What the world will soon experience one of its worst economic recession is no longer an illusion but a reality. The indicators are there even to the least discerning. The forthcoming recession may be the next deep recession after the Great Depression of 1929 which was triggered by the devastating stock market crash that lasted for ten years. The Great Depression was the worst economic downturn in the history of the industrialized world, lasting from 1929 to 1939. It began after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors. At its peak, global unemployment stood at about 24.9% (1933) with global GDP decline at 26.7%. And so, for the 43 months, August 1929 to March 1933, it held the world to ransom, economies crumbled. But this time, the anticipated global recession it is not the stock market price or the banks that are crashing. It is simply nature at work or war against humans.
To validate the fear of the impending recession, the intellectual arm of the world represented by the World Economic Forum invited 43 US and 48 European economic experts to share their views on the likelihood of a major recession. 63 percent of the experts from the United States reached an aggregate view of an inevitable likelihood of a major recession while 86 percent of the Euro economic experts agreed that most likely another major recession is in the offing.
Another study by London School of Economics that involved a poll of economists showed that 51 percent of those who participated in the poll believe that the world faces a major recession. All pointers are clear that the world is headed for a major economic down turn that will affect almost all countries.
The root cause of the impending recession is twofold, with one connected to the other. The first is the likely consequences of Coronavirus, a pandemic that is ravaging the world which has had significant impact on one hundred countries and still counting. Coronavirus is gradually bringing economic activities to a halt. Coronavirus, or Covid -19, has totally disrupted supply and demand pattern of the world and by implication commerce; affected traffic; slowed down demand; shut factories; and halted growth.
Coronavirus will most likely lead to a permanent global economic shift and in specific terms a global economic lockdown. Already countries are beginning to lockdown. Nigeria too is almost locking down though not in the same dimension and degree as China, Europe and America for the simple reason that we do not have the same technological and logistics capabilities.
The second root cause is the significant drop in price of crude oil and the ensuring price war going on between Saudi and Russia following the collapse of their three year supply pact. The two leading oil exporting nations failed to agree on supply cut. Saudi raised the pressure by crashing price of the product an action that Russia followed suit. The price war saw oil prices tumble from USD56 to USD27 in weeks with serious impact for nations that depend on oil for sustenance. The prediction is that the price of oil may get to USD20 before stabilizing.
Saudi could embark on this price war because its price of production of a barrel of oil hovers around 5-8 USD per barrel and averages USD19 in Russia whereas in Nigeria it cost an average of USD25-28 per barrel. In addition to having low cost of production, Saudi is giving a discount of USD8 to its off-takers in some locations. The implication of this is that NIGERIA cannot compete in the global market place. The impact is already seen in lack of market for Nigeria crude oil in the past four weeks. AFRICA Confidential reports that three quarters of Nigeria and Angola’s oil production, respectively, earmarked for export in April remains unsold.
Our concern, therefore, is, faced with this economic reality, how prepared is Nigeria to handle this challenge and protect her citizens against this shock and its consequences? How will Nigerian government and Nigerian people handle the global economic lockdown?
There is no doubt that there are tough times ahead and many families will be impacted beyond imagination. It is true that Nigerian authorities have acknowledged that the problem exists and has announced measures to cushion the bite. The country has responded in three dimensions.
First, the President has proactively set up an inter- ministerial committee for a quick assessment of the impact of Coronavirus on the economy especially as it affects crude oil price, budget implementation and advise him.
The second is the Prof. Doyin Salami-led Presidential Economic Advisory Council which I understand has sent the president a comprehensive advisory report on what the country should do in the face of the new economic challenge caused by Coronavirus and crash in oil price.
The third is that the Central Bank of Nigeria has rolled out some measures to deal with the issue. First and most recent is a N1.1trillion intervention fund to support the real sector and health care with no details of modalities issued yet . Among the measures announced is a reduction in interest rate on all its existing interventions from 9% to 5%.
CBN also announced an extension of moratorium on all of the apex bank’s interventions by 1 year starting from March 1st; the creation of a N50b integrated credit facility for households and MSMES affected by coronavirus; giving credit support to health care services and pharmaceutical companies intending to expand their operations or build healthcare facilities; strengthening the loan to deposit ratio policy to allow for direct credit to individuals, households and businesses as well as extension of long term facilities to borrowers; and providing liquidity backstops when required as a lender of last resort.
Without knowing the content of the Prof. Salami-led Economic Advisory Council position sent to the President, it is obvious that we are yet to see a creative national level response to a challenge we know will come. CBN’s role, obviously cannot be the lead, at best, it will be a second fiddle role.
Nigerians and Nigeria, more than other countries, should be concerned for a lot of reasons some of which I will give here.
We are a country of nearly 200 million persons that depends on oil, for at least sixty percent, to fund our annual budget. Most businesses in Nigeria depend to varying degree on oil linked revenue. Secondly our manufacturing sector which has links with export volume is weak to the extent we depend substantially on imported finished goods for survival. unconfirmed data gave the value of our imports for the year 2019 as USD 47bn . Third is we lack transparency and by extension inefficiency in our service sector making it impossible for us to deliver services competitively . We are a country that do not plan effectively and even when we plan implementation is usually haphazard. Crash in oil price will mean job losses which will worsen our unemployment situation and its attendant social consequences. Giving all these scenarios and a study of what other nations are doing to hedge their economies and citizens against the impending recession we expect government to be much more proactive and roll out national level creative solutions to this global economic challenge. I must admit that I have seen national level sensitization about the possibility of a global lockdown in the last one week that deserves commendation. I will suggest a few tit bits on what as a country we should consider in dealing with this challenge that might be worth considering going forward;
… To be continued ….watch out for part 2.
