Resetting the Nigerian Economy: COVID-19 and Oil Price-Induced Impetus

A unique opportunity to restructure the Nigerian economy in favour of inclusive growth to address growing unemployment and poverty

The coronavirus pandemic is causing mayhem and serious havoc with public health and economies around the world. Less-developed countries (LDCs) with inadequate health infrastructures and less robust economies that are behind the incidence curve are bracing themselves, waiting with bated breath as predictions of the full impact range from bad to grave. The low cases reported by Sub-Saharan African (sSA) nations are met with reservation given the very low levels of testing in the region. The picture that emerges when adjustments are made for low testing and the limited resources at the disposal of authorities to mount a meaningful campaign against the scourge of the pandemic is one that leaves little room for optimism. For a number of resource-rich countries, the pandemic has made a dire economic situation worse as the oil price collapse buffeted governments’ fiscal positions.

The pandemic has laid bare some unpalatable truths about sSA nations: fragility of health sectors and skewness of the economies, which can be said to reflect the political economies of these countries with economic power concentrated in a very few rent-seeking hands. Moreover, governments with threadbare fiscal positions have not been able to articulate or mount any convincing responses to the pandemic.

Implications of Covid-19 Pandemic and Oil Price Crash

Beyond Covid-19, a number of LDCs are in real dire straits, with public health and their economies exposed most to the ravages of the crises. While the novel coronavirus pandemic has put its finger on the weaknesses in the health sector, the problems have been further compounded by poor public health responses rooted in inadequate preparation, public education and infrastructure inadequacies. What the crash in oil price has shown is the lack of depth in the economy and headroom for governments to manage the crisis. Dealing with the pandemic will have to focus on rebuilding systems and the economy.

For this reason, therefore, the crises, which will irreversibly impact economies, should be viewed as presenting an opportunity to reset the political economy and reengineer economies to promote inclusive growth and development for the vast majority and not just the few. For Nigeria, the largest country in Africa, despite the gloom the pandemic portends, the authorities should perceive a silver lining and urgently start addressing the crisis as an opportunity to commence a reformulation of economic policies to reset the economy and recast the economic and social agenda. The questions that should be at the forefront of politicians’ and policymakers’ minds should revolve around the nature and scope of the reset.

The economic indicators are, without a doubt, unsettling and a source of deep concern: 60 percent of the country’s earnings go into debt service; falling oil prices caused government budget to be cut by 30 percent, and may shrink further due to declining oil prices; a largely inefficient informal sector that accounts for more than 60 percent of the economy; very low tax-GDP ratio (5.7 percent compares unfavourably to average of 17.2, 22.8 and 34.2 percent for 26 African, Latin American and Caribbean and OECD countries, respectively);  agriculture, which accounts for almost a quarter of the national GDP and engages between two-thirds and three-quarters of the labour force, is characterised by low yield, high wastage and lack of food security; capacity utilisation rate of the manufacturing sector stands at 55 percent; general and youth unemployment rates in 2018 estimated at 23.1 and 20 percent, respectively, were quite high. Factoring in population growth rate of 2.7 percent, which outstrips economic growth, indicates a situation that is unsustainable and in need of urgent transformation.

Transformation of the economy must start with overhaul of health and education

In this context, government must urgently focus on developing the social and economic infrastructure if medium to long term impacts on health and economy are to be muted. The key sectors that would need to be addressed are health, education, energy and transportation – these are enablers for inputs for enhanced economic growth and balanced development.

We can say that the novel coronavirus pandemic shows the importance of public health and its economic impact, a realisation that has been made more poignant under a strained economic environment caused by persistent downward trend in price of oil. The buoyancy of high oil prices distracted successive administrations from making good the commitment required for tackling poverty and promoting human development as enshrined in UN inspired MDGs and SDGs, which Nigeria signed up to.

WHO rightly emphasizes the interdependence of MDGs, namely, that all the MDGs influence health, and health influences all the MDGs. It posits that better health enables children to learn and adults to earn. Gender equality is essential to the achievement of better health. Reducing poverty, hunger and environmental degradation positively influences, but also depends on, better health.”

