The outbreak of the coronavirus has lowered demand for goods and oil because many factories in Asia have shutdown, most cities have been isolated, hotels, restaurants and tourist sites are no go areas in some cities and transportation has been hurt in the process.
The economic fallout could be possibility of recessions in the U.S., China, Japan and other big economies. Bloomberg has reported a total of $2.7 trillion in lost output due to the disease equivalent to 6 times the economy of Nigeria.
Nigerian economy is dependent on oil and the service sectors. China is the biggest oil trading partner of Nigeria and most of the imported goods in Nigeria are from China. These will have far reaching implications for Nigeria :
- The 2020 budget was predicated on oil prices benchmark of $57 per barrel but on Friday, the prices plummeted to $45 per barrel ($12 per barrel less which is 21% less in our income from oil). Russia has rejected the proposal by OPEC to cut production to avoid oil glut in the market which may result in less value for oil this year. Implementation of 2020 budget by most states and the Federal Government will be near impossible.
- Most of our imported goods are from China. Some of the factories have been shutdown and most business owners are avoiding China. This will slow businesses in our seaports and airports and by implication reduction in taxes and remittances to Government.
- The IMF projected that Nigerian GDP will grow by 2.5% in 2020. This implies that there will be supplus wealth and jobs created in equivalent of this figure. Since 1999, the growth of Nigerian economy has always followed the increase in oil prices and not any intelligent input by our system. Anytime there is increase in the international price of crude oil, our economy will just follow the trajectory. Our economy will be hurt negatively by the coronavirus backlashes.
America has responded to the coronavirus by reducing lending rates by 50% to increase borrowing and inject cash into the economy to cushion the effect of the virus.
The UK, the BoE announced that its members would offer support to customers losing money as a result of coronavirus, including increasing overdrafts or offering repayment relief on loans.
Nigeria has made efforts in containment of the disease and Dangote foundation has made cash donation to accelerate the containment of the disease.
The Federal, States and Local Governments must put their thinking caps to contain the economic tsunami that will be induced by coronavirus which is imminent.
Cash crunch awaits us as a nation unless we act recession will welcome us.