Nigeria's Post COVID-19 Economic Outlook


Sunday, May 03, 2020  08:35 AM / by Dr. Ayo Teriba*/ Header Image Credit:  Aljazeera


In last decade the world economy has seen a twin glut in which a commodity glut depressed commodity prices and export values while a liquidity glut boosted equity values and capital flows, creating a new reality in which net capital flows surpassed net trade flows. The global Covid-19 pandemic is poised to further widen this divergence between global economic and financial paths. In this paper, we lay out what Nigeria could do to take advantage of such global liquidity and position itself favourably in a global post-pandemic environment in which most of the green shoots will be financial, as trade flows that were frozen by the pandemic will take a while to thaw. By taking the measures we suggest, Nigeria (and indeed Africa) could finally reduce its reliance on exports for the external liquidity inflows required for sustaining economic growth and stability and depend more on available global capital flows.

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Nigerian economy had enjoyed good times fuelled by sustained improvements in global commodity prices in the first fifteen years after returning to democratic rule in 1999 but had also seen bad times since that jolly ride ended abruptly in the second half of 2014 when commodity prices started weakening:

  • Windfalls from commodity price surges from 1999 to 2014 fuelled a positive economic narrative in Nigeria:
    • Economic Expansion- growth accelerated so fast that Nigeria's economy rose from the 52nd to 22nd in the world.
    • Financial Expansion- bank deposits, bonds, equity market capitalization, government revenue and spending surged.
    • Stability- a strong exchange rate, single-digit inflation and interest rates.
    • Reduction in Misery- falling unemployment and poverty rates.

  • Shortfalls replaced windfalls since the crash of commodity prices in July 2014 and Nigeria's economy has endured:
    • Economic Contraction- growth reversal, recession, and sluggish recovery to now rank 30th in the world.
    • Financial Contraction- as bank deposits, equity market, foreign exchange supply, and government revenue shrank.
    • Instability- Naira lost two thirds of its value against US dollar, inflation and interest rates jumped into double-digits.
    • Growing Misery- more unemployed, poor, and disenchanted.

  • The common thread between the two eras is the quantum of external liquidity at Nigeria's disposal. External liquidity windfalls fuelled expansion and stability and external liquidity shortfalls inflicted contraction and instability, underscoring the fact that meeting adequate external liquidity threshold is the primary catalyst of stability and growth.


Nigeria had been in search of ways of stemming the economic decline before Covid-19 pandemic forced the country, like most other countries across the world, into a lockdown that brought the economy to a halt since March 2020, and would most probably end at some point in May 2020, with 2170 confirmed cases and 68 deaths as of 1st of May, when Nigeria must push policies that could brighten the post-pandemic outlook. Unfolding global realities now give Nigeria a chance to leverage its vast public assets to raise external liquidity thresholds enough to switch from contraction to expansion by adopting securitization privatization, liberalization, commercialization policies. Global liquidity glut has seen capital inflows to developing countries double in the last decade and Nigeria is well-placed to get a share of that.

This piece points out that despite negative external income shock, Nigeria remains asset rich domestically. Nigeria's history of oil booms combines favourably with her large population, over half of which are spread in hundreds of urban centres, to bequeath her with huge stocks of valuable public assets. While Nigeria's economic, fiscal, and financial struggles resulting from the decline in income have been conspicuous in news headlines and policy discussions, the solutions that the value of assets owned by Nigeria could unleash have been less so. It is time to broaden the conversation to include the differences that the value buried in vast assets owned by Nigeria could bring to the narratives, evaluate the case for unlocking domestic and external liquidity from them, and explore ways of doing so.

Doing these will change Nigeria's economic, fiscal and financial narratives by unlocking liquidity needed to strengthen Naira, rejuvenate fiscal, financial, and foreign exchange streams, break dependence on volatile oil revenue and costly deficits, rebuild infrastructure, diversify and accelerate growth, eradicate poverty and unemployment, and lay foundations for shared prosperity. In general terms, we must ensure that our policies are well-aligned with unfolding global realities by repositioning to get a good share of the post pandemic financial green shoots: we must push for large FDI/Remittances inflows as our main sources of external liquidity, and deploying those into transport and energy infrastructure to boost stability, growth, and trade.

