Hard Times Ahead of Nigeria as Another Recession Looms Due to COVID-19
POLITICS DIGEST – Nigeria faces the possibility of sliding into a second recession as effect of the oil price war between Saudi Arabia and Russia as well as the global health pandemic caused by the Covid-19 virus.
Minister of Finance, Zainab Ahmed, had the weekend raised the alarm that Nigeria might go into another round of recession if the Coronavirus disease persists beyond the next six months.
Ahmed pointed out that the Federal and the State governments would struggle in terms of revenue, as long as the crude oil price is as low as $30 or below $30 per barrel.
Oil futures finished lower at the weekend, as a huge drop in global demand as a result of the spread of the COVID-19 pandemic sent prices down for a fifth straight week in a row.
West Texas Intermediate crude for May delivery CLK20, +1.53 per cent fell $1.09, or 4.8 per cent, to settle at $21.51 a barrel on the New York Mercantile Exchange, with prices for the front-month contract ending roughly 5 per cent lower for the week, according to FactSet data.
May Brent crude BRNK20, +0.68 per cent, the global benchmark, fell $1.41, or nearly 5.4 per cent, to $24.93 a barrel on ICE Futures Europe, for a weekly loss of 7.6 per cent.
A report by Renaissance Capital (Rencap) singled out Nigeria and Angola, two of Africa’s largest oil producers as two possible economies that may face recession by the end of 2020 following the global crisis.
According to Rencap, the collapse in oil prices could be devastating for Nigeria because oil accounts for 90 per cent export revenue and 60 per cent of the federal government’s revenue.
This is exacerbated by the global demand shock caused by COVID-19, which largely explains why Nigeria is sitting on 30 or more unsold April-loading cargoes of crude oil.
Apart from a likely recession, the fall in oil prices is also likely to trigger multiple devaluations for the economy. Just recently the CBN devalued the currency from N307 to N360 while BDC exchange rate went from N360/$1 to N380/$1. The analysts predicted there will be more devaluations and that the exchange rate could fall further to N450/$1.