A key regional player in West Africa, Nigeria accounts for about half of West Africa’s population with approximately 202 million people and one of the largest populations of youth in the world. With an abundance of natural resources, it is Africa’s biggest oil exporter, and has the largest natural gas reserves on the continent.
Nigeria is a multi-ethnic and culturally diverse federation which consists of 36 autonomous states and the Federal Capital Territory. The political landscape is partly dominated by the ruling All Progressives Congress party (APC) which holds 217 out of 360 seats at the National Assembly; 64 out of 109 seats in the Senate; and 19 out of 36 State Governors.
Muhammadu Buhari secured a second term at the 2019 presidential elections, while the results were contested by the main opposition party the People’s Democratic Party (PDP). Since 2011, the Nigerian security landscape has been consistently shaped by the war against Boko Haram terrorist group in the northern states. This adds to a lasting crisis in the oil-rich Niger Delta, where several non-state armed groups attack oil companies and state-owned pipelines.
Nigeria is highly vulnerable to the global economic disruption caused by COVID-19, particularly due to the pronounced decline in oil prices and spikes in risk aversion in global capital markets. Nationally, 40 percent of Nigerians (83 million people) live below the poverty line, while another 25 percent (53 million) are vulnerable. With COVID-19, many of these 53 million vulnerable people could fall into poverty. The magnitude of the health impact depends on the duration and the domestic spread of the outbreak, while the economic impact hinges on oil prices. Oil accounts for over 80 percent of exports, a third of banking sector credit, and half of government revenues. Oil prices also affect growth in non-oil industries and services, with additional pressures arising from foreign portfolio investors’ reassessment of risks and domestic liquidity management.
The macroeconomic situation is more challenging now than in 2015-2016, when oil prices fell sharply and Nigeria experienced its first recession in 25 years. In the current situation, Nigeria has fewer buffers and policy instruments to cushion adverse effects. The Excess Crude Account is depleted, external reserves are highly reliant on short-term flows, and policy uncertainty affects investor confidence. Before the 2016 recession, Nigeria’s economy was growing fast at 6.3%. By contrast, before COVID-19 struck, the economy was growing at 2.2%. Inflation was in single digits in 2014, compared to about 12% in 2019. The general government fiscal deficit was 4.4% of GDP in 2019, compared to 1.8% in 2014.
Unemployment and underemployment are expected to increase, affecting poor households and increasing the share of the population vulnerable to falling into poverty. Only agriculture is expected to positively contribute to growth in 2020.
While Nigeria has made some progress in socio-economic terms in recent years, its human capital development remains weak due to under-investment. It ranked 152 of 157 countries in the World Bank’s 2018 Human Capital Index. The country continues to face massive developmental challenges, including the need to reduce the dependency on oil and diversify the economy, address insufficient infrastructure, build strong and effective institutions, as well as address governance issues and public financial management systems. These pre-existing structural challenges have left the Nigerian economy especially vulnerable to the COVID-19 outbreak and its consequences.
Inequality, in terms of income and opportunities, remains high and has adversely affected poverty reduction. The lack of job opportunities is at the core of the high poverty levels, regional inequality, and social and political unrest. Without the COVID-19 shock (the counterfactual scenario), about 2 million Nigerians were expected to fall into poverty in 2020 as population growth outpaces economic growth. With COVID-19, the recession is likely to push an additional 5 million Nigerians into poverty in 2020, bringing the total newly poor to 7 million this year.
Last Updated: Nov 03, 2020