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COVID-19: Nigeria needs $50 billion to survive an impending recession

At Nigeria’s GDP of N144trillion, the lock down could cost the country a whopping N21 trillion or $50 billion.

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COVID-19: Nigeria needs $50 billion to survive an impending recession

When you are faced with health-related adversity such as COVID-19, you think of survival first before the economy. This at least is what any right-thinking government should do. But it appears after the calm then comes another storm.

Nigeria’s Minister of Finance, Zainab Mohammed has said that the government wants to raise N500 billion ($1.39 billion) Coronavirus fund to help support the country’s health care infrastructure. “This crisis intervention fund is to be utilised to upgrade healthcare facilities,” she said in a statement.

Unfortunately, this may not be enough to rescue the economy when the threat of the virus is eventually contained. It will take significantly more to calm the second storm.

Nigeria’s economic and political capital, Lagos and Abuja respectively have been in a lock down since last Monday night after the President Muhammadu Buhari led-government declared a 14-day stay at home order.

READ MORE: COVID-19: Lagos discharges 11 patients

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Before then, most businesses had grounded operations to essential duties rolling out whatever business continuity plans they had in the cooler for years. The government now more than ever needs to implement its own business continuity plans and it could be very costly.

A recent report from the London Business School indicates countries hard hit by the shutdown caused by the COVID-19 virus may need as much as 15% of their Gross Domestic Product if they are to exit en impending recession as soon as possible and get their economy back in motion. According to the report “assume only a temporary drop in economic activities: 50% for a month and 25% in the two following months. Then, GDP drop of almost 10% of annual output” will be recorded by most countries.

The report also suggests that the longer the COVID-19 induced lock down, the more money governments will need to put aside if the economy is to heal faster. “Make the countries lock down longer and add the supply/demand downward spiral, then the actual costs (without policy interventions) could exceed 15% of GDP.”

At Nigeria’s GDP of N144trillion, the lock down could cost the country a whopping N21 trillion or $50 billion. Thus, to plug this hole it will surely need more than the $1.39 billion mooted by the Finance Minister. Acknowledged, the CBN along with the bankers committee had promised an intervention fund of about N120 billion while the government is considering a stimulus package.

READ MORE: Oil Price Crash: Governors to meet over budget, other economic issues

Virus hit advanced economies in the West (like the UK and US) have similarly announced stimulus package, which they hoped will stem the negative effect of the virus on their economy.

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For instance, the US passed a stimulus package of about $2 trillion nearly 20% of its GDP. The United Kingdom also announced an unprecedented stimulus package that is about 15% of its GDP. The situation is that critical.

A recent report from Mckinsey on the effect of the Coronavirus on the Nigerian economy explains it rather starkly.

“Across all scenarios, Nigeria’s economy looks to be pushed towards a contraction. The oil effect is the biggest driver of GDP impact (40-70% of total, disruption impact across scenarios) and also funds 65% of budgeted revenue and 90% of foreign reserves accrual.

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“Uncontained, GDP growth could fall to -8.8% (USD ~40Bn) with oil effect and disruption to way of working – particularly consumer spend in F&B, clothing and transport account for >90% of the total impact.”

Where will government get the money from?

The Nigerian Government has major revenue challenges, which are further compounded by the crash in crude oil prices.

To raise cash, it will have to resort to a combination of Eurobonds, local bonds and asset sales. It planned to fund its outsized N10 trillion 2020 budget via loans but the urgency cannot be over emphasized.

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Public debt hawks will complain bitterly and rightfully so. Nigeria’s external debts is about N27 trillion as at end of December 2019. Prepare for it to get higher.

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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  1. chukwudinka Marcel Ezeihu

    April 19, 2020 at 10:07 pm

    J love NAIRAMETRICS

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Energy

NNPC opens bid for repairs of pipelines and depots on a finance and operate basis

The project is expected to be operated on a public-private partnership basis.

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Pipeline Vandalism: Stakeholder collaboration, critical to tame menace - Kyari, Nigeria explains when it will fully comply with OPEC+ output cut

The Nigerian National Petroleum Corporation (NNPC) declared open on Tuesday, August 11, bids by interested private investors to repair the pipelines and depots that are serving the refineries.

These pipelines, built almost 4 decades ago, are very critical in the successful movement of crude oil to the country’s 3 refinery complexes located in Port Harcourt, Kaduna and Warri, and the subsequent movement of the finished petroleum products to the consumers.

The pipelines, which according to NNPC are in dire need of comprehensive repairs, have experienced years of incessant theft and vandalism as well as ageing.

This project is expected to be operated on a public-private partnership basis as the bidders are expected to finance and execute the project, then operate for an agreed number of years before transferring back to the NNPC. In other words, the bidders for the extensive repairs of these pipelines would have to finance them independently and operate for a defined period in order to recover their investment costs with throughput tariffs.

It must be noted that this model is similar to the one that had been in place by the state oil giant for the refineries. The NNPC had also announced plans to get private investors to invest in the repair of the 3 refineries on a repair and operate basis, as they do not want to be involved in the management of these refineries.

