Tuesday, October 3, 2023

COVID-19: Nigeria heading for recession – Utomi, Unegbu, others

Nigeria’s economy, already taking a lot of heat from global oil shocks may slide into another recession in no time if the coronavirus crisis gets out of hand.

A cross-section of experts who have monitored the turn of events in the last few weeks gave this damning verdict.

Signs of imminent recession are self-evident – what with some of the measures and actions being enforced by different tiers of government as well as businesses ostensibly to stem the debilitating trend.


Last week, panic selling on a large scale not only caused the market capitalisation of the Nigerian equity market to go slimmer but led to a total loss of N1.081 trillion in two days in what observers say is the biggest consecutive loss on the Exchange so far this year.

Among the top losers include Aliko Dangote, Africa’s richest businessman and President of Dangote Group, which has the largest capitalised firm on the Exchange losing a whopping N240billion in the last couple of days.


The market has been at the mercy of the free fall in the global oil prices lately since the new price war between Saudi and Russia in the aftermath of the refusal of the latter to agree to an oil output cut.

This is even as there have been myriad sweeping effects of Covid-19 on several stock markets across the globe from Dow Jones to Nikkei 225 and the implacable epidemic is having its moment too on the Nigerian bourse.

The tourism and hospitality industry which is the second biggest employer of labour after agriculture is the worst heat.

The Lagos Hoteliers Association (LHA) on Friday decried low patronage in hotels, attributing it to people’s reaction to the spread of COVID-19.

The Association’s President, Mr Adekunle Akilo, told the News Agency of Nigeria (NAN) that a good number of hoteliers lamented over the low patronage during their recent meeting in Lagos.

According to him, the low patronage can also be attributed to government’s recent directives to minimise social gatherings.

He noted that visits from neighboring towns had reduced as people were trying to be careful and guide against contacting the viral disease.

“Business in hotels is now at a standstill; personally I don’t even have one customer in my hotel presently. It is that bad.

“We had a meeting yesterday with members and the major issue discussed was on how to tackle this issue of low patronage, it is the same story across board.

“We observed that visits from neighboring towns have reduced and hotel businesses cannot thrive when there are restrictions on travels,” he said.

The president urged the Federal Government to put into consideration the economic implications of restricting some gatherings.

He said government should rather intensify efforts in sensitising Nigerians on the precautionary measures for guidance and not stop people’s activities.

“Government is only compounding issues by stopping people from attending religious gatherings and schools; this will have adverse effect on the economy. We hope things will take the right shape soon anyway,” he said.

Some of the existing turnkey projects by the federal government like the 150km major railway project linking Lagos to Ibadan may be delayed by the as workers from China had not returned to the country.

The railway line is being developed by the state-owned China Civil Engineering Construction Corporation, reported South China Morning Post.

Nigeria’s Transport Minister Rotimi Amaechi said: “Most of the Chinese workers who went on their New Year holiday have not yet returned due to the coronavirus and this has delayed the work.”

Expected to be completed in May, the $1.5bn project has been repeatedly facing delays since it was first agreed in 2012.

China has since invested billions of dollars in constructing infrastructure across Africa, building its influence in the region.

Review of 2020 budget

Meanwhile the federal government has disclosed plans to reduce the 2020 budget by as much as N1.5 trillion.

The disclosure was made by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, while briefing State House correspondents at the end of the Federal Executive Council, (FEC) meeting presided over by President Muhammadu Buhari at the Council Chamber, Presidential Villa, Abuja.

Ahmed said that there will be a cut of 20% from the capital expenditure of the 2020 budget while recurrent expenditure will be reduced by as much as 25%.

Recall that she had earlier in the month hinted at the possibility of reducing the 2020 budget due to the coronavirus outbreak.

According to Ahmed, Buhari had approved other far-reaching measures in the face of the current economic realities occasioned by COVID-19. One of those measures is the cut in crude oil benchmark from $57 per barrel to $30 per barrel in the revised budget. The global crude oil prices are now less than $30 per barrel.

