© 2019 - International Centre for Investigative Reporting
COVID-19: Nigeria at risk of new recession – Report
AS China struggles with the Coronavirus otherwise known as COVID-19, a new report by the SB Morgen has revealed how the deadly virus will severely affect Nigeria’s Oil and Gas sector, thus result in likely economic recession.
The report titled, Potential Effect of Coronavirus on the Nigerian Economy, released on 21st February, specifically stated that the disease would crumble global oil prices, stall foreign lendings and incite scarcity of foreign reserve.
“It will be of no surprise if the Chinese CONVID’19 oil price shake leads to another recession in Nigeria, due to the over-reliance on proceeds from the oil sector as the biggest foreign exchange earner,” the SBM Intelligence report stated.
It stressed further that fallout of the disease outbreak would not only affect the Chinese economy – the world’s second-largest and main manufacturing hub but also, its important trading partners including Nigeria.
For instance, a 2014 BBC World Service Poll, says 80 per cent of Nigerians view China’s influence positively, with only 10 per cent expressing a negative view, making Nigeria the most pro-Chinese nation in the world.
China is considered one of Nigeria’s closest allies and partners in bilateral trade which means a drop in productions of goods and services in China also means a drop in commodity sales and a price hike in Nigeria.
SBM Intelligence report, however, showed that car and electronics manufacturing firms have publicly declared effect of the outbreak on the level of productions and demands.
In Germany, Deutsche Bank says, “The outbreak may contribute to recession. German investor sentiment has already crashed to its lowest point since December 2019.”
The International Air Transport Association (IATA) also announced that based on its initial assessment of the COVID-19 on flight operations, IATA already recorded a potential 13 per cent full-year loss of passenger demand for carriers in the Asia-Pacific region.
Other sectors of the Chinese economy that have been affected include pharmaceutical companies, trade shows, sporting events as well as tourism.
Moreover, China’s GDP is expected to reduce to 4.5 per cent in the first quarter of 2020 down from 6 per cent in the previous quarter.
The ICIR, however, highlights the major sectors the deadly disease might have a negative impact.
Impact on oil price in Nigeria
Since the outbreak, the Organisation of Petroleum Exporting Countries (OPEC) is expected to cut production quota amongst its member countries which Nigeria is a major player.
The SBM report also revealed that the global demand for oil is expected to fall by 435,000 barrels for Q1 2020.
Thus, it only gets worse for Nigeria as oil is the biggest revenue earner for the government. For instance, the current administration is eyeing revenue from oil as detailed in the 2020 budget, pegged at ₦2.64 trillion.
For the non-oil sector, it hopes to rake in ₦5.5 trillion.
However, oil prices do not only affect the revenue generated from this sector but also disrupt prices in other sectors such as manufacturing and production, thereby causing a rise in inflation.
Impact on trade between China and Nigeria
Meanwhile, according to the Nigerian Bureau of Statistics (NBS), Nigeria’s imports from China rose from N1.06 trillion in mid-2018 to ₦1.99 trillion in the same period in 2019.
Again, based on reports by the NBS, Nigeria’s imports from China in the second and third quarter of 2019, stood at ₦2.2 trillion.
It showed that Nigeria is an active member of the Chinese market, and by extension, imports to Nigeria almost doubled total imports from China to other relevant nations.
This simply implies that import to Nigeria from China rose by 88 per cent in mid-2019.
But, “This is likely to take hits as China struggles to contain the spread of the virus,” SBM intelligence revealed.
In addition, the report highlighted how lockdown of about 150 million Chinese nationals is affecting the production of goods and services, maintaining that it would continue to slow, and in some cases, shut down completely exports to Nigeria.
Impact on Foreign Exchange
It could be recalled that in 2015 when the global crude oil price fell, there was a significant reduction in crude oil production, as well as insufficient foreign exchange (forex) to fund imports, the incident diminished foreign reserves.
As global oil prices trend lower at $57 dollar per barrel as of mid-February, the effect of the coronavirus will continue to suppress appetite well in to March.
Impact on Foreign Borrowing
Further SBM also predicted that the current situation in China presently leaves little room for international trade and aid, as the Chinese economy slows due to the reduction in the production of goods.
The loan is thus, unlikely to come when it will be needed, it noted.
Recall that the federal government, in January sought a new $17 billion loan from China in order to finance its 2020 budget.