PwC Nigeria: How the COVID-19 lockdown extension, OPEC production cut impacts Nigeria

As Nigeria extends the lockdown for another 14 days, and OPEC and Allies agree on cutting oil production by 9.7 million barrels from May to June, the economic implications for Nigeria are significant. Andrew Nevin, Partner and Chief Economist at PwC Nigeria, discussed these implications in an interview with CNBC Africa. Nevin highlighted the slow recognition of the economic consequences of the crisis and predicted a global recession, the first since the Second World War. The World Bank projects a 5% shrinkage in sub-Saharan Africa's economy, including Nigeria, a major oil producer. With the collapse of oil prices and the OPEC production cuts, Nigeria's economy could contract between 5% and 10% in 2020, surpassing the painful 2016 recession where the economy shrunk by 1.6%. The OPEC cuts, although significant, may not immediately alleviate the oversupply issue as global demand for oil has dropped 25 to 35 million barrels a day due to COVID-19. Nevin emphasized the realistic expectation of slow oil price recovery, despite the adjustment of Nigeria's budget to a $30 per barrel rate. Regarding the global demand recovery, Nevin cautioned against expecting a quick rebound, as countries will gradually ease lockdowns, and consumers are hesitant to resume pre-pandemic levels of activity. He suggested that a return to previous demand levels may not happen until early 2021. In the short term, Nevin expressed concern about consumer confidence and consumption in Nigeria. With daily wage earners comprising up to 70% of the workforce and facing income losses and rising food prices, ensuring money flow to the bottom of the pyramid and maintaining the food supply chain are critical. Nevin commended the government's responsiveness but highlighted the need for swift action to sustain demand. In the medium term, Nevin predicted structural changes in Nigeria's economy, pointing to the deregulation of fuel subsidies and the revaluation of the currency as signs of preparedness for post-COVID-19 economic recovery. He emphasized the importance of addressing these structural issues to navigate the crisis effectively. On a positive note, Nevin praised Nigerian companies' adaptability to lockdown conditions and the government's quick decision-making and program rollouts for healthcare and fiscal stimulus. However, as the lockdown extends, concerns about its prolonged impact on social unrest and possible violent flare-ups arise, especially if extended beyond the next two weeks. As Nigeria navigates the economic challenges posed by the COVID-19 lockdown extension and the OPEC production cuts, decisive actions and structural reforms will be crucial for mitigating the impact on the economy and ensuring stability amidst uncertainties and disruptions.