As the global economy continues to be weighed down by Coronavirus pandemic, global extractive industry watchdog, Natural Resource Governance Institute (NRGI), has predicted that the pandemic is capable of consuming some indigenous oil companies in Nigeria.
In a webinar themed, Country Assessments: The Coronavirus Pandemic and Economic Crisis, NRGI experts analysed the impacts the pandemic has had on resource-rich countries, saying, however, that the briefings are time-sensitive, and intermittently updated.
The experts completed assessments of the pandemic’s impact on resource governance in 13 countries including Colombia, DRC, Ghana, Guinea, Lebanon, Mexico, Mongolia, Myanmar, Nigeria, Peru, Tanzania, Tunisia, Uganda
circumstances, and may be updated in due course.
Focusing on Nigeria under the sub-theme: “Initial Assessment of the Impact of the Coronavirus Pandemic on the Extractive Sector and Resource Governance,” it noted that predictions suggested that 2020 oil revenues could be 80 per cent lower than planned, which will cause critical budget shortfalls both centrally and at the state level.
It said: “Nigeria is requesting $11 billion in loans in the context of the pandemic, which would increase its debt stock by 50 per cent.
“Local oil companies may not survive this economic downturn and international oil companies (IOCs) may sell off some of their stakes in Nigerian oilfields.
“Prospects for new investment are weak. Low prices, combined with higher royalty rates and uncertainty on key legislation, will likely push back investment decisions on a backlog of deep-water projects that are key to growing production.”
It observed that the current crisis underscored the risks inherent in Nigeria’s continued dependence on oil revenue, saying that even before the Coronavirus pandemic and the price shock chronic revenue, shortfalls were an issue.
The institute said a combination of falling oil prices and weak global demand, caused partly by the pandemic, was hitting Nigeria hard, adding that although the oil sector represented less than 10 per cent of the country’s gross domestic product (GDP), it accounted for half of government revenues and over 90 per cent of foreign exchange.
According to NRGI, “the government predicts that 2020 oil revenue could be 80 per cent lower than planned. Forecasts say the economy will shrink between 3.4 percent and nearly 9 percent, depending on oil prices and how well the country contains the virus.
“The Coronavirus pandemic’s impacts on the real economy have also been dramatic. Mostly urban lockdowns have devastated the informal sector, which is estimated to account for 80 per cent of all jobs.
“As many as 70 per cent of informal sector workers were already at or below the poverty level, and Nigeria has the world’s highest number of people living in extreme poverty. The statistics bureau estimates that four in 10 working Nigerians lost their jobs in April alone.”
It noted that banks’ rationing of dollars was hurting key non-oil sectors like manufacturing and imports, notably those of food and pharmaceuticals.
“Moreover, the start of global lockdowns in February halved foreign remittances, which previously gave local businesses far more capital than did oil. In 2018, for example, the one-plus million Nigerians living abroad remitted an estimated $23.6 billion—an amount equal to six per cent of GDP, 80 per cent of the federal budget and 11 times all foreign direct investment that year, including from oil.
“Nigeria is not well prepared to cope with this crisis. The government passed a series of record-breaking budgets after the 2014 oil price collapse and borrowed heavily to finance a growing deficit.
“Debt service already consumes over half of government revenue and most fiscal buffers are depleted. In April, Nigerian officials told the International Monetary Fund (IMF) that the country faced an external financing gap of $14 billion. Many of its 36 state governments are insolvent as well,”the institute noted.
It also recalled that in May, the National Assembly amended the 2020 budget, lowering the benchmark oil price by almost two thirds.
According to the institute, “the government is seeking $11 billion in fresh loans from the IMF, domestic banks, the World Bank and others that would grow the debt stock by close to another 50 per cent. There are also plans to harmonize exchange rates, further devalue the naira and draw down smaller oil revenue savings accounts, including the sovereign wealth fund’s stabilization fund.
“To help meet basic household needs, the government has distributed small cash payments and food to a limited number of mainly urban households.
“Food banks, places of worship, communities and crowdsourced donations have attempted to fill the gap. In May, the government announced a stimulus package that promises loans for households, small- and medium-sized enterprises (SMEs) and various non-oil sectors.
“The presidency has set up several committees and task forces to explore ideas for managing the crisis, but they are either still deliberating or have not gained traction. On 17 April, the president’s chief of staff, Abba Kyari, died from the virus, which has presented a significant challenge to Nigeria’s response to the pandemic given the scope of Kyari’s influence on economic matters.”