COVID-19: Nigeria’s Real Output Loss Estimated at ₦5.8 trillion

COVID-19: Nigeria’s Real Output Loss Estimated at ₦5.8 trillion

Nigeria’s real output loss due to Covid-19 and other disruptions in 2020 has been estimated at ₦5.8 trillion.

While the outbreak of the virus makes a good alibi for government non-performance, analysts at FSDH Group said the problem with the Nigerian economy is beyond COVID-19.

Explaining its position, FSDH said Nigeria’s problem is more of a structurally-weak economy affected by externally-induced shocks.

In a macroeconomic review, FSDH stated that Global gross domestic product (GDP) is expected to dip by 4.4% in 2020 due to the impact of COVID-19.

According to the firm, the economy will however recover in 2021 as countries relax lockdown and social distancing policies.

Analysts believe that discovery of vaccine for the virus, coupled with improved consumer demand will speed up recovery in 2021.

Among the large economies, China is expected to lead recovery with an expansion of 8.2% in 2021.

According to the International Monetary Fund, China’s exports recovered due to earlier restart of activities and a strong pickup in external demand for medical equipment.

The US economy will expand by 3.1% while the economy of Sub Saharan Africa will expand by the same figure in 2021.

“We estimate the loss in real output from COVID-19 and other disruptions in 2020 at ₦5.8 trillion”, analysts said.

Meanwhile, in nominal terms, this loss is estimated at N11.6 trillion. 

Explaining the figure, FSDH said a real GDP growth forecast of -4.6% for 2020 was used in estimating the loss.

In addition to the direct output loss, there have also been significant job losses, income losses, erosion of monetary value, among others.

Analysts said COVID-19 and other disruptions have reversed the gains achieved since 2017.

Recall that the Nigerian economy slipped into a recession in the third quarter of 2020 following a GDP contraction of -3.62%.

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“Recessions in Nigeria have mostly been caused by a fall in the price of crude oil and the absence of large fiscal/monetary buffers in a structurally weak economy”, FSDH said.

Explaining how the current recession is different from what Nigerians witness in 2016, FSDH said 2020 contraction appears deeper.

The firm stated that economic growth reached its lowest point at the first contraction in Q2 2020 (-6.1%). The depth of contraction narrowed in 2020Q3 (-3.62%).

It also noted that at the height of the 2016 recession, 10 out of the 19 economic sectors contracted.

This is sharp contrast to Q2-2020 when 13 sectors contracted.

Explaining further, FSDH thinks GDP may recover quickly relative to 2016, but structural factors will slowdown recovery or worsen other socio-economic indicators.

The firm however stated that inflation, unemployment, poverty, exchange rate are likely to worsen even in the face of output recovery until structural factors such as infrastructure, power, insecurity, FX issues, etc. are addressed.

FSDH highlighted that the impact of the 2020 recession on individuals and businesses is more severe because of its nature.

“With COVID-19, businesses were forced to shut due to lockdown and social distancing. This had a toll on individuals’ income, corporate and government finances”, the firm explained.

Thus, consensus estimates show that inflation is higher than pre-COVID-19 levels.

FSDH hinted that closure of land borders, VAT increase and structural challenges have driven up prices of goods and services.

In its estimates, analysts at the firm position remain that inflation will likely trend upwards going into 2021.

In the report, FSDH stated that rising inflation and lower interest rate led to an expansion in real interest rate from -10.7 percentage points in September to -12.7pp in October.

Further pressure on inflation driven by an increase in food prices will expand the gap between inflation and interest rate.

“We may however begin to see improvement in real interest rates from 2021 as food prices will moderate”, FSDH stated.

For the fourth consecutive quarter, Nigeria experienced yet another negative trade balance of –N2.4 trillion in 2020Q3, despite an increase in the value of total export

As a share of total trade, exports accounted for 36% while imports had a share of 64%.

“Continued closure of land borders, increasing demand for imported goods coupled with weakened demand for exports are some factors expanded Nigeria’s trade deficit in Q3”, analysts said.

FSDH hinted that trade deficit will continue in the early part of 2021; however, the opening of the land borders as well as increase in production will narrow the deficit.

Total trade increased by 34% in the third quarter of 2020 (Q3) relative to Q2. Data from the National Bureau of Statistics showed that imports and exports grew relative to Q2.

Specifically, imports accounted for 64% of total trade in Q3. Exports had a share of 36%. Same shares were recorded in Q2-2020.

Trade deficit increased to ₦2.4 trillion in Q3 from ₦1.8 trillion in Q2. This implies that the value of imports was higher than that of exports.

Non-oil exports declined by 39% in Q3 to ₦214.7 billion. Thus, it accounted for 7% of total exports in the quarter.

Manufactured goods accounted for 4.4% of total exports in Q3 while crude oil accounted for 81%.

Petroleum products accounted for 16% of total imports. Chemical & related products also had a share of 16%.

It was however noted that despite the challenges in the crude oil sector in 2020, crude oil still accounted for 81% of total exports, while non-oil exports declined, accounting for 7% of exports in the quarter.

Given these statistics, FSDH said Nigeria needs to urgently implement reforms that will improve production and exports of non-oil goods and services.

The firm stated that with no further disruption, Nigeria could return to positive growth in 2021.

It added that however, several sectors such as trade and real estate will continue to perform below par.

Inflation will continue to be a major concern given logistics challenge, FX problems, insecurity and other structural factors, analysts said.

FSDH expected price increase to moderate from Q2-2021.

COVID-19: Nigeria’s Real Output Loss Estimated at ₦5.8 trillion