Nigeria has recorded only one case of the Coronavirus but the impact of the global health challenge on Africa’s largest economy means the country is entering uncharted territory as alarm bells herald a worsening of the country’s fiscal and foreign currency crises.
Memories of the 2008 global financial meltdown and recent economic recession are still fresh in Nigeria with business leaders warning of the possibility of another recession.
During that period, businesses were hit by a liquidity squeeze and their inability to service their bank loans meant that the nations banks came under severe stress. The service sector became the first casualty but other employers faced closures while job losses were common, with SMEs the worst affected.
A day after Nigeria’s Senate approved plans for an unprecedented foreign borrowing in excess of $22bn, oil prices collapsed to just $49 a barrel Friday amidst reports Nigeria is finding it increasingly difficult to sell its cargoes of crude oil.
Nigeria relies on oil revenues to fund its budget and with the government of President Muhammadu Buhari holding on to costly schemes like petrol subsidies while slow in mounting long awaited economic reforms, private sector participation in the economy remains crimped and more citizens will fall into the widening poverty pit in the continent’s most populous nation.
Oil shipment tracking by Bloomberg suggests that more than 55 cargoes of Nigerian crude are held up in international waters waiting for buyers to come knocking on the door.
Adding to the anxiety, Goldman Sachs is forecasting that as demand continues to soften, weighed down by a slowing global economy, oil price will drop further to $45 a barrel by next month.
Oil has fallen around 21 per cent since the highs of $60 a barrel in January and that means Nigeria which produces about 1.7m barrels daily is losing around $21.4m each day that passes.
Analysts say this has significant implication for Naira rate stability, access of businesses to the forex they require and for the foreign reserve level which has shaved off $8bn since May last year when it stood at $45.09bn.
Nigeria’s buffers have also been eroded with the excess crude account down to a mere $70m, exposing the vulnerability of the economy and how badly Nigeria will be hit simply because the Nigerian government has not prepared for a day like this.
“Nigeria is vulnerable to another recession as oil revenues fall due to the impact of the Coronavirus outbreak,” said Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry, a private sector advocacy group with over 2,000 member companies.
“We will continue to catch a cold when oil sneezes because we have made little progress in diversifying the economy despite 2016’s warnings,” Yusuf said. “We need to take efforts to diversify the economy more seriously and implement policies that help us get private capital because it’s the way to go.”
According to Bismarck Rewane, a leading economist and CEO of economic advisory firm, Financial Derivatives Company the Coronavirus-induced oil price downturn is “discomforting for Nigeria’s fiscal revenues and macro stability and is a scenario we did not plan for.”
