A decline of between 70 percent and 80 percent is likely to be experienced in Nigeria’s oil sector which could result in a loss of between $15bn and $17bn in oil revenue, the CEO of Financial Derivatives Company Limited Mr. Bismarck Rewane, has predicted.
Rewane, a member of President Muhammadu Buhari’s Economic Advisory Council, stated this at the monthly Lagos Business School executive breakfast meeting titled, ‘Making Hay While the Sun Has Set.’
The economist noted that the country’s other domestic revenue sources had been negatively affected by the COVID-19 pandemic just as the oil and gas industry.
He estimated a fiscal gap of between $15bn and $17bn, adding that the federal government’s revenues have been under intense pressure.
A recent report by NNPC showed that of $434.85 million generated as revenue in January from crude oil and gas export sales. Oil contributes 90 percent of the country’s exports, 30 percent of bank credits and 50 percent of fiscal revenues.
Rewane said, “The federal government is struggling with the reduction and elimination of subsidies without sparking social unrest. Tax collection, mobilisation and prudent management of tax revenues will be topmost priorities.
“Total external debt has risen to $31bn and will climb further with more lending from multi-laterals to $36bn. Debt service burden is already in excess of 96 per cent of independent revenues and terms of trade to deteriorate sharply in 2020.”
According to him, export prices are down by 60 percent, import prices by 15 percent, while oil export volume was fell to 1.3m barrels per day.
In addition, he estimated that the country’s external reserves would drop to $33bn before increasing to $36.5bn, due to the inflow of the International Monetary Fund’s loan, pointing out that the country’s buffers remain low with high vulnerabilities.
While noting that April almost all commercial activities were grounded in April due to the COVID-19 lockdown in some states, Rewane said it was to strike a balance between saving lives and livelihoods.
“The economy was brought to a screeching halt. All sectors affected and businesses shut down. There was panic buying and supply chain disruptions saw consumer prices skyrocketing. The forex market and money markets were paralysed for a few days.
“Hotels, restaurants, cafes, factories, and markets were all affected. The Purchasing Managers’ Index in April crashed to 45.8points as output sub-index fell to 40.50 points, lowest since 2017. This reflects the effects of the lockdown and poor access to raw materials,” said Rewane.
The world, he said, was suffering from “lockdown fatigue” and that the economic fallout of the pandemic would be more devastating than the medical casualties.
He listed the impact of COVID-19 on the corporate world to include high corporate mortality, unemployment, defaulting bank debtors, and a rise in toxic assets.
While reviewing the impact of the pandemic on Africa, he said, “As signs of a possible second wave of COVID-19 sapped risk appetite, the second wave of COVID-19 could trigger more stringent lockdown measures and delay economic recovery.
“African countries will continue to face a number of difficult economic policy challenges and near term focus will be on the containment of the virus.
“So far, African countries have recorded over 55,000 infections with 2,803 fatalities. South Africa, Egypt, and Morocco top the list.
“There will be a continent-wide recession in 2020 as real GDP growth will slide into negative territory (-1.6%) in 2020, before recovering in 2021 on the success of efforts to contain the virus.
“Oil dependent economies like Nigeria and Angola will be badly hit by the twin shocks of COVID-19 and dwindling oil prices. The region will experience weak labour markets in 2020 as a structural and cyclical unemployment spike. The informal sector will be the worst hit.”
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