“We should cut down on the size of the federally funded upstream projects of the Petroleum sector. The reason being that we want to be able to receive more revenue by less reduction from NNPC,” the minister said, adding: “The reduction of the crude oil price from $57 per barrel to $30 means that we are going to get so much less revenue, almost 45 percent loss as we planned. And because of that, we have to amend a number of projections in the budget as well as in the MTEF to reflect our current reality.”

Speaking further, Ahmed said the government would continue to pay salaries and would not sack workers, but would not be recruiting or increasing its workforce size for the time being.

On concerns of the economy slipping back into recession, Ahmed said the budget cut would result in about 40 to 45% reduction and also it will affect states because it means FAAC will be significantly reduced.

“FAAC is just a pool of funds and we share what is realised, so it will affect the states as well. So we are expecting the states to take similar measures to amend the plans that we have made and bring them down to current realities.

“On plans to scale back VAT and excise duty, I am not making any commitment on that right now because these are provisions in the law in the Finance Act and as you know, we will, even in the amendment to the MTEF and the budget, have to engage with the National Assembly. The fiscal authorities are working with the fiscal authority team and we will get the President’s approval before we come up with what we will announce to the public,” Ahmed added.

Fear of recession

Firing the first salvo, Prof. Pat Utomi, renowned political economist said, the fear of imminent recession is indeed founded.

While noting that recession is indeed a reality, Utomi however said, “It can either become a huge threat that is converted to opportunity, and therefore the restructuring of the Nigerian economy for good or it can just become devastation as we plunge yet into another recession which would perhaps be prolonged.”

Waxing philosophical, Utomi who noted that, “The nature of Nigerian politics makes it impossible for Nigerians to make money at home and those who find money at home quickly move it out of the country for safety. The way they behave is making it impossible for investors to come from abroad to invest. Nigeria is a classic perfect case that unravels very quickly into a prolonged recession. But it is possible that what happened in India to happen in Nigeria.”

Echoing similar sentiments, Mazi Okechukwu Unegbu, lawyer and banker, said Nigeria is not immune to happenings around it as such, the citizens should braze up for the worst.

While noting that Italy has locked down totally because of the coronavirus as well as Denmark, the United States and more sophisticated countries, including China, which Nigeria relies upon for a number of supplies, there is a crisis at hand.

“We have a problem because most of the shops in Lagos, Kano, Enugu, Aba, and Onitsha depend on China for their supplies. China now has locked down since nothing is coming from there,” Unegbu said.

On the likely impact of the continuous spread of coronavirus on the economy, Unegbu, who sits atop as the Maxifund Investment and Securities Plc, said recession is indeed imminent. “They said Nigeria has come out of recession but I assure you now we are going to see the real recession.”

Unegbu, who once held sway as the President of the Chartered Institute of Bankers of Nigeria (CIBN), however impressed on the nation’s economic mangers the need to review the Finance Bill.

“What I will advise is that we should get all the factors of production that we have, get the very good things in Nigeria and see how we can manage without depending on other economies. Remember that our border is closed and our neighbours are complaining. When the border was closed I did say that when you close a border and there is no free movement of trade what is going to happen is that our inflation rate will spike up but people didn’t believe me. At the time the border was closed the inflation rate was about 9-10 percent but after the closure of the border it increased to about 12-15%.”

At a time the world’s economy is imperiled on account of the cut in crude oil price caused by the spread of coronavirus, Olabode Agusto, Director, Agusto & Co. Limited has impressed on the federal government, the need to diversify the nation’s economy away from oil.

At a time the world’s economy is imperiled on account of the cut in crude oil price caused by the spread of coronavirus, Olabode Agusto, Director, Agusto & Co. Limited has impressed on the federal government, the need to diversify the nation’s economy away from oil.

The diversification of the economy becomes inevitable in view of the credit crunch the country contends with during oil crisis at the global market.

