Page 5 - AfrOil Week 21 2020

AfrOil COMMENTARY AfrOil
Oil prices and GDP
Nevertheless, there are some signs of hope.
For one thing, world crude markets have shown some signs of recovery within the last week, and Brent prices are now hovering around $35 per barrel, with Bonny Light not far behind at around $34. If prices remain at this level – or if they rise a little in response to the slow roll- back of lockdowns and other pandemic-related restrictions – Nigeria might not need to bring its
benchmark down again.
For another, Bloomberg reported earlier this
week that Nigerian GDP growth had surpassed expectations. It noted that the National Bureau of Statistics (NBS) had recorded a 1.87% year- on-year uptick in GDP during the first quarter of the year. This figure exceeds the median estimate of 0.8% growth from three economists polled by the news agency.
Stimulus spending
Meanwhile, the finance minister is exploring options for keeping the economy from crash- ing this year. Last week, she informed members of the National Economic Council (NEC), the federal government’s highest economic advisory body, that stimulus measures might limit the contraction to just 0.59%. Without a stimulus, she said, the economy is likely to shrink by 4.4% at best and by 8.9% at worst in 2020.
Officials in Abuja are working to ensure that the country avoids the worst-case scenario, she added. “We will go into recession [in 2020], but what we are trying to do is to make sure that it is shallow so that we will quickly come out of it [in] 2021,” she commented.
The federal government may soon gain access to extra funds, since the World Bank has said it is ready to offer a fiscal relief package worth $1.5bn, she said. Abuja hopes to disburse these funds to the states, which will use them to improve conditions on a sub-national level, by the end of September, she said.
She was speaking at a virtual meeting that was also attended by Shubham Chaudhuri, the World Bank’s country director for Nige- ria. Chaudhuri told members of the NEC that the bank was working to prepare an assistance
package that would offer immediate fiscal relief.
Caution sign
Yet it is still too soon to talk about a full-throttle recovery. Certainly, the emergency funds from the World Bank will help Nigeria. Likewise, higher oil prices will also benefit the country, as they will improve government revenues and replenish the national oil fund, which saw its balance drop from $325mn as of November 30 to $72.04mn as of May 21.
However, Nigeria has yet to determine exactly how much the pandemic will affect its economy. NBS data from the first quarter of 2020 show that the country’s GDP dropped by 14.27% on the fourth quarter of 2019. The bureau also ascribed the slowdown to “the earliest effects of the disruption, particularly on the non-oil econ- omy.” (Indeed, it reported that the oil sector had grown by 5.06% in the first quarter, even as the non-oil sector grew by just 1.55%.)
Under these circumstances, second-quarter figures are likely to be more sobering. They will reflect the full force of the national lockdown, which did not take effect until late March.
Similarly, Nigeria is not likely to see much good news on to oil earnings, which account for more than 60% of federal budget revenues and nearly 90% of export income, in the sec- ond quarter. Ahmed noted on May 25 that NBS data put the country’s earnings from crude at NGN940.9bn ($2.6bn) for the January-March period. This was 31% less than anticipated and was down by NGN425.52bn on the figure reported for the last quarter of 2019, she said.
According to the finance minister, the gap between expectations and reality arose in the first quarter because of the fall in oil prices. If so, second-quarter figures are sure to be even more disappointing, given that crude prices dropped even further in April.
Nigeria is, therefore, not out of danger. It does not yet know the full scope of the setbacks caused by the pandemic and by low oil prices, and it has no way to be certain that recent signs of improvement will persist. Nevertheless, its government is at least trying to contain the damage. ™
“ economic data
Second-quarter
Finance Minister Zainab Ahmed (Photo: Folio.ng)
are likely to be more sobering
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