Economic consequences of Covid-19 and way out for Nigeria (I)

I am not an economist and I do not pretend to be one. But just as war is too important to be left alone for generals to handle, so also with economics.

My simple understanding of economics is that it is a tool that seeks to explain the acquisition and utilization of resources for fulfilment of basic and complex needs by people and societies. To better undertake this task, economists must therefore complement their analysis with other disciplines that explain human interaction like; mathematics and statistics which deals with numbers; philosophy which is about human motivation and rationalisation; history which traces the development of human societies through the ages; sociology which is about human social structure and, politics which explains the organized interaction and justification for the existence of human societies. This partially explains why economics like all disciplines in the social sciences category cannot be a stand-alone. Like jollof rice, economics must incorporate other ingredients to make it the palatable dish we all crave.

In this essay while my take off point is on the economic consequences of Covid-19, I will however draw extensively on the philosophical, historical, sociological and political tools to explain the subject matter and in suggesting why Nigeria needs to develop and implement a new economic development paradigm at this opportune time.

Looming in the horizon following the Covid-19 which met us unprepared is a massive economic hurricane which is expected to make landfall on Nigeria very soon. Already we are seeing the manifestations of this impending economic crisis as the effects of the Covid-19 kicks in. With the lockdown introduced by the government to stem the spread of the pandemic, the wheels of trade and commerce, the very lifeblood of our society where goods and services are exchanged, is grinding inexorably to a halt. Firms and businesses are closing down and job losses mounting. Factories and industrial concerns are scaling down production as the market for products are shrinking not from competition but from low patronage.

With the drastic fall in oil prices internationally, government revenues are projected to take a hit. The falling oil prices is due to a combination of factors; continuing differences over production issues by two oil producing giants Russia and Saudi Arabia; massive cutbacks in demand for oil by end users such as airlines, factories, industries, vehicles and some municipal transportation services like buses as a result of restriction in movement under the global lockdown, and the shale oil and gas production in the United States of America which has exponentially turned the latter from a net importer of oil to a net exporter of the commodity. As a result of the glut in the oil market, storage facilities for receiving oil cargoes are now filled up and orders already signed for are left floating on the high seas with no one to take them. Lately it was reported that 84 million barrels of Nigeria’s crude are on the high seas with buyers not willing or having the capacity to store them. If our daily allowed exportable quota by the Organization of Petroleum Exporting Countries (OPEC) is about two million barrels a day, that means we have 42 days’ worth of unsold and probably unsalable crude on our hands. Our Liquefied Natural Gas (LNG) export too faces similar situation. This has put into jeopardy the recently signed final investment decision (FID) for the expansion of the NLNG plant which is guaranteed to increase our earnings from export of the commodity. And if we couple this to the fact our cost of crude oil production is adjudged to be the highest in the world, we get a grim picture of the state of our number one revenue earner is today and in the future.

The danger in all this is that they are all happening together and at the same time making it difficult for governments to cope. Before the Covid-19, there are times when only one out of these challenges comes up and we rely on the performance of the others to covers up for the slack. But the Covid-19 has proven to be not just a public health plague; it is also shaping to be a scourge on our economic health with potential to cause severe disruptions on our social and political life.

Whether the Covid-19 eventually eases off or not, the seeds for this have already been sown. The informal economy which engages majority of our folks in trading of basic goods and provision of services and which provides for their livelihood and sustenance has shrunk down considerably. It is indeed the informal economy which so often acts as a supportive alternate economy that provides refuge for us in many ways. It has always been there to cushion us in times of economic busts. But with the Covid-19 lockdown, both its operators and the goods and services they provide in a complex, uninterrupted informal chain of supply and demand has been scaled down significantly in an unprecedented way. When the lockdown is eventually lifted, it would take a long time if any for the operations of the informal economy to return to its optimal levels.

Then there is the distinct possibility that with dwindling revenues both the federal and state governments may not in the foreseeable future be able to meet up with their recurrent obligations. Right now in order to meet up with the obligations of the Covid-19 lockdown, the federal and state governments have been drawing down on their reserves and diverting funds earlier budgeted for prior identified obligations. It remains to be seen how the federal and state governments would be able to sustain this unbudgeted spending if the Covid-19 continues. If the scale of spending continues in this manner by the time the pandemic eases off, the government will be so depleted of funds that it may not be able to attend to some of the most basic of its statutory responsibilities.

Where does all this lead us to and how do we cope with it? As a country are we at this moment studying the consequences of Corvid-19 in totality and devising plans to meet its expected effects so as not to be caught unawares as when the pandemic first came upon us?