Of Vaccines, Exchange rates and Borders

The federal government on Thursday said it would prioritise health workers and vulnerable Nigerians in its 'bold' plans for 20 million doses of the coronavirus vaccine for Nigerians.

The year 2020 has been anything but uneventful with the headline news stories about COVID- 19 dominating all conversations. The COVID- 19 pandemic is a classic case of a Black Swan event with no one expecting or predicting the occurrence of the disease. The impacts of this pandemic have been widespread with significant shocks to the economic and social welfare of individuals across the world. Estimates from the IMF and World Bank already point to a contraction of 4.4percent in the global economy with about 150 million anticipated to fall into extreme poverty by the end of 2021.

The agro- commodities market in Nigeria, like every other market has also been affected by the direct and indirect effects of COVID-19, with the lockdown imposed by the Federal Government causing a pseudo-scarcity of the commodities and resulting in the most significant price rally witnessed since the 2016/ 17 economic crisis. To make matters worse, the FOREX crisis that followed the COVID- 19 induced slump in oil price has compounded the rally in prices. Once would anticipate that the commencement of a new commodity marketing year ( typically from November –October) will herald a reversal to the norm as farmers harvest their fields, leading to an excess supply situation in the market. However, that is not the case as the intricate interaction between three key elements is poised to trigger a repeat or otherwise of the high price environment witnessed in 2020.

These three variables include the discovery or otherwise of COVID-19 vaccine, exchange rates and continued closure or otherwise of all land borders by the Federal Government of Nigeria. In contemplating about the impacts of these three factors, we have adopted a scenario framework with three possible outcomes; base case, best case and worst case outcomes. Under the base case, the status quo remains, that is, the COVID- 19 situation remains with no vaccine, subdued economic conditions and closed borders. We posit that the maize market will witness the greatest volatility with prices expected to rise by at least 45 percent over the course of the season. Also, the soya bean and paddy rice prices will rally by as much as 40 percent and 35 percent respectively during this period.

The best case scenario reflects an optimistic scenario where the COVID- 19 vaccine is developed and subsequently the impacts of a recovering global economy is reflected on the exchange rate.

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In addition, the scenario anticipates a reopening of the land borders.

In our opinion, the maize market will remain the same as under the base case scenario due to the heightened demand pressures currently being witnessed. The soya bean and paddy rice prices will however rise by as much as 35 percent and 25percent respectively. Paddy rice prices will benefit the most by this scenario as the exchange rate costs to be incurred by importing from neighbouring countries such as Cameroon and Benin will be limited and contained.

The worst case scenario describes a situation where there is no vaccine is developed and the land borders remains closed. This is the worst case scenario and like it means literally, it spells doom and gloom for the commodities market. Basically, the volatility and swings that will be witnessed in this scenario will be epic and monumental. The maize market will witness the most volatile conditions under this scenario with expected price rally of about 65percent over the course of the season. While soya beans and paddy rice are expected to rally by as much as 60percent and 40percent respectively. The lower expectation of price rally in paddy rice is due to the higher base price witnessed in the previous marketing year. Clearly, the 2020/ 21 marketing year is poised for significant volatilities due to the interplay of the elements driving its performance.

In response, very quick resolutions to the imminent risks is the opening up of the land borders to trading of legitimate commodities with neighbouring countries to reduce the pressures on the domestic commodity market. The opening of the borders will reduce the challenges faced by traders on both sides of the borders and increase free flow of commodities into the country to support domestic processing and production. In this case, the maize and paddy rice markets will benefit the most as inflows of raw materials from countries such as Benin, Niger and Cameroon. This recommendation should not be construed as a call to open borders to imports of restricted/banned goods such as processed rice.