By Chief Afe Babalola, SAN OFR
In the preceding editions, much of the focus has been on the medical response to the novel coronavirus disease, both in Nigeria and the world at large.
It is, however, pertinent to consider the dire socio-economic consequences of Nigeria’s unpreparedness for this pandemic, with specific reference to Nigeria’s inflation and rise in external debt, the sustainability of the low-income Nigerian, among others.
The effect of the COVID-19 pandemic on the Nigerian economy
Nigeria has had its fair share of economic crises. Within a decade, Nigeria witnessed two major recessions – 2009 and 2016. According to Sanusi (2010), the 2009 recession was caused by a combination of the after-effect of the 2007/2008 global financial crisis, poor loan underwriting process in banks, bad risk management practices and poor corporate governance of banks.
Conversely, the 2016 economic crisis was caused by an unexpected decline in the oil price which led to a sharp drop in oil revenue which severely affected Nigeria’s foreign reserve, leading to a massive balance of payment deficits which plunged Nigeria into its second recession (Adeniran and Sidiq, 2018).
Therefore, while banks were a major cause of the 2009 crisis, the 2016 economic crisis was caused by Nigeria’s overdependence on oil. However, the 2019 coronavirus pandemic, as forecasted by top IMF economists, is capable of plunging the world into a global recession. There are five main ways through which the COVID-19 pandemic is affecting the Nigerian economy, as noted by Ozili (2020).
One, the COVID-19 pandemic has affected borrowers’ capacity to service loans, which gave rise to depression in banks’ fiscal earnings. Banks were then reluctant to further lend as more and more borrowers struggled to repay the loans granted to them before the COVID-19 outbreak.
Two, there were oil demand shocks resulting in the immediate plunge in the price of crude oil from nearly US$60 per barrel to as low as US$30 per barrel in March 2020. With oil accounting for 90 per cent of Nigeria’s exports, the decline in the demand for oil and oil prices, by extension, adversely affected the volume and value of net exports and revenue.
Three, there were supply shocks in the global supply chain as many importers shut down their factories and closed their borders, particularly China. Nigeria was severely affected because Nigeria is an import-dependent country and as a result, the country witnessed a shortage of crucial supplies like pharmaceutical supplies, spare parts, and finished goods from China.
Four, the national budget was also affected. The budget was initially planned with an oil price of US$57 per barrel. The fall in oil price to US$30 per barrel meant that a new budget had to be drafted to factor an oil price reduction. This has conversely affected the official naira/dollar exchange rate with the official exchange rate being adjusted from N306 to N360.
Finally, COVID-19 pandemic affected the Nigerian stock market. Major market indices in the stock market plunged when investors pulled out their investments into so-called safe havens like US Treasury bonds. Stock market investors lost over NGN2.3 trillion (US$5.9bn) barely three weeks after the first case of coronavirus was confirmed and announced in Nigeria.
In all, the COVID-19 pandemic has led to an increase in inflation rate in Nigeria as the nation’s annual inflation rate rose to 12.34 per cent in April 2020, the highest since April 2018. It has resulted in an astronomical rise in Nigeria’s external debt stock, a rise in the price of imported goods, rise in the price of food and rise in the price of general household items in Nigeria.
Confirming this, the Deputy Governor, Financial System Surveillance Directorate, Central Bank of Nigeria, Ahmad Aisha, was reported to have noted that “the pandemic may temporarily exacerbate an existing trend of rising domestic prices in the short term”.
The aggravating effect of Nigeria’s structural deficiencies
Prior to the outbreak of the COVID-19 pandemic, Nigeria has been bedevilled by a myriad of aggravating factors which would have ordinarily made a pandemic an uncontainable disaster. They include poor public health infrastructure, an underdeveloped digital economy and lack of social welfare programme.
The inadequacies in Nigeria’s public health sector are contributory to the nation’s incapacitation to cope with the fast-spreading pandemic. Conversely, the state of Nigeria’s drug market is near-unregulated because the drug agencies have difficulty in preventing the importation and distribution of illegal drugs as well as difficulty in tracking informal drug sellers that operate without a registered license.
To worsen matters, local drug manufacturers could not manufacture drugs that could temporarily suppress coronavirus in infected patients because the pharmaceutical ingredients used to manufacture suppressant drugs could no longer be imported because China had shut down its factories and closed its borders to control the coronavirus pandemic in its own country.
Also, there were insufficient isolation centres in all the states in Nigeria. The number of infected patients in Lagos grew worse to the extent that a stadium had to be converted to an isolation centre.
Most businesses in Nigeria operate the traditional ‘come-to-office’ model and against the ‘work-from-home’ model which is now the new normal. Therefore, due to the old model, the COVID-19 pandemic grievously impacted their business operations as workers had to be physically present in their workspaces. However, the operations of these markets and industries would have been minimally affected if they had a large digital operation infrastructure.
Some analysts have noted that the digital economy would have played a major role in driving recovery from the economic crisis if Nigeria’s digital economy was robust and well-developed. For instance, in Nigerian schools and universities, educators can put coursework online so that students quarantined at home don’t have to miss out on key aspects of their education while school is closed.
The consequence of the lack of social welfare programme in Nigeria became so evident due to the COVID-19 pandemic. There were no housing subsidies, energy and utilities subsidies, and assistance for other basic services to individuals that were most affected by the coronavirus outbreak.
As more than 50 per cent of Nigerians rely on their daily earnings, the people had little to rely on and poor citizens did not have welfare relief that could help them cope with the economic hardship at the time.
This has occasioned an alarming rate of suicide and other self-defeating thoughts in some Nigerians who have lost all hope as they can neither go to work due to the lockdown nor can they feed themselves and their families – caught between the devil and the deep blue sea! According to Ewalt and Jennings Jr. (2014), the provision of social welfare services to vulnerable citizens in the population is the most proven way to protect them from economic hardship in bad times.
Nigeria was not prepared
In the final analysis, it is not difficult to see that Nigeria was not prepared for COVID-19. This is even more disheartening when it is considered that we had the time and resources to have put in place adequate measures to reduce the impact of any pandemic.
Yet as has been the case in time past, Nigeria was ill-prepared to meet exigencies be they in the economic, political, medical or educational realm. Most disheartening was the abandonment of personal hygiene. Before 1966, Hygiene was a compulsory subject in all elementary schools. Washing of hands, body and clothes which COVID-19 has made compulsory was formerly part of school curriculum.
Perhaps the most lesson that the COVID-19 pandemic has taught us is that the health sector is one of the most important sectors in any economy and medical health practitioners play a vital role in ensuring that the country would attain its full potentials.
There is, therefore, the need to invest heavily in the health sector by the construction of world-standard hospitals, specially equipped laboratories and isolation centres to curtail infectious diseases. It is necessary to revisit and introduce Hygiene in elementary schools as a compulsory course.
The welfare of doctors and other health practitioners must remain a priority if Nigeria is to ever attain its full ideals. Furthermore, Nigeria universities and teaching hospitals must bolster up medical research to facilitate an improvement in responses to future pandemics. They must undertake research into Nigerian herbs and produce drugs that can cure pandemics, just like Madagascar’s medical efforts has caught the world’s attention.
In the same vein, there needs to be a paradigm shift in the ways corporate organisations run their businesses. If not anything, organisations now realise that certain work can be properly executed by members of staff right in the comfort of their homes. In this regard, the nation must invest in digital operation infrastructure.
Finally, the establishment of social welfare programmes for vulnerable Nigerians must remain one of the priorities of policymakers as the safety, security and wellbeing of Nigerians is of paramount importance.
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