Coronavirus: SBM Intelligence says Nigeria risks recession as oil prices drop

Analysts at SBM Intelligence says the Nigerian economy is at risk of a recession as the outbreak has resulted in a drop in crude oil prices.

In a report titled ‘The potential effects of coronavirus on the Nigerian economy’, the research company said Nigeria’s trade with China would also be affected.

“As global oil prices trend lower at $57 dollar per barrel as of mid-February, the subsistence of the coronavirus will continue to dampen appetite, which will put a lid on oil prices well into March.

“If oil demand continues to fall with no OPEC intervention in the form of production cuts, tightening supply, a country like Nigeria will be negatively impacted by the downward price trend.

“The country risks another recession if the oil price continues to fall and other production and sales activities between China and Nigeria remain weak.

“Recall in 2015, when the global crude oil price fell, and there was a significant reduction in crude oil production as well as insufficient foreign exchange (forex) to fund imports due to the shortfall in oil exports invariably diminishing the forex reserves.

“All these were contributing factors to the Nigeria recession in 2016. It will be of no surprise if the Chinese CONVID’19 oil price shake leads to another recession, due to the over-reliance on proceeds from the oil sector as the biggest foreign exchange earner.”

As at 3pm, Brent crude which is the global benchmark of crude oil was trading at $54.06.

This is almost $3 lower than Nigeria’s 2020 approved budget crude oil benchmark of $57.

According to the report, the Nigerian economy would be impacted in more ways than one.

“According to data from the Nigerian Bureau of Statistics, Nigeria’s imports from China hit N1.9 trillion in the first half of 2019.

“The country almost doubled total imports from China, rising by 88% in half-year (H1) 2019.

“Specifically, Nigeria’s imports from China rose from ₦1.06 trillion in half-year 2018 to ₦1.9 trillion in the first half of 2019.

“These are likely to take hits as China struggles to contain the spread of the virus. Also, following the lockdown of much of the Chinese mainland (up to 150 million Chinese nationals are under mandatory movement restrictions), production of goods and services will continue to slow, and in some cases, shut down completely, affecting exports to Nigeria.”

SBM Intelligence said the federal government’s plan to borrow $17 billion from the Chinese government might also be dead on arrival as the Chinese economy has slowed as a result of slowed production.