years between 2011 and 2016. In 2017, however, the sector declined in growth rate (as expected going by this pattern), and this decline continued in 2018.

In 2019, the agric sector finally grew by 2.36 percent, an increase of 0.24 percentage points and the first such growth to be recorded under Muhammadu Buhari’s presidency. Yet, the current growth rate is still lower than what was recorded in 2016 and even 2017.

The Foreign Trade Statistics report for 2019 by the NBS also indicated a 10.6percent decline in the value of agricultural exports by N32billion from N302billion exported in 2018 to N270billion. At a time when oil income is bound to dwindle, agriculture, which should come to the rescue also does not appear up to the task in rescuing the Nigerian economy, a trait shared by other sectors.