While some LDCs have made progress, others especially sSA nations have not fared well in achieving MDGs, lagging behind in health and poverty metrics. This remains true for Nigeria where despite growing poverty and dilapidated social infrastructure, the priorities have been different, as reflected in allocation of resources. On average, Nigeria allocated 4.6 percent of its annual budgets to health between 2016 and 2019, and slightly more on education at an average of 8.13 percent between in the same time frame. Our neighbours in West Africa fared much better: Ivory Coast and Ghana spent more in excess of 80 percent more over the same period. In comparison, OECD countries spent on average 15 and 11 percent on health and education, respectively. Even at that, their health infrastructures have not held up well against Covid-19 pandemic.

Moreover, health and economic growth go hand in hand. The importance of economic growth is underscored in a DFRI/OECD report in which economic growth is posited as the most powerful instrument for reducing poverty and improving the quality of life in developing countries, and that rapid and sustained growth is critical for achieving MDGs – and not just the first goal of halving the global proportion of people living on less than US$1 a day. A recent statement by Nigeria’s National Bureau of Statistics puts this clarion call into perspective: in a report about poverty and inequality from September 2018 to October 2019, the bureau stated that 40 percent of people in the continent’s most populous country lived below its poverty line of N137,430 (US$381.75) a year. This represents 82.9 million people.

It is only inclusive economic growth that can address unprecedented poverty levels in the short to long terms as it generates virtuous cycles of prosperity and opportunity that incentivise parents to invest in their children’s education. Strong economic growth is a catalyst for human development, which, in turn, promotes economic growth.  For growth to lead to poverty reduction the poor must perforce participate in the growth process and share in its proceeds.

Nigeria announcing a multibillion dollar package to address the health and economic impacts of the pandemic and oil price collapse would be welcomed – after all government disbursed at least N900billion between 2015 and 2019 to directly prop up electricity, an ailing market. Unfortunately, this is not possible as oil prices and the profligate public sector have blown a big hole in government finances. The fiscal position of government is precarious, and something urgent needs to be done. The war that must be fought is not just the transient one of the pandemic but the deep-seated socioeconomic ones that have blighted the country and its citizens for the past few decades. As this is not the last crisis the country would face, it is important to build resilience into the economy to minimise impact of subsequent future crisis.

While diversification is necessary, transformation provides compelling conditions

The Nigerian economy has been dominated by a few, and the state has struggled to build a society that produces equal opportunities for all citizens. Attempts to address this have not been sustained with any meaningful result to show. Indeed, recurring crises have shown that the country needs a root-and-branch change to address systemic issues and challenges that have skewed the economy. A radical departure from the old normal and different outcomes that will include and sustain the whole populace are what will enable effective buffering of future crises.

It is imperative that the zeal driving the war being waged against the novel coronavirus should be extended to addressing socioeconomic problems such as poverty and unemployment. While the general populace is clamouring for far-reaching changes to the economy, politicians and civil servants need to articulate appropriate strategies, policies and plans for comprehensive reform. Decision-makers must understand that in this war efforts must be visible and go far beyond piecemeal intervention.

With all the false starts we have had to transform the economy and address poverty, the current crisis should be regarded as an opportunity, a boon for a nation at a crossroads. To make good on the talk of alleviating poverty and economic transformation, there is an urgent need to change the current narrative, build a consensus with all social and political institutions, and come up with a New Nigerian Deal for social and economic reconstruction.

As the central backbone of a reset agenda the nation must formulate a comprehensive and sustainable plan, including financing, even if this means reallocating resources from traditional sectors and institutions that have gulped significant portions of the budget over the past two decades.

For the foreseeable future and as long as there is the spectre of an epidemic or pandemic even after we have successfully dealt with Lassa fever, Covid-19, cholera, tuberculosis, health is going to dominate public discourse. The readiness and efficacy of government responses to such hazards will hinge first and foremost on the robustness of the economy. One thing is clear: this is the time to rebuild systems and make them relevant to the people. When the entire nation is singing from the same hymn page, it makes for a compelling and harmonious rendition. This is a unique opportunity. It is imperative, therefore, that Nigeria as a leading light commence the formulation of appropriate policies and stimulate public discussions at home, across the region and the continent as most systems in sSA have been shown to be incapable of withstanding crisis. We should not let this opportunity go to waste or risk our economy emerging in a worse state, leaving us to limp forward into the new decade.

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