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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.

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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

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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.

“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?

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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.

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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Economy & Politics

NCC reacts to claims that minister chased Diaspora Commission’s staff from office complex

The NCC denies claims of the video on social media, pointing out that the staffs of NIDCOM were not sent packing from the digital economy complex

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NCC orders immediate suspension of USSD charges by telcos, 5G Network to undergo 3 months trial before approval - NCC , NCC licenses 20 new Internet service providers amidst challenges , 150 million Nigerians risk being defrauded – NCC , NCC warns telcos against cyber fraudsters , NCC rolls out new regulations on drone use, NCC licenses 10 new VAS providers as it projects market to hit $500 million , NCC, Infracos set to develop broadband infrastructure with N265 billion raise , Telecommunications: Broadband penetration set to grow, Telecoms operators fined N2.9 billion over infractions , NCC reacts to claims that minister chased away diaspora commission staff from office complex

The Nigerian Communications Commission (NCC) has reacted to claims by the Chief Executive of Nigeria Diaspora Commission (NIDCOM), Abike Dabiri-Erewa, that her staff members were chased out of its premises by armed men on the orders of the Minister for Communication and Digital Economy, Isa Pantami.

The NCC, through a press statement on May 24, 2020 signed by its Director, Public Affairs, Dr. Henry Nkemadu, has said that nothing of such happened as it denied claims in a video making rounds on social media that the staff of NIDCOM were sent packing from the digital economy complex.

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According to the press statement from NCC:

Following the completion of the NCC building at Mbora, Abuja designated as NCC Annex and the acute shortage of accommodation space for the staff of the commission in the NCC head office at Maitama, Abuja, the Board of the commission directed the decongestion of the Head office building. Some of the departments of the NCC had started moving to the new office complex of 5 floors when discussions were held between the NCC and the Diaspora Commission to enable the Diaspora Commission also utilize any free offices within the complex.

“The fifth floor allocated to them had to be used to accommodate other departments from the NCC headquarters to ease the congestion. NCC’s offer to house the Nigeria Diaspora Commission was predicated on the long held position of the NCC that agencies of government will achieve more through strategic collaboration, partnership, synergy and sharing to the extent allowed by relevant laws.”

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(READ MORE: PenCom dissolves interim management committee for First Guarantee Pension, appoints new board)

NCC disclosed that it had secured approval for the commissioning of the office complex by President Buhari, and also the launching of 4 important projects of NCC, together with the renamed Ministry of Federal Ministry of Communication and Digital Economy.

It also stated that the offer to NIDCOM had not been withdrawn, but had only hit a bump arising from the preparation for the visit of President Buhari to launch the projects and inaugurate the complex. It said that the Board and Management of NCC took a decision to ensure that every activity in the building was in line with the Federal Government’s agenda.

Going further, the statement reads:

“Incidentally, after the offer of the office spaces to the Diaspora Commission, the Director General, Mrs. Abike Dabiri-Erewa had not visited the complex to take possession of any of the offices and also the commission had not started using any of these spaces as offices.

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‘’As is usual in ensuring security and accountability before, during and after presidential visits, the building had to be cleared to allow for only known and identifiable persons to have access within the complex. Therefore, the Honourable Minister of the Federal Ministry of Communications and Digital Economy Dr. Isa Ali Ibrahim Pantami could not have sent armed men to drive the staff of the Diaspora Commission out of the Communication Economy Complex.”

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The statement also pointed out that as at that time, only NCC staff were accredited to have access within the premises and that all properties belonging to NIDCOM were safely warehoused in some of the offices within the complex.

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Coronavirus

Sanwo-Olu gives incentives to businesses to prevent job loss

Babajide Sanwo-Olu noted that the state is Nigeria’s number one commercial centre and a massive job loss will not bode well for it’s economy

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Bond: Lagos to rAN100 billion for infrastructural development, COVID-19: Lagos asks civil servants to stay at home, No public buses between 7pm and 6am, Okada ban takes effect from May 4 – LASG, No public buses between 7pm and 6am, Okada ban takes effect from May 4 – LASG, Sanwo-Olu gives incentives to businesses to prevent job loss

Lagos state governor, Babajide Sanwo-Olu, has promised that any business that employs a large number of people will receive incentives from the state government in order to prevent massive job loss in the state.

He noted that Lagos state is Nigeria’s number one commercial center and heavy job losses will not bode well for the economy of the state, and the country.

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“We are having conversations with different sectors on the requirements they need to ensure they do not retrench their staff. What many of the companies want will affect the State’s IGR but we are willing to make the sacrifice to prevent the loss of livelihood of our citizens,” the governor stated.

The phased reopening of the economy

The governor explained in his tweet that all businesses were still required to follow the Register-to-open initiative, and put all facilities in place before they would be allowed to reopen.

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(READ MORE: COVID-19: Best and worst case scenarios for the Nigerian economy)

According to him, the state will consider companies in the construction and manufacturing sector as top priority in the first stage of the reopening, while businesses in the entertainment and hospitality sector will be considered for reopening in the second phase, as the state tries to balance economic reactivation with COVID-19 management.

“We are caught between managing hunger & sustaining an economy that is not only dependent on commercial activities in Lagos alone but also in other states.  

“We are at the stage where we have to balance public health safety & the economy that affects the wellbeing of the people” Sanwo-Olu stated. 

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He urged Lagosians to support the government in breaking the cycle of transmission, by adhering to the guidelines from the authorities.

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Around the World

Air Peace to evacuate stranded Indians from Lagos to Kerala

A list of the passengers to be attended to has already been given and the flight shall depart Lagos on May 30, 2020, to Cochin Airport, Kerala.

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Air Peace signs deal with Brazillian aerospace company , Air Peace suspends flight operations over COVID-19

The management of Air Peace Nigeria has been contacted by the Indian High Commission in Nigeria to undertake the evacuation of stranded Indian nationals to Kerala, India. This was disclosed by the airline via its Twitter handle.

The airline explained that a list of passengers that would be attended to have been released and it has started reaching out to the Indians on Saturday.

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It stated, “A list of the passengers to be attended to has already been given to us and we have commenced reaching out to them. The flight shall depart Lagos on May 30, 2020, to Cochin Airport, Kerala.”

The flight is not free anyway. According to the airline, payments are expected immediately and they are Economy is $1.300 and Business class is tag $1,700. “You are equally allowed to pay in Naira at N460/$,” it added.

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However, some Indians in Nigeria has reacted with mixed feelings to the development on Twitter. While some were ready to join the flight back home, others called for the refund of ticket fare booked a week ago.

READ ALSO: Hope rises as Emefiele set to meet MTN, 4 banks today.

For instance, Jayant Khamesra requested for the refund ticket fare of N568, 100, which he paid for a flight from Lagos to Delhi.

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He said, “Please refund ticket fare P47812 LAGOS to DELHI. No show by Air Peace and it is been 1 week now, there has been no refund or confirmation of the same. Reference ALHN79 amount N568,100. I am sure a good world-class carrier like Air Peace won’t delay refunds purposely. Please act fast.

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