The impact of COVID-19 in Africa has created a sense of urgency and inspired calls for coordinated response to mitigate it’s devastating effects and lay the foundation for long-term recovery.
Nigeria faces a greater challenge than many other countries from the pandemic as a result of being the largest economy in Africa, with a population of 200 million.
Prior to the pandemic, Nigeria had suffered some underlining challenges, which have further heightened the severity of the current crisis on the economy
The economic impact of COVID-19 has been projected to be profound, especially with the fall in the price of crude oil (which has greatly affected the government’s revenue) and the general downturn in major sectors of the economy.
Economists at the weekend submitted that diversification both of revenue and gross domestic product (GDP) is critical in a post-COVID-19 era given the volatility of the oil market.
They said that despite the emphasis on leveraging the non-oil export particularly the real sector to diversify the economy, earn foreign exchange and create jobs, the implementation of the diversification agenda has continued to suffer setbacks.
They argued that this is the right time to wean the economy from over-dependence on oil and gas, and shield it from vulnerability to global shocks.
The Director, Centre for Economic Policy Analysis and Research (CEPAR), University of Lagos, Prof. Ndubisi Nwokoma, warned that the economy might undergo serious challenges unless the diversification project is vigorously pursued, with success recorded in all sectors.
“Diversification of the economy has been an agenda of various administrations in Nigeria over time, particularly in the post-1970 oil boom era. It’s not new as an economic policy stand.
“Under the Buhari administration, it was duly captured in the 2017-2020 medium term Economic Recovery and Growth Plan (ERGP) under the first three objectives of the Plan.
“Diversification, away from crude oil, has been the main focus, and the direction has been agriculture, manufacturing, services and mining, among others. It is also twofold – diversification of government revenue, and diversification of output or contribution to GDP.
“Success has been limited in contribution to the GDP though some gains were recorded in agriculture, but not much.”He maintained that more effort is needed in credit availability and creation of a conducive operating environment to enable the non-oil sector to increase output, employment opportunities and boost tax generation.He urged the government to roll out incentives that would stimulate investment in agriculture and grow the real sector.
The exportation of crude oil accounts for over half of government revenue and generates a huge percentage of Nigeria’s foreign exchange. The collapse in oil prices since the beginning of the year has affected government revenues, and predicted by as much as 45%.
The lack of a well-diversified economy, coupled with a weak healthcare system, pose challenges to the nation’s economy, and require urgent steps to be taken to avoid the deepening crisis.
Several sectors of the economy have also been greatly affected, both the formal and informal. Some of the key sectors impacted by COVID-19 include tourism, leisure, aviation, manufacturing, construction, and real estate. Employees in these sectors will be hard hit, as companies will be left to make tough decisions.
This is because most small businesses in the country are ill-equipped to handle a crisis of this sort, especially as they were predominantly previously focused on survival.
Thousands of job losses have been announced, and many earning significantly low incomes have been subjected to half salaries.The pandemic has seen small businesses crashing and the unemployment rate increasing. Nigerians, already heavily multi-taxed, will find it difficult to meet those fundamental obligations when juxtaposed with personal survival.
All of these immediate challenges and difficulties will most definitely run into the post-pandemic period, with serious consequences for a sector that has historically been bedevilled by structural weaknesses, including poor financing from governments.
The Head of Research, FSL Securities, Victor Chiazor, said diversification remains the only way out of the continuous revenue challenges the Nigerian government continues to suffer in the event of drop in global oil prices.
He argued that investments into different sectors of the economy like Mining, construction, agriculture, housing among others will only happen when there are favourable policies to guide activities in these sectors.
He said: “Once these sectors become active, economic activities will increase, and government will generate more revenue through increased taxes on the income and wealth accumulation of individuals, corporations, and on the goods and services produced.”
He said aside from implementing the right policies, there is also a need for policy consistency.
According to him, investors shy away from countries with policy inconsistency, as it makes it hard for both the local and international investors to plan for the long term given their exposure to the shocks arising from policy flip-flops.
The former President, Chartered Institute of Banking of Nigeria (CIBN), Uche Olowu, said there is a need for the government to formulate policies that would attract investment into the non-oil sectors.He also pointed out that rolling out incentives to support operators in the non-oil sector would accelerate growth and boost their investment returns.
“There is a need to prioritise the ease of doing business and implement trade reforms. These factors would attract investors into the non-oil sectors. In agriculture, ensure that there are policies and actions to develop the entire value chain so that even graduates would be attracted into the sector.”