More specifically, we must select the corporate assets we are willing to sell to equity investors to attract large Brownfield FDI inflows, the intangible assets we are willing to license to foreign investors to attract large Greenfield FDI inflows, the financial assets we can securitize to attract remittances, and the lands and built structures we can repurpose, redevelop and commercialize for lease/sale. We should stop waiting passively to give investors incentives after they arrive, as such investors never arrive. We should learn that it is up to us to strategically offer equity and other investment opportunities as follows:

  • Securitize Financial Assets- issue foreign currency bonds based on JV equity stakes
  • Privatize Corporate Assets- sell up to 51 percent of all wholly owned SOEs
  • Liberalize Intangible Assets- break government monopoly infrastructure sectors
  • Commercialize Non-Financial Assets- optimize underutilized lands and buildings.

We must also articulate clear enough visions of our future by coming up with credible external liquidity and infrastructure roadmaps that our diaspora and foreign investors can invest in, like India, Saudi Arabia, and lately Egypt do.

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Unfolding Global Realities. Covid-19 Pandemic Intensifies the Twin-Gluts


a. Global Economic and Financial Divergence


We must come to grips with the strategic implications of the widening divergence between weakening global export flows and surging capital flows for countries and companies.


i.  Technological advances boosting supply of shale oil, genetically modified crops and livestock created the commodity glut that weakened global commodity prices, exports,and growth.

ii.Liquidity injections by leading central banks created global liquidity glut that boosted flows and foreign direct investment(FDI) stocks4, triggering a liquidity race among emerging market economies.

iii. Capital inflows are fast displacing net-exports as the main source of external liquidityandcountries with investment-friendly policies now attract record capital inflows for sustaininggrowth and stability.b.


b.  Diverging Global Economic and Financial Paths


Diverging paths of global real and financial flows raises growth and stability challenges for countries, as Nigeria grapples with liquidity shortfalls in fiscal, financial and forex spheres, calling for strategic realigning of income, liabilities, and assets.

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i          Exports Flows Dominant until the 1990s 

Real globalization had raced ahead of financial globalization prior to the 1990sbecause governments held onto capital controls as they liberalizedtrade. Slogans like 'export or die' underscored the fact that netexportinflows were the main source of external liquidity inflowsbefore the 1990s. Globalforeign direct investment (FDI)stocks of US$2.2 trillion were just half of global export flows of US$4.3 trillion by 1990.Countrieshowever began to liberalize theircapital accountsfrom the early 1990sand financial globalization gained speedas FDIflows and Remittances surged. Global FDI stocks surged duringthe ninetiestoequal global exports of US$7 trillion by 1999.


ii. Exports and Capital Equal in the 2000s 

Both types of globalization remained roughlyequal forces until the global economic and financial meltdownof 2008/2009challenged both,but they remainedequal at about US$20 trillionby 2010, each gaining US$13 trillion in the decade.


iii. Capital Flows Dominant since 2010c. 

The last decade has however seen financial globalization outpace real globalization with FDI stocks surging by US$13 trillion to US$33 trillion by2018, fuelled by quantitative easingthat underpinned a global liquidity glut, while exports struggled to grow by US$5 trillion to US$25 trillion, weakened by technological progress that createdglutsof shale oil and genetically modified crops and livestock that depressed commodity prices.Net capital inflows is now the more reliable source of external liquidity.


c. Covid-19 and Global Economic and Financial Divergence


i. Fallouts of the Pandemic

Following the confirmation of the index case on 27th February 2020, the President acknowledged an outbreak in a nationwide broadcast on the 29th March and announced a temporary lockdown involving inward travel restrictions, and restriction of movement in Lagos State, Ogun State, and the Federal Capital Territory (FCT), in addition to prohibition of public gatherings already announced in many States. Covid-19 pandemic thus forced the country, like most other countries across the world, into a lockdown that brought the economy to a halt since March 2020, and would most probably end at some point in May 2020, with 2170 confirmed cases and 68 deaths as of 1st of May, when Nigeria must push policies that could brighten the post-pandemic outlook.


