The rampaging Coronavirus (COVID-19) may have cost Nigerian investors a whopping N1 trillion in the last 6 weeks.
Coronavirus, which originally broke out in China; has spread across the globe with Nigeria reporting its first case two weeks ago.
Over 100,000 cases have been reported with over 3,000 deaths, representing a 3% mortality rate.
Last week, Nigeria’s Minister of Finance, Zainab Ahmed, lamented the effect of the sprawling virus on Nigeria’s 2020 budget.
Nigeria’s oil benchmark for 2020 is $57 per barrel of crude. This is when compared to current Brent crude oil prices of $45 per barrel, stoking fears of a widening budget deficit.
According to Zainab, “The current crude oil price of $53 a barrel is below the budget benchmark. So what we are doing is studying the situation. We are concerned about the current drop in oil price; because it’s now below our budget.
“We will do a mid-term review, and if the impact is so much, we will need to do an adjustment in the budget, working together with the National Assembly.”
At the current price of $45, Nigeria’s budget deficit could widen to as much as $10 per share and could cost Nigeria as much as $20 million per day; assuming a daily crude oil output of 2 million barrels per day.
The Federal Government relies on crude oil for as much as 50% of its accruable revenue, most of which is used to fund budgetary spending on capital and recurrent expenditure.
Data from the CBN reports that Nigeria’s current account deficit was at $9.17 billion (as of September 2019); when the average crude oil price was $65 per barrel of crude.
The Nigerian stock market is down 2.1% year to date; following a turbulent February that reversed all the gains made in January.
Since February, when Coronavirus gained global notoriety; the Nigerian Stock market has lost a whopping N1.16 trillion in market capitalization.
Division in the oil cartel, OPEC, has also exacerbated the fear of a possible devaluation in Nigeria.
Saudi-led OPEC and Russia disagreed on output cuts during the week; with both countries now declaring an all-out price war that could see nations like Nigeria suffer its consequences.
For countries like Nigeria; this means a fragmented crude oil market where price determination and output advantages are no longer within our control.
Nigeria already relies heavily on crude oil export to India, but could now face stiffer competition from other OPEC and OPEC+ countries like Russia.
With Nigeria’s oil exports under threat, foreign exchange earnings could be jeopardized, further worsening Nigeria’s current account deficit of $9 billion.
Government revenues and officially benchmarked prices are quoted at N305/$1, an indirect subsidy that feeds into cost inputs for sectors heavily reliant on foreign exchange.