The Covid-19 pandemic has arguably resulted in the most severe global economic crisis since the Great Depression of 1929, which changed the structure of the global economy.1David C. Wheelock, “Comparing the COVID-19 Recession with the Great Depression,” Economic Synopses 39 (2020), https://research.stlouisfed.org/publications/economic-synopses/2020/08/12/comparing-the-covid-19-recession-with-the-great-depression. For Nigeria, Africa’s most populous country and one of its two largest economies, the pandemic has made a bad economic situation worse. Nigeria was already experiencing a severe economic crisis prior to the outbreak of the pandemic. Elements of the crisis included mounting public debt, a high unemployment rate, declining oil export earnings, and currency depreciation, among others. The pandemic has exacerbated the situation of a country already in dire economic straits.
Firstly, the decline in global economic activities at the peak of the pandemic contributed to a sharp drop in the price of crude oil, Nigeria’s major export commodity, which accounts for 96 percent of total foreign exchange earnings and 60 percent of government revenue.2“Nigeria’s Economy Faces Worst Recession in Four Decades, Says New World Bank Report,” The World Bank, June 25, 2020, https://www.worldbank.org/en/news/press-release/2020/06/25/nigerias-economy-faces-worst-recession-in-four-decades-says-new-world-bank-report. One estimate notes that Nigeria foreign earnings declined by 60 percent in the six months leading to the end of the third quarter of 2020.3Timileyin Omilana, “Nigeria’s Revenue Drops by Almost 60 Percent Due to Coronavirus, Says Buhari,” The Guardian, September 7, 2020, https://guardian.ng/news/nigerias-revenue-drops-by-almost-60-due-to-coronavirus-says-buhari/. Secondly, the low export earnings also contributed to foreign exchange scarcity and the sharp currency depreciation of the local currency, the Naira, which has lost 30 percent of its value relative to the US dollar in the last six months.4John Campbell, “Amid Oil Price Collapse, Nigeria Is Running Out of Foreign Exchange,” Council on Foreign Relations, May 13, 2020, https://www.cfr.org/blog/amid-oil-price-collapse-nigeria-running-out-foreign-exchange; Vincent Nwanma, “Nigeria’s Exchange-Rate Crisis, Global Finance, September 2, 2020, https://www.gfmag.com/topics/blogs/nigeria-exchange-rate-crisis. Third, there has been a rapid decline in government revenues due to the restriction of economic activities by 60 percent.5Omilana, “Nigeria’s Revenue.” Fourth, inflation has been increasing for the past few months; the average inflation rate was 13.7 percent in September 2020, while it was 16.66 percent for food items during the same period, the highest in 30 months.6Samuel Oyekanmi, “Nigeria’s Inflation Rate Hits 13.71% as Food Prices Soar,” Nairametrics, October 15, 2020, https://nairametrics.com/2020/10/15/breaking-nigerias-inflation-rate-hits-13-71-as-food-prices-soar/. Rising food prices caused by a weakened Naira and poor crop harvests have made things difficult for ordinary people, while limited access to other basic goods due to high prices have made a bad situation worse for the poor. Finally, the initial attempt by government to enforce a prolonged lockdown and social distancing measures to prevent the spread of the novel coronavirus also caused severe economic pain for the poor and informal sector workers who rely on daily incomes to survive and mostly live in crowded conditions that render any form of distancing impracticable.
