CORONAVIRUS EXPOSES NIGERIA’S DEPENDENCE ON CHINA

Yetunde Oluyide has run a gift shop in bustling Lagos for nearly a decade, but with coronavirus curtailing imports of Chinese goods, she is losing more than N2 million a month.

Oluyide’s reliance on China to fill the shelves of Yetty-Jewel Ventures reflects the close ties between the world’s second largest economy and Nigeria, Africa’s most populous country.

“For the past two months, we have not been able to ship in anything,” Oluyide said. “I’m anxious.”

Elsewhere at the Nigerian ports, a very highly placed Customs official told Sunday Telegraph that if the coronavirus crisis lasts for more than four months, that Service will not be able to meet its revenue target this year. “We won’t be able to meet the N1.5trillion revenue target originally given to us by the Federal Government talk less of the N2 trillion the Controller General said we will generate.”

The official, who would not want his name in the press because he was not authorised to speak on the matter, further said there is going to be lull in the port business if the crisis persists. ‘Most of our imports come from China, so the problem goes beyond oil price going down or the virus spreading to Nigeria.” 

According to reports, China accounts for around a quarter of Nigerian imports, greasing much of the country’s supply chain, and is funding and building much-needed infrastructure.

China’s economic health is also crucial for oil prices, which make up more than half of government revenues for Africa’s top producer, and have tumbled more than 20 per cent since January.

At close to $50 per barrel, oil prices are below the $57 per barrel budget benchmark. And on Thursday, OPEC backed the biggest cut to oil supplies since the 2008 crisis, meaning Nigeria could have to reduce output.

Combined with disrupted supply chains and the threat of coronavirus spreading within Nigeria, this threatens to torpedo growth in the economy and boost borrowing costs just as the country plans to return to the Eurobond market.

Nigeria’s Finance Minister Zainab Ahmed expressed concern this week at the drop, saying that if it is sustained, the record N10.59 trillion budget could become unsustainable.

“We will do the mid-term review and if the revenues are so significantly affected we will have to do some revisions by way of budget adjustment,” she said.

Double whammy

Nigeria confirmed its first coronavirus case last week, wiping some N300 billion off the value of the local stock market. If the virus spreads, and workers and shoppers stay home, much-needed revenue from a higher VAT rate passed last year will evaporate.

Economies across Sub-Saharan Africa, with just a handful of cases, are all at risk. Angola exports the bulk of its oil to China, while Kenya relies on Beijing for billions in infrastructure funding.

Kevin Daly of asset manager Aberdeen Standard Investments, who holds Nigerian debt, said China’s broken supply chain, and the hit to oil, represent a double whammy.

“We have seen the IMF (International Monetary Fund) revise growth down from 2.5 per cent to 2 per cent, but I think it will be closer to 1 per cent,” he said.

‘More vulnerable’

Nigeria’s depleted buffers and shaky exit from a 2016 recession, with growth around 2 per cent, could make this setback harder for it to weather.

Moody’s, which downgraded Nigeria’s outlook in December, has warned that the nation’s debt, which has ballooned to N26 trillion ($85.5 billion), quadruple the 2008 level, made it particularly vulnerable to external shocks.

Last week, S&P also downgraded Nigeria, citing declining external reserves.

This could increase Nigeria’s borrowing costs as it plans $3 billion in new Eurobond offerings. Aberdeen’s Daly said he expected Nigeria would have to pay an extra 25 basis points over the current curve if it sold fresh debt now.

The yield of Nigeria’s 2049 dollar bond rose by one percentage point from mid-February to end-February.

“Nigeria is getting even more vulnerable – quite significantly so,” said Charles Robertson of Renaissance Capital.

For Oluyide, few vendors outside China can offer the products she wants at the right price. But she is committed to keeping her customers happy.

“We are hopeful that the virus will clear,” she said. “But if not, we are already looking at other alternatives.”