In a situation where Nigeria is able to contain the outbreak of coronavirus, the economy could still go on to contract by as much as 3.4 percent in 2020 as global oil prices tumble, according to estimates by global consulting firm, McKinsey & Company.
That would be a growth decline of almost 6 percentage points from the country’s 2.27 percent GDP growth in 2018.
“That would represent a reduction in GDP of approximately $20 billion, with more than two-thirds of the direct impact coming from oil-price effects, given Nigeria’s status as a major oil exporter,” McKinsey & Company said in a report published Wednesday.
With the contraction rate projected by the New York-based consulting firm, the highest crude oil exporting nation in Africa will be witnessing its worst growth in decades. Nigeria reported its largest contraction in 25 years in 2016 when it reported a growth of -1.62 percent.
“A contraction of that magnitude at a time prices are rising can only spell an entry into stagflation which means declining output, rising prices and higher unemployment,” Obinna Uzoma, chief economist at EUA Intelligence, said.
The crash in the price of crude oil and dwindling revenues as a result of the impact of the coronavirus pandemic on the global economy is a risk that may fuel a contraction for Africa’s largest economy in 2020.
Other than the slowdown in global economic activities amid the coronavirus outbreak, the rift between Saudi Arabia and Russia has resulted in a glut in the crude oil market which has sent crude price southwards.
As a result, Nigeria’s external reserves fell below $36 billion mark in March, touching its lowest levels in 29 months.
The reserves which show the nation’s ability to weather external shocks dropped to $35.7 billion as at March 24, according to Central Bank data. That’s the lowest level since October 2017, when the country managed to limp out of five quarters of negative growth. External reserves at the time stood at $34.3 billion.
With economic activities in Nigeria almost at a standstill amid coronavirus lockdown, the bottom lines of most businesses in the country are likely to take the most hit from the virus outbreak.
To curtail the spread of the deadly coronavirus, President Muhammadu Buhari on Sunday directed the cessation of all movements in Lagos and the FCT for an initial period of 14 days with effect from 11pm on Monday, 30th March 2020. The restriction will also apply to Ogun State due to its proximity to Lagos and the high traffic between the two states.
Meanwhile, the number of confirmed cases of Covid-19 in Nigeria rose by 12 additional cases bringing the total figures to 151, from 139 on Tuesday.
According to McKinsey, in scenarios in which the outbreak is not contained, Nigeria’s GDP growth rate could fall to -8.8 percent for 2020, representing a reduction in GDP of some $40 billion.
“The biggest driver of this loss would be a reduction in consumer spending in food and beverages, clothing, and transport,” Acha Leke, senior partner at McKinsey & Company, said.
A negative GDP expansion for Nigeria will mean a lot of the country’s industries will be disrupted, as compiled from economists.
“The stock market will also continue to decline as a weaker economy will mean weaker company earnings and spark a recession selloff on top the coronavirus and oil price selloff and unemployment will hit the roof,” Uzoma of EUA Intelligence said, adding that Nigeria is not prepared for such turmoil but “that could be our reality very soon”.
Since 2017 when oil-dependent Nigeria emerged from its economic recession, not only has the country’s economic growth been sluggish but only a few sectors triggered the expansion, further undermining the country’s capacity to create enough jobs to meet the growing number of labour market entrants. Out of about 4.8 million Nigerians who entered the country’s labour market between 2015 and 2018, about 635,000 jobs were created within the period, indicating only a job was available for every eight people who joined Nigeria’s economically active workforce.
LOLADE AKINMURELE & ENDURANCE OKAFOR
