COVID-19 Pandemic: A viable fiscal approach towards Nigeria’s economic sustainability

The Nigerian economy is not new to shocks, most of which were externally induced. The first culprit of such shocks had been public sector revenues and external balance. The effects of the ongoing economic shock which is the most spread, affecting all economies around the world, is rather difficult to quantify. This is because, no […]

The Nigerian economy is not new to shocks, most of which were externally induced. The first culprit of such shocks had been public sector revenues and external balance. The effects of the ongoing economic shock which is the most spread, affecting all economies around the world, is rather difficult to quantify. This is because, no economy has been spared, and the end is not in sight. What is obvious has been the massive job losses, deaths and disintegration of economic productive systems.

Economic managers are at a loss on the timing and appropriate actions to take. However, analyst like Paul Krugman have emphasised the need for “economies to focus more on the number of deaths and job losses”, that is getting the pandemic under control and protecting the livelihoods of citizens. Even when we get the pandemic under control, Nigeria has to grapple with the additional problem of balance of payments. Because the economy is less diversified, and fiscal stimulus is challenging in view of dwindling government revenues, tackling unemployment and provision of unemployment benefits in the short to medium terms becomes difficult for the Nigerian authorities.

Several advanced economies have embarked on inchoated economic responses, and it is feared that a depression may emerge at the end of the pandemic. For Nigeria, focusing its energy on subsistent agriculture and public works may be the copacetic response to ensure food security and economic viability as it emerges from the pandemic.

The IMF Economic Outlook Report for Africa observed that subsistent farming is the inimitable characteristic of sub-Saharan economies that has the potential to reduce the effects of the pandemic. What then are the appropriate policy actions to be taken in the short to medium term by the Nigerian authorities to take advantage of this characteristic. In addition to the threat of the pandemic, food importation may not be an option since all economies around the world have been affected and external reserves dwindling. We examine the opportunities that exist in subsistence farming and public works and appropriate fiscal actions.

Nigeria has a huge informal sector estimated at about 40% of its GDP. Agriculture which is estimated at over 25% of the GDP is also mainly subsistent and informal.  This huge share of subsistent activity is undertaken mostly by rural households (about 60% of households in Nigeria). It is the mainstay of the Nigerian economy to which it has fallen back after every economic shock. With appropriate policy measures, even though Nigeria’s GDP has been projected to decline by 3.4% in 2020 by the IMF, the agriculture sector may still remain in the positive territory. Agriculture is the major employer of labour in Nigeria, and when the pandemic emerged in major cities, seasonal migrants absquatulated creating an opportunity for retention of labour on the farms. The other subsector which has the potential for high employment generation is construction, in particular, public works that would utilize local materials like cement and iron products.

The Agriculture that accounts for over 25% of the national production is dominated by crop production (90%). The other components of agriculture production are  livestock, forestry and fishing which together constitute only 10% of the total agriculture output. The major crops driving production are; cassava, cotton, cowpea, peanut, rice, sorghum, soybean and others which have short cycle of production. If we focus on agriculture in this time of crisis, crop production will be the better option. During the 2018/19 cropping season, over 13 million farmers were estimated to be involved in the commercial cultivation of at least one of the 20 exportable crops in Nigeria. This adds to the number of rural households engaged in subsistent cropping. Over 92% of crop farmers depend on the use of hoes for cultivation, 90% use cutlasses for harvesting and only 2.9% have indicated that government is their source of farm implements. Building on these challenges will not be in short to medium term opportunities, but long term.

The short to medium term opportunities are in the areas of yield, product management and acreage. The Nigerian climate supports the production of seasonal crops and preservation is key in price stability. Most farmers (77%) who do have surpluses continue to use traditional methods for preservation, while 34% use chemicals. Taking the products off the farmers by government at harvest will not only ensure appropriate pricing but remove the risk of distribution and marketing from the farmers. One of the low hanging fruits is an immediate activation of storage systems and the provision of funding to buy-off farm produce from farmers at harvest. We have assumed that we have created the right environment for increased production, and this could come from improvements in yield and acreage.

The land under cultivation has remained very low. In 2019, only 6.5 million hectares came under cultivation for corn production, 5.9 for sorghum, 3.6 for rice, 1.0 for soybean, 2.8 for peanut and only 0.27 million hectares for cotton. With timely and appropriate fiscal support, the land under cultivation could be improved. Crop yields in Nigeria have also continued to remain one of the lowest in the world as shown in the graphs for corn and rice with other crops following the same pattern.

Keeping the same area under cultivation, yield provides an opportunity for improvements. Over the past 15 years for instance, corn yield averaged 2.1 metric tons per hectare in Nigeria as against world average of 4.3 and a 9.5 yield recorded in some countries. Similarly, rice, soybean, peanut and even cotton as shown in the table follow the same pattern. With the recent improvements recorded in the production of fertilisers, this provides a short to medium term opportunity for Nigeria towards ensuring food security when it emerges from the COVID-19 pandemic.

What then are the policy actions that could take advantage of these opportunities? Looking at the onset of the cropping season, immediate fiscal action may be required. Under the current circumstances, the first fiscal action that may be undertaken is to massively produce and deploy fertilisers to rural households engaged in crop production.

Indeed, the social investment transfers of N20,000 to vulnerable households may be converted to four bags of fertilisers and given to rural households who are more likely to have their stock of food from the previous harvest. State governments could mobilise tractors to local locations to aid farmers who plan to expand on acreage. It will be far much cheaper for government to support/subsidise food production now than to witness a bugaboo of food insecurity in 2021.

Secondly, the government should reactivate grain storage systems and buy-off the anticipated products from the farmers. This will ensure that the farmers remain motivated to return to their farms in the following cropping season. Of course government would recover its cost through gradual release of produce to the market and this will have an added advantage of stabilising volatility in prices and this consequence on liquidity management. These two policy actions may be undertaken within the existing production arrangements and with no actions required in land reforms.

To complement these actions in the Agriculture Sector, a fraction of the proceeds of the IMF Emergency Support to Nigeria to address COVID-19 may be applied towards public works. This should be in the areas of road construction using cement concrete, and construction of new health and educational facilities. These will essentially require cement, sand, granite and iron that are locally available. In addition to the provision of infrastructure, employment is generated, while cement and iron industries are kept very productive.

With support to farming households and public works, household wages would improve and consumer demand sustained. This will positively affect the food and beverages, chemicals and plastics industries and services. In these ways, the economy is kept alive and will have the steam to address balance of payments and financial system problems that will emerge.