PAN-African credit rating agency Agusto & Co has predicted that there will be a 20% fall in remittances from Nigerians in the diaspora this year as a result of the economic impact of the coronavirus global pandemic.
Last year, Nigerians remitted $25bn back home but according to Agusto & Co, that figure should drop to $20bn in 2020. It attributed the projected reduction to the Covid-19 fallout, which has caused severe disruptions in the global economy.
In a report titled Covid-19 in Nigeria: Economic Perspectives and Mitigating the Risks, the agency also anticipated that the effects of the pandemic could place the naira under strain. Agusto & Co stated that the pandemic’s effects on economic activities and businesses in Nigeria would be dire.
Its report read: “Our prognosis also indicates that with an economic crisis in several western nations, Nigeria could see a slowdown for the first time in over a decade in workers’ remittances. We are forecasting a 20% drop in the diaspora remittances to $20bn from $25bn in the prior year further placing the naira under strain.
“While we do acknowledge that the country’s import bill will drop owing to the distortions in local and global economic activities, we do not believe that this will provide sufficient support for the naira.”
It stated that with governments of some of the world’s major economies enforcing lockdowns and the slump in international travels and local commute, the consumption of energy has shrunk materially, which has led to a supply glut in the crude oil market. Agusto & Co also noted that ego battles between Saudi Arabia and the Russians have led to the deterioration of the oil market and worsening the situation.
“Crude oil represents about 95% of Nigeria’s export revenues and a downturn in the market for the commodity always has a ripple effect on the economy. These shocks tend to spook the foreign exchange market leading to a depreciation of the naira and reactive demand management by the central bank to conserve foreign reserves,” the report added.
Agusto & Co explained that Lagos and Abuja are currently under an unprecedented lockdown that could last for as long as two weeks, at a minimum. According to the firm, an extension of the lockdown raises the risk of a social unrest while stoking political risks.
It added that without addressing the underlying issues of tests and contact tracing, Nigeria faces an extended lockdown that could push the economy into a double-digit recession spanning beyond 2020 and into 2021. Agusto & Co said supply chains across the country would also be affected by the lockdown in Lagos.
While it acknowledged the stimulus package offered by the Central Bank of Nigeria to businesses, it called for more concerted efforts between fiscal and monetary authorities on a broader stimulus package. However, the company believes that the crisis will lead to growth in several sectors including food production, telecommunications, retail and sanitizers.