Nigeria, however, is not the only country worried about the impact of stronger coronavirus variants.
The emergence of highly infectious virus variants “could derail the recovery and wipe out $4.5trn, cumulatively, from global GDP, by 2025,” the International Monetary Fund said in a 27 July press briefing.
“Financial conditions could also tighten abruptly, if there is a sudden reassessment of the monetary policy outlook, especially in the United States. A worsening pandemic and tightening financial conditions would inflict a double blow to emerging markets and developing economies and severely set back their recoveries,” it added.
Economic growth predictions
The IMF’s estimates show that Nigeria’s economy will grow to 2.5% this year amid insecurity issues that have disrupted supply chains, even as restrictions on foreign exchange continue. The IMF sees the economy of Africa’s most populous country expanding further to 2.6% next year, while Bloomberg Economists expect the country’s Gross Domestic Product (GDP) to increase by at least 6.1% year-on-year in the second quarter as recovery grows.
Yet, current global oil price volatility driven by a Delta variant of the coronavirus that crippled the global oil market and threw Nigeria into its worst recession in 30 years, means that means that “Africa’s leading oil producer that is solely dependent on oil proceeds, is vulnerable,” Olumide Adesina, an investment banker with expertise in investment trading and financial market analysis, told The Africa Report in an interview.
Up until the week of 16 August, oil prices declined by as much as 7% on a weekly basis, closing out their biggest losses in more than nine months on Friday, on China lockdown and strengthened US dollar. ICE Brent fell below $66 per barrel on Friday morning, while WTI prices dropped to $63 per barrel on the same day.
With many countries around the world upping previously eased travel restrictions to cut off the spread of the rising infection rate due to the coronavirus Delta variant, the global oil market that the Nigerian economy depends on for about 90% of its foreign exchange could threaten its growth outlook, Adesina said.
The volatility of the oil prices means Nigeria’s macroeconomic variables “are susceptible to shocks. Inflation, GDP, interest rates, exchange rates, etc., tend to be unstable and weak against shocks,” Adesina said.
“Nigeria is also an oil-importing nation, which means that an increase in oil prices will increase production costs, resulting in an increase in inflation and a slowdown in growth rates. However, even though a rising oil price would be lucrative to Nigerian economic growth as an oil exporting country because it will yield additional revenue, it could be hindered by the increasing caseloads for Covid-19 Delta variants that has heavily disrupted Nigeria’s leading customers like India,” he also said.
Covid positivity rate
Data from the Nigeria Centre for Disease Control (NCDC) show that at least in Lagos state, largest commercial hub of the West African country, Covid-19 infection rates stand at 1o%, while the national average is 6%. The agency said it has seen a bullish trend of 1% rising to 8-10% in a few other states including Akwa Ibom, where the majority of confirmed cases are Delta variant; as well as other states.
“Right now 80% of all the confirmed cases in Akwa Ibom state have been confirmed to be the Delta variant, which means that transmission is likely to be a lot more intense,” Chikwe Ihekweazu, director of the agency said.
Lagos State governor Babajide Sanwo-Olu reported in an emailed statement that test positivity rates in his state have jumped to 12.1% as of 21 August up from 7% at the end of July. The state has also recorded a total of 135 deaths since the third wave of infections started at the end of June when the test positivity rate was 1.1%, according to the governor.
“We are now clearly in the middle of the third wave of the Covid-19 pandemic, and Lagos has remained the epicentre of the disease in Nigeria,” Sanwo-Olu said, adding that nearly 5,000 people were then being treated for virus in the state, while the number of oxygen cylinders in use has also gone up to 400 daily, compared to just 75 cylinders before the current wave.
While Nigeria has taken delivery of another 4m doses of the Moderna vaccine, less than 2% of the population has been vaccinated against the virus.
The NCDC says it expects to see increasing infection rates in the country of more than 200 million people.
“The fact is we are now in the third wave of this outbreak in Nigeria and having said that, cases are predominantly high in a few states. But as we know, we are an interconnected country, people travel and it’s very likely that we will begin to see increases in other states,” Ihekweazu said.
Boosting oil output
Even as the Organisation of the Petroleum Exporting Countries (OPEC) and its allies are slowly boosting supply that had been suspended earlier in the pandemic, there’s some type of threat against the Nigerian economic outlook, Adesina said.
“The gradual easing of oil curbs by OPEC would definitely have a negative impact on oil and could push prices of Brent crude below $60 a barrel amid a rallying dollar,” he added.
And yet, Nigeria says it is in talks with OPEC to increase its daily production from less than 2m barrels per day (bpd), says minister of state for petroleum resources Timipre Sylva said in August, without giving details on timelines.
“With the global situation improving, we will ramp up and get to three million; that is our target. And today we believe that we already have capacity for the three million barrels. But we have to be mindful of our international commitments, and that’s why we are still where we are today. But I can assure you that we are in discussion with our partners and with OPEC,” Sylva said.
Talk is cheap
It is one thing to talk to OPEC about boosting output and another thing to actually go through with it, said Ekpen Omobunde, chairman of the UK-based Bargate Advisory. “The conversations would also have to be in the context of global oil output and OPEC’s (particularly Saudi Arabia’s) interests in keeping oil prices at a desirable level to balance their revenue interests with competition from alternative energy sources,” he said.
According to him, reaching 3 million bpd is not realistic. “It requires ramping up current capacity by about half a million bpd, and then adding an additional 1 million or so bpd to the actual output Nigeria has been able to produce in recent times. The technical requirements to make this happen are not difficult but take time. If Nigeria were to indeed reach 3 million bpd, and if there isn’t a global oil supply glut, then the prospect of some reasonable government revenue is high. But this is a lot of ‘ifs’,” Omobunde said.
As analysts see Nigeria continuing to struggle financially against the backdrop of oil shocks, Joachim McEbong, a senior analyst at SBM Intelligence, says the country “must open up the economy to foreign investment to relieve the pressure. Nigeria can no longer depend on oil revenue to advance economically. This has been true for a while and will be even more so going forward.”
He sees tech, agriculture, and the power sectors as areas that will attract investment. “But a lack of alignment at state and federal levels, and our penchant for corruption prevent these benefits from being maximised,” he said.
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