According to Agusto who was guest speaker at the 17th annual Aret Adams memorial lecture in Lagos, organised by the Aret Adams Foundation recently, where he presented a paper entitled: ‘Nigeria’s Economy after Oil: How should we prepare?’ while noting that crude oil has provided Nigeria with a sizeable amount of USD revenues which the country has used to trade with the rest of the world, however lamented that in periods of high crude oil prices, Nigeria uses her forex earnings to support the exchange rate but in periods of weak prices she allows sharp currency depreciations.

Agusto, the former Director General, Budget Office said, “Severe devaluation of the NGN is usually accompanied by a banking crisis. This is because weak crude oil price drives the economy into recession, devaluation increases the financing needs of businesses and those who owe hard currencies suffer large exchange losses. All these weaken the ability of businesses in the real sector to repay their loans resulting in large credit losses that erode banking industry capital.”

Government, he stressed, ”should then use these three sectors – external trade and investment, tax revenues and the financial sector to help businesses and households to thrive. What happens in Nigeria is that we experience economic booms in periods of high oil prices and recession when prices fall.”

Members of the organised private (OPS), who have also raised their voices above the din were unanimous in calling for decisive measures to fight the scourge in order to prevent the economy from dire consequences.

In separate statements issued by the Dr. Muda Yusuf, Director General, Lagos Chamber of Commerce and Industry (LCCI) and his counterpart at the Nigerian Association Of Chamber Of Commerce Industry Mines And Agriculture (NACCIMA) National President Hajiya Saratu Iya Aliyu has called on government to take steps through a clear plan of action to mitigate the negative economic impact of COVID-19 which the WHO has now declared as a global pandemic.

According to Yusuf, the outbreak of the coronavirus has profound implications for the Nigeria economy. “It poses a major threat to Nigeria’s macroeconomic fundamentals, the impact of which may be systemic and far reaching. The looming price war contemplated by Saudi Arabia, the largest crude oil exporter, portends even more ominous signs for Nigeria’s economy. This is on the back of the collapse of the OPEC– Russia alliance. Saudi Arabia is offering significant discounts to its customers and also increasing output.”

The LCCI boss, who noted that there is also the revenue effect of the coronavirus which is related to the drop in oil price, stressed that oil revenue currently accounts for about 50% of government revenue and about 85% of foreign exchange earnings. “With the current scenario of tumbling oil price, a drastic reduction in the revenue of government becomes inevitable in the near time. This has implications for the level of fiscal deficit in the budget; budget implementation will be constrained; infrastructure financing will be affected; borrowing may increase, and the capacity to fund capital project will be severely constricted. With this scenario, the outlook for oil dependent economies looks rather gloomy.”

Oil revenue accounts for about 85% of foreign exchange earnings and is the major driver of accretion to the foreign reserves. The slump in oil price and the associated adverse expectations will put fresh pressures on the reserves. Currently, is at all-time low of $36.2 billion as at 3rd March 2020. This outlook has the following implications.

“The global supply chain has been deeply disrupted as China, which is the second largest economy in the world, is a major supplier of inputs for manufacturing companies around the world, Nigeria inclusive. Many manufacturers and service providers in the country are already experiencing acute shortage of raw materials and intermediate inputs. This has implications for capacity utilisation, employment generation [and retention] and adequacy of products’ supply to the domestic market. There is also an implication for inflation.”

On impact on events, conferences and workshops, Yusuf said, “Many events and conferences in Nigeria and around the world have been cancelled as a result of the coronavirus scare. For most of these events, huge sum of money and resources have been committed to the organisation, planning and logistics. These translate into huge loses to the promoters of these events.”


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Signature TV is a multi-media company, owners and operators of signaturetv.org and producers of The Signature Show on AIT and Corruption Tori. Our programmes are broadcast on the AIT Network and on Seven NTA stations across the country. We are content providers for a number of television networks and some State TV stations, with a respected 24/7, high online and offline followership. We are also Communications/Media Consultants to MacArthur Foundation, Ford Foundation and OSIWA.

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