The outbreak of COVID–19 is causing serious economic changes across the globe. One of its many clear effects is the declining oil price and lower demand for crude. This is as a result of movement restrictions and the lockdown of major economies across the world. For Nigeria, COVID-19 has a double effect on its economy as an oil-dependent nation.
First, the drastic crash of the oil market affects Nigeria’s export earnings, foreign exchange inflows, movement in external reserves, and government revenue. In addition to the global lockdown, the budgetary measures by the Federal Government could also make the economy contract. The economic contraction could be enhanced by an increasing number of growth contraction and slow growth rate across different sectors and subsectors that contribute to the GDP of Nigeria.
All the same, even before the global pandemic, there has been an increasing number of growth contractions and slow growth across different sub-sectors of the economy. As such, not so much economic regression might be blamed on the pandemic since the different sectors of the economy were already experiencing growth regressions before the outbreak.
Unfortunately, the economic crisis caused by COVID-19 and the crash in the oil market came at a time Nigeria is yet to recover from the 2016 recession. Before the recession, Nigeria’s economy (GDP) grew at an average rate of 7% between 2000-2014. Following a similar oil price drop like what is experienced now, the GDP growth rate dropped to 2.5% in 2015 and finally contracted to 1.6% in 2016. Since then, efforts to grow the economy have been very slow.
Scorecard of the Economic Recovery and Growth Plan
The government’s Economic Recovery and Growth Plan (EGRP) launched after the recession, aimed at boosting the GDP growth rate to 4.5% from 2017 to 2020 However, the latest data confirms Nigeria’s economy fell short of the projected GDP growth rate of 4.55% in 2019. A look at the growth rate of various sectors and subsectors before COVID-19 shows that the economy has been fragile before the pandemic. Slow growth rate and increasing growth contractions characterize the sectors.
To assess the growth performance of the EGRP, the report addresses growth as a contraction if the difference between the growth of the sector in the current year is less than zero when compared to the growth in the preceding year. Conversely, when the growth of the year being considered is greater than the preceding year, we refer to it as fast growth. On the other hand, when the growth of a year being considered is less than the previous year, it is called slow growth.
In 2019, 10 out of 46 sectors contracted. While in the first quarter of 2020, 17 out of 46 sectors had contracted growth. Analysis of this contraction shows 7 sectors that contracted in 2019 are still contracting in 2020. Out of the 7, the level of contractions has increased for 5 key sectors. The other two have a decreased rate of contraction, although their growth is still contracting.
Moreso, from the extra 7 sectors that have contracted in 2020 compared to 2019, it could be deduced that some of their contractions are related to the COVID-19 pandemic. Especially due to the lockdown and social distance measures are taken to control the pandemic. These sectors include administrative support service, accommodation, and food service, transportation service, water supply, sewage and waste management services, electrical and electronic manufacturing, and non-metallic production. However, the growth contraction of sectors like real estate, post and courier services, electricity, gas, steam, and air conditioning supply, oil refining, and metal ores mining cannot be attributed to the COVID-19 pandemic. This is because their growth was already contracting in 2019 and for some others one to two more years down the line.
Further analysis of the growth rate of sectors in 2019 and the first quarter of 2020 shows that, in 2019, 19 sectors experienced fast growth, 17 sectors experienced slow growth, and 10 sectors experienced growth contraction. While in 2020, 17 sectors experienced a growth contraction, 18 slow growth, and 12 fast growth. When the slow growth rate for both years is compared, it could be observed that 10 of the sectors that experienced slow growth in 2019 also experienced slow growth in the first quarter of 2020. On the other hand, only 3 of the sectors that experienced fast growth in 2019 maintained the same fast growth in 2020. Of worthy note, the sectors that maintained a high growth rate in both 2019 and 2020 include, mining of crude petroleum and natural gas, financial institutions, and human health and social services.
The growth rate of the three major economic sectors
The agricultural sector is yet to attain the 4.11% growth it experienced since 2016. Rather its growth rate has been fluctuating. From 3.45% in 2017, to 2.12% in 2018, 2.36% in 2019 and 2.20% in the first quarter of 2020.
Since 2018, the manufacturing sector has experienced a very slow growth rate. With its growth rate of 0.43% in Q1 of 2020 showing nothing but a possible contraction before the year runs out.
While the oil refining sector has shown a high rate of contraction since 2017. Other manufacturing sectors such as manufacturing of electrical and electronic products and manufacture of non-metallic products are already showing signs of contraction.
Moreso, the service sector which was one of the fastest-growing sectors post-2016 recession has continued to experience economic regression in its core sub-sectors such as real-estate, administrative and support services, public administration, transport services, and telecommunication and information services. Since 2016, the real estate sub-sector has experienced varying degrees of contraction. Although the sector had an increased growth rate from -4.74% in 2018 to -2.36% in 2019, very little could have been done to increase its growth within the first quarter of the year 2020 when the drastic effect of the COVID-19 pandemic took everyone by surprise. Both the prepared and unprepared.
What to expect post Covid-19
Sectors have struggled to keep a steady growth rate since the 2016 recession. Only 10 out of 46 sectors have recorded a growth rate of 4.45% on an average from 2016 to 2020. Post COVID-19, the narrative of slow growth and growth contractions as obtained since the last recession is not likely to change easily. The 2016 recession was just a country issue but with the COVID-19 pandemic being a global issue its economic crisis is likely to be drastic. Thus, it is not expected that after the pandemic all sectors will begin to experience fast growth. Something that has not been possible since 2016. Although with the right policies and implementation rapid economic growth is possible.