Nigeria, Africa’s largest economy and leading oil producer has been hit hard by the COVID-19 pandemic. According to the World Trade Organization, Nigeria ranks 50th largest export economy in the world in its recent ranking. However, over the last five years, the value of Nigeria’s export has fallen sharply from 88.9 billion to 47 billion dollars.
Even before the outbreak of COVID-19, Nigeria has suffered huge revenue losses due to the persistent decline in the global oil prices. Nigeria is one of the fastest-declining crude petroleum exporters in the last five years, posting a 72.8% decline in export values overall.
The country has a 5% share of an annual crude petroleum global export market worth $740 billion and every one of the top fifteen exporting countries has suffered declines in their export values over the last five years.
The top five commodity exports for Nigeria are crude petroleum, petroleum gas, refined petroleum, cocoa beans and rough wood. According to commodity.com, crude petroleum and petroleum gas contributes 36.9 billion and 7.39 billion dollars respectively to the Nigerian economy annually. Other notable exports are scrap copper, tanned goat hides, cocoa butter, rolled tobacco and rubber.
In 2019, available data indicates that Nigeria shipped US$53.6 billion worth of goods across the globe. That dollar amount reflects a 10.7% increase since 2015 and a 1.3% uptick from 2018 to 2019.
Based on the average exchange rate for 2019, the Nigerian naira depreciated by 59.5% against the US dollar since 2015 and declined by 0.3% from 2018 to 2019. Nigeria’s weaker local currency makes its exports relatively less expensive for international buyers.
Majority of exports in 2019, went to India, Spain, Netherlands and Ghana. In the continental level, the distribution is as follows; Europe (39.7%), Asia (28.2%), Africa (20.4%), North America (8%), Latin America excluding Mexico but including the Caribbean (2.7%) then Oceania led by Australia (0.7%).
Inflation has also been on the rise for 11 months running rising from 11.02% in August 2019 to 12.82% in July 2020, running according to NBS. Inflation rose from 12.56% in June to 12.82% in July 2020.
Nigeria’s inflation rate rose by 12.82% (year-on-year) in July, compared to 12.56% recorded in June 2020. This is the highest rate recorded in 27 months since March 2018 when headline inflation was 13.34%.
In April, The International Monetary Fund (IMF) said that the Nigerian economy was highly reliant on foreign exchange proceeds and the recycling of petrodollars and it’s expected to contract by about 3.4 percent in 2020, a 6-percentage point drop compared to pre-COVID-19 projections. This is mainly due to large fiscal and external financing gaps that have emerged as a result of the decline in economic activity.
However, the IMF in June announced that the Nigerian economy would witness a deeper contraction of 5.4% and not the 3.4% it projected in April 2020. Before April, the IMF projected a contraction of 2 percent. But the global lender expects Nigeria’s economy to rebound by 2.6% in 2021.
Between 2012 and 2019, the Nigerian economy grew on average 2.8% and recorded its highest growth rate of 6.22% and a lowest growth rate of -1.58% in 2014 and 2016 respectively.
Based on the latest economic data, Capital Economics also projected that Nigeria, the continent’s largest economy, will suffer its worst economic hit in 35 years in 2020 as the critical oil sector continues to be ravaged by low prices and output cuts. Similar predictions about a looming worst recession were made by the World Bank.
ACTUAL GROWTH RATE
The pandemic has bitten hard into the fiber of the Nigerian economy such that the impact is every evident in almost all the sectors of the economy.
A recent Gross Domestic Product report released by the National Bureau of Statistics (NBS), showed that for the first time since 2016, the Nigerian economy has recorded a negative growth rate.
The negative growth rate of –6.10% (year-on-year) in real terms recorded in the second quarter of 2020, was just an indication of how abysmal the various components of the national accounts have fed over the period.
It is the worst in the last 10 years since 2010, comparative analysis has shown. The report indicated that the latest GDP contraction ended the 3-year trend of low but positive real growth rates recorded since the 2016/2017 recession.
Prolonged disruption in economic activities due to the pandemic combined with the collapse of oil prices and the reduction in demand for Nigeria’s oil products is severely impacting Nigeria’s fiscal position.
Specifically, the NBS largely attributed the economic contraction to "significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the COVID-19 pandemic."
The NBS indicated that the domestic efforts ranged from initial restrictions of human and vehicular movement implemented in only a few states to a nationwide curfew, bans on domestic and international travel, closure of schools and markets among others, affecting both local and international trade.
