What is the Impact of Coronavirus on the Nigerian Economy?

An Introduction

Though started on December 30 2019 when Dr. Li Wenliang dropped bombshell in his medical school alumni group on WeChat about the kind of illness he had seen from seven patients, the coronavirus was officially recognized by the Chinese scientists on January 7, 2020.

According to NYTimes, the virus has sickened more than 64,400 people in China and 24 other countries.

Source: NYTimes

Measuring the Impact on the Nigerian Economy

As it stands, china is the world’s largest importer of crude oil as well as the world’s second largest oil consumer according to the data from General Administration of Customs. China imported approximately 10.12 million barrels of crude oil per day in 2019 (about 12% of world’s daily crude oil production). This is so because the country is a manufacturer of goods and as such, needs oil to power up its production process. Airplanes also need crude oil to function. As such, activities in the China region drives up activities in the crude oil market. The country also accounts for 16% of world’s GDP. For Nigeria, China is its largest trading partner. According to data obtained from the NBS, China accounted for 31.34% of Nigeria’s total imports in Q3 2019.

With the emergence of coronavirus, production activities slow down as producers take caution in producing in a volatile environment (caused by the virus). With that, the demand for crude oil to power production process decreases. Furthermore, flights to and fro China has reduced and about 52 countries have imposed China travel restrictions, notably among which are the United States, Russia, South Korea and Japan. All these tend to have an effect on the demand for crude oil.

Price of Crude Oil Since January 15

Source: Oilprice.com

As a result of the low demand for crude oil relative to supply, the price tends to drop and once this is so, the fiscal operations of the Nigerian government will be in jeopardy because its revenue will fall below target. Hence, lead to increase in fiscal deficit.

From the foregoing, it is evident that the Coronavirus in China affects the Nigerian economy in three major ways:

1. Trade figures of the Nigerian economy will fall. As such, it is expected that if the virus case continues, Nigeria’s trade in the first quarter of 2020 will fall relative to the trade results in the first quarter of 2019.
2. Gross external reserve will also fall as a result of decline in foreign exchange caused by slow trade and low revenue from crude oil. Since January 6, gross external reserve of Nigeria has dropped by 2.59% to $37.37 billion as at February Tuesday 11 2020. Here, it is expected that the CBN device measures to keep the OMO bills attractive to foreign investors. This tends to boost Foreign Portfolio Investment (FPI) which is positive for growth in external reserve. However, this is not sustainable as FPI is often referred to as “Hot Money” which could fizzle out amidst any perceived crisis by the foreign investors. The CBN in a bid to keep the external reserve stable, has also recently limited the import of Milk to the 6 major milk companies in the country and this is expected to reduce the pressure on the external reserve.
3. Fiscal operations of the government will be constrained. This will give rise to increase in amount to be offered by the government in the treasury bills primary market auction. As such, increase in treasury bills activities is expected going forward. This will further drive the yields of treasury bills northwards (Last stop rates at 3%, 4% and 6.5% for the 91 days, 182 days and 364 days tenors respectively).

New Record Coronavirus Case Also Impact on the Global Market

On Wednesday 12th February 2020, China recorded its largest new cases in a day as more than 5000 new coronavirus cases were confirmed and 242 deaths during the day. As a result, the global stock market was down as evidenced from major stock exchanges around the world.

Though the performance of the United Kingdom FTSE 100 was influenced by the reaction of investors towards the stock of Centrica which reported 35% slump in full year operating profit, that of the other stock exchanges was a reaction to the record number of coronavirus cases confirmed in China.

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