With oil prices slipping and Coronavirus taking its toll on Nigerians, the Nigerian economy has been squeezed into a dollar crunch.
Experts have predicted a bleak future for the country’s economy when the crisis eases.
Last week Tuesday, Nigeria’s most tradable oil grade, Bonny Light, which sells higher than the benchmark Brent Crude, was selling lower at $14.75, while Brent was still in the $20 range. 
On Wednesday, the Organisation of the Petroleum Exporting Countries’ basket of 13 oil grades was at a low of $12.27.
The World Bank topped up the negative prospects on Wednesday, saying it expected remittances coming into low and middle-income countries like Nigeria to drop by historic deep of 19.7 per cent. The Head of Research at United Capital, Wale Olusi, told SaharaReporters that the free fall had plunged the Central Bank of Nigeria and by extension the Nigerian economy into a dollar crisis.
He said, “There is already a dollar crisis in my opinion. The CBN stopped selling dollars to BDC’s and they are forced to devalue the naira, now they are placing restrictions on what you can spend. It's clear there is a dollar crisis already.”
As of March 30, Nigeria’s foreign reserve stood at $35.26bn. Olusi estimates that 30 per cent of the total is Foreign Portfolio Investment – monies that belong to foreign investors who own Nigerian stocks and securities.
This would imply that the CBN has just $20bn to cover the country’s importation bills, assuming trade restrictions have not limited imports into the country.
Here is a breakdown of how it will further impact the economy.
Shrinking revenue inflows
This depressing revenue reality will affect states, especially those whose internally generated earnings are less than half of their debt.
At the end of the third quarter of 2019, only seven states had increased their internal earnings.
The National Bureau of Statistics said that between January and September 2019, the 36 states of the federation earned N986.29bn in revenues.
This is more than N3trn less than the external debt the Debt Management Office said they had accumulated as of December 31 2019.
Added to that is another N4.10trn worth of domestic debts.
With dollar already scarce, these states will still have to part with monthly deductions from their already shrinking allocation from the Federal Allocation Accounts Committee to meet with their combined foreign borrowings of more than $12bn.
Yet, they have to make lots of social investments in the lives of citizens, who have been herded into their houses.
A research analyst at Afrinvest, Adedayo Bakare, feels concerned for Nigerian governors right now.
“Before this virus, a lot of states still relied on FAAC allocation which was mainly oil to meet their obligations,” he says.
Bakare analysed the sources of income to the states and concluded that the Nigerian Government would have to borrow them some more money to keep functioning, even though they are still haggling on how to settle the budget support fund they received from the Federal Government in 2016.
Banks might not fund public revival
Bakare reckons the depressed revenue state will persist deep into 2021 and the banks may not provide much succour.
“Banks will be very careful to lend to any sector at all,” he says. “They will rather conserve their cash and put their money in investment securities.”
Bakare feels even the CBN’s law that all banks must loan 65 per cent of their deposit or forfeit half the sum of the unborrowed ratio, will not force them to give out credit at this time.
The CBN, on the other hand, might be pressed to force banks to borrow more, seeing as their policy caused lending to increase from N15.13trn in 2018 to N17.19trn in 2019.
The banks achieved this while reducing bad loans to N1.05trn in 2019 from 1.79trn in 2018, according to the NBS banking sector data for the fourth quarter of 2019.
Thankfully, the country’s financial institution was smart enough to reduce borrowing to the oil and gas sector – unlike the federal government, after the oil price shock that started in the second half of 2014.
A bleak outlook for oil
Amidst the almost zero demand for oil worldwide, energy analyst, Zira Quaghe, told SaharaReporters that offshore fields in Nigeria are likely to continue producing despite low oil prices because it is very expensive to restart shut offshore wells.
“However, across both offshore and onshore projects, companies are already cutting down on operational costs and significantly reducing capital spending,” Quaghe reveals.
The oil and gas industry has a loan book of N3.42trn with Nigerian banks. This implies that 19 per cent of the banks’ total credit portfolio might need readjustment.
Since the Nigerian Government has been unable to broaden its economy, Bakare believes it would be impossible for it to extend any grants to the private sector as persons in the aviation and other industries have requested.
He said, “We’ve been borrowing money to pay salaries, government does not have enough money to say they want to start subsidising salaries for companies. They don’t, they don’t even have that capacity to do it.”
He has suggested that the strategy on lockdown be revisited to help the country function moving on.
Shale producers in the USA, which is now at the peak of global oil production, have started shutting wells.
Research consultancy firm, BW, told Bloomberg that in March, 51,000 jobs were lost in the drilling and refining classes of the industry.
Another 15,000 were shed off in ancillary sectors to the petroleum field.
“We are looking at anywhere between five and seven years of job growth wiped out in a month,” the firm’s Vice President, Philip Jordan, said.
“What makes it sought of scary is this is just the beginning. April is not looking good for oil and gas,” he lamented.
The country used data from the US Labour Department, combined with its survey of some 30,000 oil companies.
Whether the reality of Nigeria’s situation was captured in the survey is unknown but the country’s many contract staff will be the first branches to drop off the falling petroleum tree.
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