The measures put in place to contain the spread of the virus; lockdowns, stay-at-home orders and other social distancing protocols have all affected lives and livelihoods as well as the operations of businesses. At the macro level, these have affected household consumption, firm investment as well as government expenditures which have sky rocketed.
Real GDP growth rates
The latest documents on the industry’s performance have shown that the Gas transmission, distribution and other constraints made Nigeria’s power sector to lose about N468.4bn between January and August 21 this year. For the months of April, May, June and July, the power sector’s constrained revenues were N64.635bn, N61.601bn, N61.771bn and N63.207bn respectively.
Findings showed that between August 1 and August 21, 2020, the sector lost N40.227bn due to the earlier highlighted constraints. The figures showed that the highest monthly loss this year was recorded in March 2020, as the industry’s constrained revenue in that month was N65.56bn.
The real growth of the agriculture sector in the second quarter of 2020 is 1.58%, a decrease of 0.21% point from the corresponding quarter in 2019. The sector’s contribution to aggregate real GDP in second quarter was 24.65%, much higher than the contributions of the corresponding sector in 2019 as well as the first quarter of 2020. Both with growth rates of 22.78% and 21.96% respectively.
Despite the decline in the overall GDP, the Information and Communications Technology (ICT) sector contributed 17.83 per cent to the total real GDP in the second quarter of 2020. This is 20.54 per cent higher than its contribution in 2019. It is also higher than its contribution in the preceding quarter in which it accounted for 14.07 per cent.
Mining and Quarrying sector
This sector declined nominally by 16.02% (year on year) in the second quarter of 2020. This stemmed from the decline in the various sub-sectors. According to the report by the BNS, Coal Mining grew by 10.53% in the second quarter of 2020 from -43.41% in the first quarter of 2020 and 7.63% in the second quarter of 2019. Metal Ores contracted by 7.01% in the second quarter of 2020 from - 4.10% in the first quarter 2020 and -3.77% in the second quarter of 2019. Quarrying and Other Minerals also contracted by 6.39% in the second quarter of 2020 from -83.03% in the first quarter 2020 and -3.48% in the second quarter of 2019.
Nominal GDP growth of the Manufacturing sector in the second quarter of 2020 was recorded at –0.14% (year-on-year), or -37.92% points lower than figures recorded in the corresponding period of 2019 (37.79%) and –28.61% points lower than the preceding quarter’s figure of 28.47%. Real contribution to GDP in second quarter of 2020 was 8.82%, lower than the 9.08% recorded in second quarter of 2019 and the 9.65% recorded in the first quarter of 2020.
Other pressing macroeconomic issues.
Rising Unemployment rates
Recent data for the second quarter of 2020 from Nigeria’s bureau of statistics indicates that one in every two Nigerians in the country’s labor force is either unemployed or underemployed.
The last time unemployment data was published dated back to the third quarter of 2018, unemployment rate was 23.1%. The recent data indicated that unemployment rate has climbed to 27.1%. Underemployment which is measured by people working less than 40 hours a week, or in jobs that underutilize a person’s skills, time, or education has also increased to 28.6%.
The number of unemployed persons according to the report stood at 21.7 million out of a labor force of 80.2 million. Young Nigerians between the ages of 25 and 34, form the largest bloc of the labor force. It is worrying that the unemployment rate among this cohort is much higher at a rate of 30.7%.
Unsustainable deficits and debt servicing costs
In 2019, the Federal government-generated Revenue of N4.60tn which pales in comparison with the budgeted N9.33tn indicating a 49.3% performance. However, it represented an increase of 6.1% (year-on-year) when compared with 2018. The overall budget deficit was N4.17tn as against a Budgeted Deficit of N1.92tn. The debt service cost to revenue ratio higher was 59.4% for 2019.
In the first quarter of 2020, the government scored 48.3% as far as meeting her revenue targets is concerned. This is because, out of a budgeted revenue of N1.97tn, retained revenue was N950.56bn.
Nairametrics has expressed concerns about the elevated debt service cost of N943.12bn which implies a debt service cost to revenue ratio of 99.2%. We note the 2020 budget provided a prorated amount of N681.37bn for debt service costs which implies an overshooting of 38.4% on debt service costs.
The federal government requires stringent measures that will reboot the economy. The high unemployment rates can be tackled by promoting youth in agriculture policies that will then create jobs for the youth. It will also help address the declining trends in agriculture’s contribution to overall GDP. The much needed growth can also be attained by focusing on the digitization of the economy to take advantage of the growth in the ICT sector.