Nigeria could do with a sense of urgency about economic reforms
Even though Nigeria has not recorded any fatality from Coronavirus, the country is nonetheless witnessing other gloomier consequences. Not only are there fears about the sustainability of business operations that require the movement of personnel for maintenance of plants and machinery as well as disruptions in the supply chains of essential goods, the assumptions on which the 2020 budget were predicated are almost forfeited. Already, oil is trading far below the benchmark of $57 per barrel; the exchange rate of the local currency has depreciated in the parallel market, reportedly going for as low as N401 per dollar, in some instances aided by the activities of speculators. The stock market is also reeling from the impact of the virus, officially christened COVID-19, with market capitalisation dipping sharply.
Some basic figures might explain the cheerless position we are in. Oil prices are currently at about $34. Foreign reserves are wearing thin, from a peak of $48 billion in July 2018 to about $36 billion currently. The Excess Crude Account (ECA) that could have served as some buffer had been depleted to a mere $71 million. Basic raw materials for Nigeria’s pharmaceutical industries go from China to India for contract manufacturing. That supply chain has been disrupted as India is holding on export of drugs in anticipation of an outbreak given their huge population. Currently, prices of essential drugs like paracetamol are up by about 40% in the country.
On the whole, the economic prognosis does not look good. On Wednesday in Abuja, the Nigerian National Petroleum Corporation (NNPC) Group Managing Director, Mr Mele Kyari joined several critical stakeholders to warn of tougher times ahead. “We will have the impact of Coronavirus for a while”, said Kyari at a roundtable session with the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele. “Today, I can share with you that there are over 12 stranded LNG cargoes in the market globally. It has never happened before. LNG cargoes that are stranded with no hope of being purchased because there is an abrupt collapse in demand associated with the outbreak of Coronavirus.”
Breaking down the gloomy economic challenge to numbers at the CBN parley, Kyari said as at today, “the best of our production system is $15 to $17 a barrel, there are many countries whose cost of production is $30 and we’re one of them. So, when the price now goes to $22 and we’re producing at 30 dollars, that means we’re out of business.”
While the outbreak of the novel Coronavirus might provide a quick alibi on why our economy is now on a dangerous trajectory, the reality is that the tell-tale signs that all was not well were there long before the dreaded pandemic begun to take its toll. While reviewing the 2020 budget may seem an inevitable option for now, we believe that the nation boxed itself into this recurring pitiable situation dictated by the vagaries of oil prices for failing to diversify, in real terms, and for failing to save for the rainy day. Although the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed tried to put a positive spin on the challenge ahead, she nonetheless admitted that “the combination of crude oil price crash and Coronavirus will put severe strain on our budget revenue, forex and many sectors.”
As a consequence of neglect spanning decades, the economy is sadly over-dependent on the oil sector which accounts for about 90 per cent of our foreign exchange earnings but provides less than 25 per cent of the Gross Domestic Product (GDP). Oil has created a culture of fast money through government patronage and corruption. The farms are no longer attractive to the able-bodied youths of the country, who stream daily to political capitals of the nation – federal, states, local councils – for their share of the cheap money.
Now that Coronavirus has shown how risky, unsustainable and unwise overdependence of oil revenue is, we urge the federal government to demonstrate more seriousness and a sense of urgency in diversifying the economy.