How to revive Nigeria’s COVID-19 hit economy

Nigeria's economy faced significant challenges in 2020 due to the impact of the COVID-19 pandemic. According to the World Bank, the economy shrank by 4.1 percent as the effects of the pandemic affected all sectors. As the country looks towards recovery in 2021, Damila Akimba, Head of Research at Financial Derivatives, provides insight into the opportunities and challenges that lie ahead. Akimba projects a slow and gradual recovery for Nigeria, with a projected full-year growth rate of 1.2 percent. However, the path to recovery is expected to be rocky, with negative growth rates likely in the first two quarters of the year. The slow start is attributed to factors such as reduced consumer spending in the post-festive period, ongoing COVID-19 effects in sectors like aviation and real estate, and challenges in the food-producing belt due to heightened insecurity. While the reopening of the border may ease the supply chain for some goods, structural bottlenecks and supply disruptions remain a concern. Despite the challenges in the initial quarters, Akimba anticipates a potential turnaround by the third quarter of 2021, with a move towards positive growth. Inflation is another area of concern for Nigeria's economy. With December 2020 numbers showing a 15.75 percent inflation rate, Akimba warns that inflationary pressures are still prevalent and likely to continue into the first quarter of 2021. Factors such as exchange rate volatility, petrol price increases, and high import dependence contribute to inflationary trends. While inflation is expected to slow its rate of increase in the first quarter, the overall outlook remains cautious, with projected average inflation of around 16 percent before tapering off later in the year. Government revenue and deficit management present additional challenges for Nigeria's economic recovery. The government faces a rising personnel cost and decreased daily oil production, impacting revenue generation. Akimba notes that the government may focus on non-oil revenue sources, such as taxes and tariffs, to bridge the deficit gap. However, reducing import tariffs on certain items could pose challenges in revenue generation. The government's plan to securitize its overdraft at the Central Bank of Nigeria (CBN) could lead to increased domestic borrowing, potentially crowding out the private sector. The government's decision to prioritize domestic borrowing over visiting the euro bond market reflects the need to manage the deficit and mitigate the impact of global oil market fluctuations. Nigeria's economic recovery is intertwined with both domestic and international factors, and the path ahead will require strategic planning and decisive actions to navigate the challenges post-COVID-19.