Nigeria: Virus, Protests, and the Economy

As the media evidence of the murder of a young man got into public space, nation-wide protests erupted, clamouring for the end to police brutality especially by a section of the police force, known as the Special Anti-Robbery Squad (SARS). The protests became stronger by the day, as online movements metamorphosed into physical demonstrations, blockage of roads and gridlocks. The social implications became pronounced as prison breaks and attacks on business facilities ensued, forcing the re-introduction of curfews to douse tensions and prevent degeneration into anarchy. All these we believe could have dire implications for the fragile Nigerian economy in the near term.

In our opinion, the virus and protests could be a cocktail for deeper economic retrogression. The Nigerian economy had taken a -6.10% downturn in Q2’20, from the effects of the pandemic-induced lockdown and movement restrictions. While businesses and households are yet to recover from the economic fallout of the lockdown, evidenced by the weak PMI readings, the resurfacing of curfews could further weigh on economic recovery because business activities are yet to return to pre-pandemic levels.

Earlier transport restrictions, amplified by protests across the country, would clearly drag the transportation sector. This will also cascade into other critical sectors like agriculture, manufacturing, trade, and real estate. Notably, the attack on port facilities could add to the existing woes of the trade sector and pass-through to the manufacturing sector as inventories are not replenished in time. Low capacity utilisation, slump in order levels and reduced supply of inputs could drag manufacturing output growth further into the negative territory. The vandalization of public and private properties could deter investment inflow to the brick-and-mortar economy, causing further depression in the real estate sector.

The socio-economic fallout of the protests could also be severe as the looting of malls, attacks on national assets, banks and businesses would have implications for business operations, and by extension, employment levels. The abrupt disruption of economic activities could result in loan default by many businesses, who were already grappling with the effects of COVID on their cashflows. On the other hand, damage on assets could result in the permanent or extended closure of some businesses, especially for those that have not been insured against burglary or fire outbreaks. This implies that fewer hands will be needed by businesses in the phase of rebuilding and recovery, and businesses that may be financially constrained may resort to layoffs to remain solvent. The protests could also add to inflationary pressures due to disruption in distribution channels, imposition of curfews and new rounds of panic buying.

The International Monetary Fund (IMF) has stated that the protests might lead to a more pessimistic view on Nigeria’s economic performance for 2020. The Fund had earlier revised its growth upward from -5.4% to -4.3%, due to the reopening of economies. This could send wrong signals to potential investors and dampen existing investors’ sentiments in the economy. Thus, we could see sell-offs in the country’s capital markets. The sovereign risks that have crystalized with the protests could further sour foreign investor sentiments towards the Nigerian economy, limiting the potential inflow of FX into the economy, as well as the country’s economic growth potential, at this critical time. We posit that timely intervention and resolution of demands would be necessary in preventing a second wave of demonstrations, which could boomerang into further economic distortions.

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