The Reforms: Don’t Waste a Crisis
It was Rahm Emanuel, the chief of staff to former US President Barack Obama who, in his contribution to the discussion on the Covid-19 outbreak, noted: “Never allow a good crisis go to waste. It’s an opportunity to do the things you once thought were impossible.”7Rahm Emanuel, “Let’s Make Sure This Crisis Doesn’t Go to Waste,” The Washington Post, March 25, 2020, https://www.washingtonpost.com/opinions/2020/03/25/lets-make-sure-this-crisis-doesnt-go-waste/. This is exactly what the Nigerian government did by taking advantage of the opportunity provided by the pandemic to introduce some long overdue economic reforms. These reforms included the removal of subsidies from refined petroleum products and electricity, exchange rates convergence, and sustainable debt management policies. The introduction of these reforms were challenging for two reasons. The first was the ideological opposition they faced even within the government and among some elites who considered them part of the neoliberal policy imposed by the Bretton Woods institutions. In response, the government defended the decision by arguing that removing the subsidies is the only way to conserve resources to meet its financial obligations, run an efficient downstream oil sector, and put an end to misallocation of resources toward meeting bogus subsidy claims.8Elisha Bala-Gbogbo, “Nigeria Sees Savings of $2.6 Billion with Subsidies Gone,” Bloomberg, September 10, 2020, https://www.bloomberg.com/news/articles/2020-09-10/nigeria-sees-savings-of-2-6-billion-a-year-with-subsidies-gone. The second was the widespread opposition from Nigerian citizens and sections of civil society who genuinely believe that the payment of (fuel) subsidies is the only benefit they receive from the Nigerian state. Therefore, every attempt by successive governments over the years to remove the so-called fuel subsidies have been strongly resisted by the Nigerian people. However, due to the inability of government to meet the current subsidy payment obligations, it had only one option, which was to remove the subsidies. It did so, and although there were no street protests, the discontent among long-suffering Nigerians has been palpable.
The removal of the subsidy on petroleum products remains the boldest fiscal reform the Buhari administration has undertaken since its first term in 2015. There are two reasons for this action: First, the payments of oil subsidies, smuggling of oil products to neighbouring countries, and the attendant corruption embedded in the importation of refined petroleum products had become a massive drain on government finances and revenues, costing an estimated NGN 8.9 trillion (USD 23 billion) in the last ten years.9“Nigeria Spent N8.9 Trillion on Subsidy in 10 Years – PPPRA,” Premium Times, September 21, 2020, https://www.premiumtimesng.com/news/top-news/416258-nigeria-spent-n8-9-trillion-on-subsidy-in-10-years-pppra.html. The Nigerian government is expected to save USD 2.6 billion annually from the removal of the petroleum subsidy.10Bala-Gbogbo, “Nigeria Sees.” This money could be used to finance massive social and infrastructural spending. Secondly, subsidy payments had been riddled by massive corruption involving government cronies who benefited from inflated subsidy claims. A counterargument by people opposed to the policy, however, is that subsidy removal seems like a never-ending charade and that the promises of infrastructural development made in previous years were never kept. Also, the partially privatized electricity sector had been a drain on government finances due to subsidy payments to both distribution and generation firms to keep the price of electricity below market price.11Chinedu Eze, “Increased Electricity Tariffs, Removal of Subsidy, Key to Economic Recovery,” This Day, September 7, 2020, https://www.thisdaylive.com/index.php/2020/09/07/increased-electricity-tariffs-removal-of-subsidy-key-to-economic-recovery/. The scarcity of foreign exchange also forced the government to resort to exchange rates convergence through the merger of numerous exchange rates. The decision by the government to adopt exchange rate convergence is to discourage round-tripping, a situation wherein privileged Nigerians buy foreign currencies at lower official rates and sell them at higher rates at the parallel foreign exchange or black markets for profit.12Campbell, “Amid Oil Price.” Nwanma, “Nigeria’s Exchange-Rate Crisis.” Although multiple exchange rates still exist, there are not as many as there were before the pandemic.
Economic Response: Stimulus, Cash Transfer, and Socioeconomic Palliatives
The Nigerian government responded to the economic crisis that was worsened by the pandemic by using diverse policies and tools. On March 23, 2020, the Central Bank of Nigeria (CBN) announced a stimulus package of NGN 50 billion (USD 151 million) for household and small- and medium-sized enterprises (SMEs) to mitigate the effects of Covid-19 on small businesses and households.13Siddharth Dixit, Yewande Kofoworola Ogundeji, and Obinna Onwujekwe, “How Well Has Nigeria Responded to COVID-19?,” Brookings Future Development (blog), July 2, 2020, https://www.brookings.edu/blog/future-development/2020/07/02/how-well-has-nigeria-responded-to-covid-19/. A day later, on March 24, the National Assembly passed the Emergency Economic Stimulus Bill that granted a 50 percent tax break for registered firms with the aim of helping them improve their financial situation when the economy restarts.14Dixit et al., “How Well.” A key weakness of the stimilus bill, however, is that most small firms in Nigeria are in the informal sector and are therefore not registered and unable to access the funds. On April 1, the Nigerian federal government annouced the continuation of the conditional cash transfer scheme that transfers NGN 20,000 (USD 52) to each poor household registered on the National Social Register (NSR) on a quarterly basis, as more states issued lockdown orders on April 2 following the spread of Covid-19 to other parts of Nigeria.15COVID-19: Economic, Tax and Other Fiscal Stimulus Measures in Nigeria, Deloitte, April 2020, https://www2.deloitte.com/ng/en/pages/tax/articles/COVID-19-economic-tax-other-fiscal-stimulus-measures-in-nigeria.html. On April 6, the federal government reached out to various international and multilateral financial institutions to raise USD 6.9 billion in credit to help reverse the adverse economic consequences of the pandemic.
