Virtually every country in the world has experienced one form of lockdown or the other. This is following strict guidelines that was imposed to help contain the dreaded COVID-19 pandemic that ravaged the world in 2020. Over and above the health implication of the virus, the pandemic had triggered a global economic crisis. It was in the midst of this crisis that Nigeria slipped into recession last year.
Many economists have stated that the hope of recoveries in economies would take about 2 years. Interestingly, The Lagos Chamber of Commerce and Industry ( LCCI ) in their recent briefing on the economy revealed that they saw a brighter light in the tunnel for Nigeria. They expressed strong hope that Nigeria’s economic recovery could come as early as the second quarter of 2021. Mrs. Toki Mabogunje, President of LCCI revealed that the prediction was given due to the absence of major economic shocks.
The LCCI industry has hinged the possibility of the country’s recovery on four notable pillars which are the local and global effective management of the pandemic, widespread vaccine rollout, the direction of the global oil market, and the quality of fiscal, monetary, trade, and regulation policies.
The World Bank and the International Monetary Fund had earlier predicted that Nigeria’s annual average growth for the year 2021 would be put at 1.1 percent and 1.51 percent respectively
Local and global effective management of the pandemic is a major requisite in Nigeria’s recovery. This could be made possible through the implementation of strict policies to help contain the spread of the virus, speed in the treatment of identified cases, and cushioning the economy from the pandemic effects.
Adherence to the measures will minimize human casualties and help boost economic growth. Widespread vaccine rollout has become the present clamor, both in the country and globally. Nations around the globe are racing to procure vaccines for citizens to curb the virus.
Dr. Chile Iheakwazu, the Director-General of the Nigeria Centre for Disease and Control (NCDC) revealed during an interview that the Federal Government was working out modalities to receive and distribute about 40 million vaccines across the country.
Also, the global oil market has experienced ‘exceptional’ uncertainty with a risk of long-term consequences. Although the oil and gas industry has always gone through the highs and lows of economic cycles, the effect of the pandemic has caused a hit like no other. Experts have referred to the downturn as ‘the great compression’ of the oil and gas industry.
Global oil demand fell by 25% in April 2020, but it has rebounded sharply since then, cutting its losses to just 8%. Looking ahead, 2021 oil demand is expected to recover strongly but remain lower than it was at pre–COVID-19 levels.
In the area of Fiscal and Monetary Policy, the International Monetary Fund (IMF) has stated that “high fiscal deficits are complicating monetary policy.”
Although the procurement of vaccines may help limit the spread of the virus, economies may continue to experience the adverse impact of the decline in fiscal balances coupled with the effect of muted business investment on the labor market and consumer spending in 2021.
Nigeria’s current economic recession is said to be the worst recorded by the West African nation in almost four decades. Despite the positive prediction of economic growth, the country is expected to experience a slow recovery unless strategic fiscal and monetary policies are put in place to ease inflation and exchange rate fluctuations.
Prior to the COVID-19 pandemic, a large number of African countries were already in financial debt. The Debt Service Suspension Initiative (DSSI) revealed that $5.4 billion African debt was owed in 2020 for eligible deferment.
However, Nigeria’s debt levels are much lower than those of its counterparts. This means an increase in the short term should not put the government in danger.
Analysts at FSDH Capital disclosed that to make for economic recovery, the Monetary Policy Committee (MPC) will likely cut the benchmark rate in 2021.
“The MPC will also be concerned about the misalignment of interest rates in the fixed-income market. This could further support rate cuts in 2021,” FSDH Capital said.
Analysts have also expressed good prospects for recovery from the recession. Uche Uwalekwe, an economic expert disclosed that he sees ‘a quick V-shaped recovery as the effect of COVID-19 recedes and the impact of the interventions by the government and the Central Bank of Nigeria begin to manifest.’
Also, a recent report by Sigma Pensions has predicted that the Nigerian economy would experience a V-shaped economic recovery. A V-shaped recovery is marked by a quick and sustained recovery in economic performances and activities following an acute economic decline.
With the commencement of the African Continental Free Trade Area (AfCFTA) in 2021, there is the possibility of an economic pathway for internal growth with no total dependence on foreign direct investment or the export of commodities. The success of the AfCFTA is requisite for economic growth both in Nigeria and Africa.
Experts are not overlooking the challenges ahead. However, 2021 could be a fresh start to re-craft Nigeria’s economy. Projections by the Financial Derivative Company also stated that positive growth will be triggered by land border reopening, AfCFTA, and the pickup in economic activities. This will be followed by an improvement in growth from the first quarter that will be majorly driven by construction, ICT, and financial institutions.
Similarly, FSDH Capital Research asserts that Nigeria could return to positive growth before mid-2021, but sectors such as trade and real estate will continue to perform below par.
Although there is widespread optimism about the global economy, the International Monetary Fund (IMF) warns that the new COVID-19 variant could affect global economic growth. Nigeria has already recorded four new cases of the variant.
‘Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support. Until that happens, there remains tremendous uncertainty and prospects vary greatly across countries’, IMF revealed.
The LCCI president has advised that businesses maintain a flexible operating structure through embracing technology. This would help with changing dynamics. She also emphasized the necessity for business owners to communicate continuing measures with key stakeholders. This would help to manage diverse expectations from employees, suppliers, customers, and partners.
‘The need for policymakers to expeditiously develop a framework that would ensure the country has a well-diversified revenue base given the volatilities of crude oil price is critical’, Mabogunje added.
The International Monetary Fund (IMF) had also stated that ‘policy actions should ensure effective support until the recovery is firmly underway, with an emphasis on advancing key imperatives of raising potential output, ensuring participatory growth that benefits all, and accelerating the transition to lower carbon dependence’.