The ravaging COVID-9 pandemics will leave a trail of negative impacts across the globe and Nigeria will not be exempted from the impending economic devastation.
Principal Consultant at DRNL Consult, a multi-sectoral consulting firm with strong presence in the oil and gas sector, Ronke Onadeko has, therefore, identified measures that could assist in mitigating the post-COVID-19 impact on Nigeria.
These include frontal blocking of revenue leakages among the government ministries, departments and agencies (MDAs), full deregulation of the petroleum downstream sector through the liberalisation route, activating the gas plan and passage of the long-awaited Petroleum Industry Bill (PIB).
She also advocated for outright sale, commercialisation or privatisation of Nigeria’s oil and gas assets, drastic restructuring of the recurrent budget towards spending less as well as diversifying the revenue stream to focus more on the non-oil sector.
Ms. Onadeko canvassed these views at a one-day webinar lecture organised by the Facility for Oil Sector Transformation (FOSTER) in partnership with the Finance Correspondents Association of Nigeria (FICAN) in Lagos, with the theme, “Improving understanding of FICAN on the impact of the global oil and gas price crash”.
Noting that the impact of the post-COVID-19 crisis will be severe on Nigeria because of the dominant role that oil plays in the nation’s economy, Ms. Onadeko observed that adequate measures must be put in place to mitigate the impact of the crisis on Nigerians, businesses and the government.
She said that Nigeria, being a mono-commodity economy, was bound to suffer severely from the shock of low oil price in the international market as oil may no longer fetch sufficient revenue to fund the nation’s budget.
“Nigeria’s main revenue comes from crude oil and that has taken a massive hit; at the same time, the value of the naira has depreciated as expected – it will bring about a huge change and the future looks quite bleak.
“The state governments will be getting very little and the same goes for the local governments; let’s not forget the government is the largest employer of labour and biggest spender in the Nigerian economy”, she said.
Outlining further proactive measures to safeguard the economy amid post-COVID-19 crisis, the oil and gas consultancy expert recommended active adjustment in spending, blocking avenues for revenue leakage by terminating the waste that goes into a wide range of subsidy.
She stressed the need for greater transparency in the foreign exchange market through liberalisation of access to the Dollar.
“Nigeria can actively adjust spend while borrowing by blocking avenues for revenue leakage – no more subsidies for fuel, power, forex or fuel logistics; reduce the cost of governance – maybe try a unicameral legislature, shrink the civil service to reduce costs, liberalise the downstream sector once and for all in an irreversible way; place the gas policy & plans on the front burner, pass the PIB so we can at least attract foreign investments.
“A major plus overall is to unify the foreign exchange rate, no more parallel market – this will make access to the US Dollar an equal opportunity matter, no more subsidy of forex – this will allow the naira float”, she said.
She identified assent to the PIB, restructuring the cost of governance through downsizing the National Assembly as well as government decoupling itself from commercial activities in the oil and gas sector, as priorities to avert the COVID-19 influenced economic challenges.
“Assent to the PIB, shrink NASS, liberalise the downstream sector, commercialise or privatise all state-owned enterprises. The government should only regulate not get involved in commercial activities,” she said.
In the event of continued downturn in the fortune of crude oil at the international market, Ms. Onadeko said Nigeria should begin to focus on what she called “our Plan B” and ensure frugal management of forex revenues from that source.
“Gas is our Plan B. Gas for power, gas for petrochemicals, gas as a raw material for fertilizer, gas to power industry, gas for home use and transportation. In the interim, we can sweat out other assets though their yields are not the best option – pipelines can be concessioned, the refineries can be sold or privatized, etc.
“The country should also ensure that whatever forex we pull-in, some are reserved for fuel importation, gas development and the last priority should be the NASS,” she said.
She listed the following as funding options for companies engaged in oil and gas business during the COVID-19-related challenging times – in order to guarantee sustainability.
These include capital market, venture capital, international banks, bilateral and multilateral agencies, leveraging off export credit agencies as well as maximizing funds that will come in from mergers, acquisitions and collaborations.
Noting the possible impact of COVID-19 on the banking industry, the consultancy expert predicted a new regime of mergers and acquisition in the financial services sector, adding that the downturn in the economy would impact negatively on the balance-sheet of the banks as non-performing loans would increase.
“Non-performing loans will be on the increase largely from the contraction of the economy, reduced production levels, shutting down of fields, low profit margins and in some cases losses.
“Many companies invested in oil fields when barrel prices were above $100/bbl and now is as low as $15/bbl. The industry will see a lot of challenges but they will improve and efficiencies will also improve in the long term”, she said.
Coronavirus (also referred to as COVID-19) pandemics, has brought the world economy to its knees since January, 2020 when it began to spread from Wuhan, China, where it originated.
This has led to practical cessation of economic activities for over two months as countries had to resort to practical lockdown to curtail the spread of the deadly virus.
The International Monetary Fund (IMF), estimates global growth to fall to -3 per cent in 2020 — a downgrade of 6.3 per cent points from estimates in January 2020, while cumulative output loss from the pandemic could reach $9 trillion.
More than 6.1 million cases of COVID-19 were reported worldwide, including at least 371,000 deaths, according to Johns Hopkins University as of end of May, 2020.
A total of 10,162 cases were confirmed and 287 deaths recorded in Nigeria’s 35 states and the Federal Capital Territory as of same date.
Nigerian Government has, through the minister of finance, budget and national planning, Zainab Mohammed said that the economy would slide into recession as a result of the COVID-19 pandemics, a circumstance Onadeko also emphasised in her lecture.
“The economy is bound to contract. We look forward to retrenchments, early retirements, factory production will shrink, there will likely be job loses, the economy will contract and a recession is almost inevitable
“This means the federal government at the centre of our finance is technically broke and will not be able to fund the 2020 budget.
“The next step to keep the economy going is to borrow – we have to borrow to spend and hopefully, if the borrowed funds are deplored into productive ventures it will stimulate early recovery from the recession. The loans have come with some asks by lenders — no more subsidies on fuel, electricity or even forex!,” Onadeko said.