The most ambitious of all the economic responses by the Nigerian governmmet to the pandemic has been the Economic Sustainability Plan (ESP), a stimulus package of NGN 2.3 trillion (USD 2 billion) with the objectives of boosting local production, preventing firms from collapsing, and providing liquidity for businesses, especially informal microenterprises.16Yinka Kolawole, “FG Has Started Implementing Economic Sustainability Plan – Osinbajo,” Vanguard, August 11, 2020, https://www.vanguardngr.com/2020/08/fg-has-started-implementing-economic-sustainability-plan-osinbajo/. An important aspect of the ESP is the Survival Fund, which was specifically set up to provide payroll support, take-off grants, and unconditional grants for small firms in the informal sector of the economy.17“Welcome to FG MSME Survival Fund Program,” Survival Fund, https://survivalfund.gov.ng/. Also, different levels of government and the private sector made efforts to provide food items as socioeconomic palliatives for the people most affected by the loss of incomes or livelihoods as a result of the pandemic.
The Pains and the People
Socioeconomically vulnerable groups of Nigerian people have suffered immensely at the hands of various governments. Their suffering and pain are largely the consequences of socially harsh economic reforms introduced by government and the adverse impact of policies aimed at curbing the Covid-19 pandemic. Also, some people caught violating the lockdown rules have suffered at the hands of law enforcement agents, some with fatal consequences.18“Coronavirus: Security Forces Kill More Nigerians than Covid-19,” BBC News, April 16, 2020, https://www.bbc.com/news/world-africa-52317196. The removal of subsidies on petroleum products also culminated a 10 percent increase in the prices of consumer products, with a multiplier effect on the costs and prices of everyday items such as transportation, user fees, public utilities, and staple foods. Also, the depreciation of the local currency by about 30 percent has contributed to increases in the prices of imported goods and raw materials for local manufacturers. The economy has also contracted by 6.1 percent during the first second quarter of the year, while inflation remains at 13 percent.19Bamidele Samuel Adesoji, “Nigeria GDP Contracts by 6.10% in Q2 2020, as Critical Sectors Plunge,” Nairametrics, August 24, 2020, https://nairametrics.com/2020/08/24/breaking-nigerias-gdp-contracts-by-6-10-in-q2-2020-as-critical-sectors-plunge/. The implications of all these negative economic indicators are that more Nigerians are becoming impoverished and unemployed, as well as increasingly marginalized and angry. It is noted that the risk of social unrest will continue to remain very high if the trend is not reversed.20Emma Ujah, “COVID-19 ’ll Widen Gap between Rich and Poor – IMF,” Vanguard, November 2, 2020, https://www.vanguardngr.com/2020/11/covid-19-ll-widen-gap-between-rich-and-poor-imf/. More effort needs to be put into ensuring that the social benefits of economic reforms in the time of Covid-19 trump the pains suffered by the majority of the people.
