With President Muhammadu Buhari announcing a total lockdown of 3 major states in Nigeria (Lagos, Abuja and Ogun state). These states make up a huge percentage of Nigeria’s economy, and the lockdown in these states is expected to affect the entire country. In this article, we will take a look at the possible impacts of this lockdown on the economies of the affected states and Nigeria in general.
Economists all over the world are speculating that the global economy is heading for a recession and Africa is expected to be the worst hit, with many of its major economies having just survived recession or currently struggling with recession.
Many businesses across the three states have had to shut down in compliance with the lockdown, these businesses are estimated to lose billions of naira during the two weeks of the lockdown. With Nigeria having just recently recovered from a recession, a shutdown in business is expected to have a huge impact on the country’s economy.
To this end, Nigeria’s Long-Term Foreign-Currency Issuer Default Rating was on Monday reviewed downward from B+ to a ‘B’ status with a negative outlook by Fitch Ratings, an American credit rating agency and one of the biggest agencies globally.
The decision reflects ongoing pressure on external reserves due to a slump in oil prices and the COVID-19 pandemic, Fitch said. Nigeria’s foreign reserves declined by 9.4 percent year-on-year, a cumulative fall of 22.5 percent since a peak was recorded in mid-July 2019. Meanwhile, the exchange rate has appreciated by more than 30 percent since 2016, driven mainly by rising inflation which averaged 13.3 percent between 2017 and 2019 due to rigid nominal exchange rates.
Excessive external pressures, uncertain monetary and exchange rate policy, as well as the absence of reliable fiscal buffers, raise the risks of disruption to Nigeria’s macroeconomic adjustment, said Fitch in a report published Monday. The shock is also expected to raise the government’s debt and interest payment-to-revenue rations which are already high and lead to a “renewed economic recession.”
It must be noted that before this lockdown Nigeria had been struggling to cope with the global fall in oil price, with the price reaching a new low in 18 years. This coupled with the recent decline of Nigeria’s currency in the parallel market spells a serious threat to the country’s economy. The depreciation of the Nigerian exchange rate will result in local inflation (which is already being experienced in the country), and make the already rising dollar debt in the country much more difficult to repay.
The coronavirus pandemic is not expected to come to an end anytime soon and many businesses have chosen to adopt the work from home tactic. However, businesses that might find it difficult to adopt this same tactic will be hard hit. The aviation and tourism sector is expected to particularly suffer during this period. The hotels and hospitality sectors will also not be spared, as a lockdown means a decline in the demand for their services.
Academic institutions have also been closed nationwide and many of the parents are saddled with the responsibility of catering for their kids full time. This will only make the effects on over 2 million teachers in the country whose salaries could be threatened much more pronounced.
The effect of the coronavirus on the world’s economy is expected to last for months after the pandemic, the fear, however, is that there is no end in sight yet.