Apart from grappling with the epidemiology of this pandemic, Nigeria has also endured:


a. Social fallouts, including anxiety and panic buying of nose-masks, sanitizers, chloroquine-based antimalarials taunted as remedies for the virus as the public took precautions ahead of the outbreak.


b. Economic fallouts as the weakening of the global oil price since the lockdown in parts of China in early February threatened to derail the budget and inflict another round of devaluation of the Naira. These could combine to precipitate another recession as absence of adequate foreign reserve buffers makes Nigeria's economy vulnerable to oils price contractions.


c. Political fallouts like the breakdown in OPEC's collusion with OPEC+ countries, travel bans, and export bans on medical kits as some exporting countries fear they may not have enough for residents.


How long the adverse social, economic and political fallouts for Nigeria would last depends on how long it takes the world to bring the pandemic sufficiently under control for the lockdowns to end. This could be short if the impact of the disease weakens by itself, by changing weather, or a vaccine crops up; but could be long if the pandemic must run its course in full rage and without a vaccine.


The uncertainty about how severe the pandemic might get before things get better and uncertainty about the duration of the lockdown bring uncertainty into our assessment of how much of the economic consequences are likely to fizzle out once the lockdown ends how much are likely to persist beyond the lockdown, as knowledge of these will help us to figure out the likely impacts on the economy.


While these assessments are admittedly blighted by uncertainty, it is worth hinting that the shorter the duration of the lockdown, the milder the economic losses will be, as palliatives, furloughing, and moratoria on rents, loans, trade credit, etc. should absorb the likely shocks from two or three months of lockdown without much lasting adverse consequences.


But the longer the duration, the harsher the consequences and the higher the likelihood of the temporary bit protracted lockdown inflicting permanent/irreversible economic damages like job losses, bankruptcies, bank failures etc. It has been only about two months since Nigeria reported its first case on 27 February, and one-month since we locked down. We are preparing to unlock in phases from tomorrow 4th of May. If this works out, we can hope that we will avoid harsh economic consequences.


If for any reason we are forced to retrace our steps and resume another lockdown, the we should brace up for the worst possible economic outcomes that in the African context may likely have social and political backlashes like mass uprisings or even political upheavals. We hope these dismal scenarios do not play out so we can hopefully get back to life as usual by June.


Finally, how should we respond to this situation? We should be clear about the responses we are proposing for the lockdown period and those we are proposing for the post-lockdown period. In general, we should prepare for the worst and hope for the best. We must remember that presumption blights precaution, as Mr. Trump's attitude towards the pandemic has clearly but painfully taught us all.

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ii. Economic Essence of Covid-19


1. Pre-Lockdown: The Status Quo Ex-Ante

    • Slowing global growth and trade owing via technology induced supply gluts
    • Surging global liquidity and capital flows via massive decade long QE
    • In-person interactions for work and leisure dominated virtual interactions


2. Lockdown: What the Pandemic Reinforced or Reversed

    • Freezing global growth and trade via demand and supply disruptions of lockdown
    • Injections of over US$8 trillion liquidity induced by Covid-19 pandemic
    • Virtual interactions grew as frozen in-person interactions led to lockdown


3. Post-Lockdown: What is Transitory or Permanent

    • Global growth and trade will be slower as both gradually unfreeze
    • Global liquidity and capital flow surges will intensify right after lockdown
    • In-person and virtual interactions will continue the battle for supremacy


iii. Post-Lockdown Green-Shoots

On the negative side, global lockdown has cut export and growth opportunities. It is not just that the price of oil is weak. It is also that oil producers cannot get enough buyers, because importing countries are locked down. Exports have been halted. Growth has slowed.