References [ + ]
|1.||↑||David C. Wheelock, “Comparing the COVID-19 Recession with the Great Depression,” Economic Synopses 39 (2020), https://research.stlouisfed.org/publications/economic-synopses/2020/08/12/comparing-the-covid-19-recession-with-the-great-depression.|
|2.||↑||“Nigeria’s Economy Faces Worst Recession in Four Decades, Says New World Bank Report,” The World Bank, June 25, 2020, https://www.worldbank.org/en/news/press-release/2020/06/25/nigerias-economy-faces-worst-recession-in-four-decades-says-new-world-bank-report.|
|3.||↑||Timileyin Omilana, “Nigeria’s Revenue Drops by Almost 60 Percent Due to Coronavirus, Says Buhari,” The Guardian, September 7, 2020, https://guardian.ng/news/nigerias-revenue-drops-by-almost-60-due-to-coronavirus-says-buhari/.|
|4.||↑||John Campbell, “Amid Oil Price Collapse, Nigeria Is Running Out of Foreign Exchange,” Council on Foreign Relations, May 13, 2020, https://www.cfr.org/blog/amid-oil-price-collapse-nigeria-running-out-foreign-exchange; Vincent Nwanma, “Nigeria’s Exchange-Rate Crisis, Global Finance, September 2, 2020, https://www.gfmag.com/topics/blogs/nigeria-exchange-rate-crisis.|
|5.||↑||Omilana, “Nigeria’s Revenue.”|
|6.||↑||Samuel Oyekanmi, “Nigeria’s Inflation Rate Hits 13.71% as Food Prices Soar,” Nairametrics, October 15, 2020, https://nairametrics.com/2020/10/15/breaking-nigerias-inflation-rate-hits-13-71-as-food-prices-soar/.|
|7.||↑||Rahm Emanuel, “Let’s Make Sure This Crisis Doesn’t Go to Waste,” The Washington Post, March 25, 2020, https://www.washingtonpost.com/opinions/2020/03/25/lets-make-sure-this-crisis-doesnt-go-waste/.|
|8.||↑||Elisha Bala-Gbogbo, “Nigeria Sees Savings of $2.6 Billion with Subsidies Gone,” Bloomberg, September 10, 2020, https://www.bloomberg.com/news/articles/2020-09-10/nigeria-sees-savings-of-2-6-billion-a-year-with-subsidies-gone.|
|9.||↑||“Nigeria Spent N8.9 Trillion on Subsidy in 10 Years – PPPRA,” Premium Times, September 21, 2020, https://www.premiumtimesng.com/news/top-news/416258-nigeria-spent-n8-9-trillion-on-subsidy-in-10-years-pppra.html.|
|10.||↑||Bala-Gbogbo, “Nigeria Sees.”|
|11.||↑||Chinedu Eze, “Increased Electricity Tariffs, Removal of Subsidy, Key to Economic Recovery,” This Day, September 7, 2020, https://www.thisdaylive.com/index.php/2020/09/07/increased-electricity-tariffs-removal-of-subsidy-key-to-economic-recovery/.|
|12.||↑||Campbell, “Amid Oil Price.” Nwanma, “Nigeria’s Exchange-Rate Crisis.”|
|13.||↑||Siddharth Dixit, Yewande Kofoworola Ogundeji, and Obinna Onwujekwe, “How Well Has Nigeria Responded to COVID-19?,” Brookings Future Development (blog), July 2, 2020, https://www.brookings.edu/blog/future-development/2020/07/02/how-well-has-nigeria-responded-to-covid-19/.|
|14.||↑||Dixit et al., “How Well.”|
|15.||↑||COVID-19: Economic, Tax and Other Fiscal Stimulus Measures in Nigeria, Deloitte, April 2020, https://www2.deloitte.com/ng/en/pages/tax/articles/COVID-19-economic-tax-other-fiscal-stimulus-measures-in-nigeria.html.|
|16.||↑||Yinka Kolawole, “FG Has Started Implementing Economic Sustainability Plan – Osinbajo,” Vanguard, August 11, 2020, https://www.vanguardngr.com/2020/08/fg-has-started-implementing-economic-sustainability-plan-osinbajo/.|
|17.||↑||“Welcome to FG MSME Survival Fund Program,” Survival Fund, https://survivalfund.gov.ng/.|
|18.||↑||“Coronavirus: Security Forces Kill More Nigerians than Covid-19,” BBC News, April 16, 2020, https://www.bbc.com/news/world-africa-52317196.|
|19.||↑||Bamidele Samuel Adesoji, “Nigeria GDP Contracts by 6.10% in Q2 2020, as Critical Sectors Plunge,” Nairametrics, August 24, 2020, https://nairametrics.com/2020/08/24/breaking-nigerias-gdp-contracts-by-6-10-in-q2-2020-as-critical-sectors-plunge/.|
|20.||↑||Emma Ujah, “COVID-19 ’ll Widen Gap between Rich and Poor – IMF,” Vanguard, November 2, 2020, https://www.vanguardngr.com/2020/11/covid-19-ll-widen-gap-between-rich-and-poor-imf/.|