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The NNPC Group Managing Director, Mele Kyari, had said that the ultimate plan for these refineries was to allow it to run on the LNG model, where the shareholders would be free to decide on the fate of these refineries going forward.

The refineries, which have only run sporadically, were shut down by NNPC earlier this year while awaiting repairs and upgrade. These 2 projects are expected to be handled separately according to information made available on Tuesday.

In addition, the new pipelines would need intrusion detection systems, as well as deep burial, to stop theft or vandalism. The deadline for the submission of these bids is due by September 18.

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Economy & Politics

WTO Job: Okonjo-Iweala reveals how to resolve the rift between US and China

Mrs Iweala revealed how she hopes to resolve the rift between the United States of America and China.

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WTO, Okonjo-Iweala joins South Africa's presidential economic advisory council as nation struggles with recession

As the jostle for the top job at the World Trade Organization (WTO) becomes more intense, the Nigerian candidate, Ngozi Okonjo-Iweala, has disclosed some of her plans for the institution. The former Nigerian Finance Minister recently had an exclusive interview with CNBC Africa.

Speaking during the interview, Mrs Iweala revealed how she hopes to resolve the rift between the United States of America and China, the 2 biggest economies in the world, especially as regards trade issues. She also noted that part of her vision is to build a trade institution where there is greater trust among its members. She also stressed that the WTO, at this critical time, is needed to ensure that trade and global markets remain open.

READ MORE: Gold price up as COVID-19 cases rise, U.S-China tensions heighten 

On healing the rift between the US and China, Okonjo-Iweala admitted that it is going to be challenging and not be easy. She said:

Well this is not going to be easy, if it was easy, it could have been done a long time since. So it would be very challenging but it is not an impossible job. It is very clear that both the US and China have been helped and benefitted from the multilateral trading system in the past. Hundreds of millions have been lifted out of poverty. They have experienced shared prosperity in the economies and their countries.’

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The Nigerian candidate pointed out that it is important to remind the US and China of this shared prosperity. She then disclosed that she would listen to both countries to find out what really are the issues causing distrust among them. She said that she will not want to be involved in the larger political problems, but will rather separate the trade issues and focus on them and build this trust.

READ MORE: Dangote fertilizer plant to begin production this year

Going further on how to settle their rift, Okonjo-Iweala said, “You need to begin to find areas where there can be confidence-building and trade. Building trust is not talking about it, you have to have areas where both can work together and agree and we have a golden opportunity in the fisheries subsidies negotiations that are going on now because the US is a party to it, China is a party, the EU, all other members.’’

“It is a multilateral negotiation, so if they can sit around the table with others to negotiate this and have a successful outcome, that is one thing that will be shared in common between the 2. So that will begin to build confidence. Then reaching out both in the US and in China to talk to the policymakers, go where the decisions are made, talk to congress also in the US and begin to show the benefits of the system again.’’

READ ALSO: FG inks $3.9 billion deal with Chinese firm for construction projects 

She also said they will look at reasons why they need to work together because their rift may be causing negative externalities for other members. She is of the opinion that exposing all of these, working with them, and listening carefully will begin to build confidence.

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She believes that while achieving this will be difficult, focusing seriously on trade issues can create room for a breakthrough.

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Coronavirus

US hands over 200 ventilators to Nigeria

The US Ambassador to Nigeria said USAID and  Nigeria will work very closely over the next couple of weeks.

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US hands over 200 ventilators to Nigeria

The United States of America, on Tuesday, August 11th, handed over some 200 ventilators to the Federal Government of Nigeria. This was disclosed by the Federal Ministry of Health via its Twitter handle, following the handover ceremony in Abuja.

The US Ambassador to Nigeria, Ambassador Mary Beth Leonard, at the handover event, explained that the ventilators are compact & portable & can be easily mobilized to reach those patients with the most severe symptoms of COVID-19.

Speaking during the handover ceremony, the Ambassador said, “Their arrival fulfills the commitment discussed between US and President Muhammadu Buhari earlier this year. Our support includes; training on the use & maintenance of this equipment, ensuring that the ventilators can address other respiratory illnesses in the years beyond.”

According to her, the United States Agency for International Development (USAID) and  Nigeria will work very closely and energetically over the next couple of weeks, with the Presidential Taskforce on COVID-19, to bring these ventilators across each of Nigeria’s states & the Federal Capital Territory.

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“The United States has been pivotal in supporting Nigeria’s membership in the ‘Every Breath Counts’ Coalition. Nigeria is now one of 2 countries in Africa to have an “oxygen roadmap” that seeks to fight against pneumonia, hypoxemia, & now COVID-19,” she stated. She then added that as the U.S. Ambassador to Nigeria, she remains proud of the strong friendship between the two countries.

The Backstory: Last April, Nairametrics had reported when the Minister of Information, Lai Mohammed, said that “President Donald Trump assured that the United States stands in solidarity with Nigeria in this difficult time and promised to send ventilators to support the country in its fight against the pandemic.”

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