However, a positive side to the story is that, in their efforts to cushion the adverse effect of the lockdown on their people, countries have injected 'about US$8 trillion', according to IMF's April 2020 Fiscal Monitor, thus pumping more money into a global financial system that was already in a liquidity glut. They are giving people money they cannot spend until the lockdown ends. When the lockdown ends, the injections will further increase the liquidity glut in the global financial system.


Some of that liquidity will end up in developing countries that have investment-friendly policies. The combined inflows of foreign direct investments and remittances into developing counties were already in excess of US$1 trillion by end of 2018. The Covid-19 induced injections might push that above US$2 trillion by end of 2020. The net effect of Covid-19 on the global economy would be to further widen the eco-financial divergence: ensuring more financial green-shoots than economic.


d. Getting Ready for AfCFTA and Eco


i. Realigning with Global Realities

African continental single market and West African single currency were conceived in a global environment in which net-exports dominated net capital inflows. They must now be realigned with a new global reality in which net capital inflows dominate net-exports. Nigeria and Africa need to realign with the evolving reality that surging Foreign Direct Investment (FDI) and Diaspora Remittances are more reliable sources of external liquidity than meagre Donor Funds, also known as Official Development Assistance (ODA), or volatile Foreign Portfolio Investment (FPI).


ii. Steps Towards Readiness

In general terms, Nigeria and Africa must align their policies with unfolding global realities by: repositioning themselves through effective investment friendly policies to obtain a fair share of the financial green shoots needed to promote growth and stability; attracting large FDI/Remittances inflows as their main sources of external liquidity; deploying these into transport and energy infrastructure to boost production and trade growth.


In more specific terms, Nigeria and Africa must identify the corporate assets they are willing to sell to equity investors to attract Brownfield FDI inflows, the intangible assets they are willing to license to foreign investors to attract Greenfield FDI inflows, the financial assets they can securitize to attract remittances, and the idle/underutilized lands and built structures they can repurpose, redevelop and commercialize for lease/sale.


Nigeria (and Africa as a whole) should proactively make the above investment opportunities clear to the global investment community, rather than passively waiting for investors to come and then provide them with incentives once they are in the country, as it is also common knowledge that, unaware of the real opportunities, these investors never enter the country with adequate investment funding to make an impact and reap the benefits.


They can offer equity investment opportunities in the following ways:

1. Securitizing Financial Assets- issue foreign currency bonds based on JV equity stakes

2. Privatizing Corporate Assets- sell up to 51 percent of all wholly owned SOEs

3. Liberalizing Intangible Assets- break government monopoly infrastructure sectors

4. Commercializing Non-Financial Assets- optimize underutilized lands and buildings.


iii. Credible Roadmaps

We should articulate clear visions of our future with national and continental plans that we can engage diaspora and foreign investors with, like India, Saudi Arabia, and Egypt do. We also need to optimize under-utilized public assets to open large non-tax, non-oil revenue streams that can compensate for lower commodity export and tax revenue, while issuing large-scale equity to replace debt.


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About the Author

*Dr Ayo Teriba  is the CEO of Economic Associates (EA) where he provides strategic direction for ongoing research and consulting on the outlook of the Nigerian economy, focusing on global, national, regional, state, and sector issues. Ayo is also the Vice-Chairman of the Technical Committee of the National Council on Privatization (TC-NCP), where he highlights the links between privatization programmes and the macroeconomy. He is a Member of Board of Economic Advisers in the Office of the Economic Adviser to the Vice-President, where he contributes to the conception of economic policy ideas for the country, he is a Member of Nigeria's Industrial Council, where he shapes efforts to ensure Nigeria's industrial advancement, he was a Member of Presidential Technical Advisory Committee on Implementation of New National Minimum Wage, and he was a Member of the defunct National Economic Intelligence Committee (NEIC), where he conducted periodic reality checks on macroeconomic, fiscal and monetary policies.


The post Nigeria's Post Covid-19 Economic Outlook by Ayo Teriba of Economic Associates first appeared in SSRN on Friday, May 01, 2020.

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