Thread by @zeal_a

A few People assume that the impact of COVID19 on the Nigerian economy will be falling oil prices. While the @cenbank has alluded to this & stated it can be handled, I want to share some other possible impacts we shouldn't overlook

THREAD

@subomiplumptre @nonso2 @suleimana

1. In 2018, approximately 20% of all imports into Nigeria were from China & in value, about $9-$10billion. What's the reason we buy from China? China is cheap.

With COVID19, manufacturing & exports from China have dropped & we'll likely find alternative markets to buy from

2. If importing from China is due to cheap cost, then whatever alternative we choose will, more than likely, be more expensive. That sounds a lot like inflationary risk.

But first, it will help a lot to look at the major components of these imports from China

3. Approximately 50% of our imports from China fall under "machinery and parts" category and if the replacement cost of these go up, we will either have increased cost of production or reduced production capacity; either way, both are economy negative as prices will go up

4. 50% of the balance is made up of mostly raw material for the manufacturing industry: plastics, metals, chemicals and again, if these inputs are either unavailable or more expensive, we run a risk of either scarcity or increased prices and like before, means inflationary risk

5. Another subtle risk is that if we replace the shortage from China and import from other industrialised nations which will be more expensive, it also means that our foreign reserves will deplete faster (more expenditure for same quantity)

6. So potentially, due to COVID19, we risk:

i. reduced revenues from falling oil prices
ii. increased import bill from expensive alternatives
iii. possible scarcity for items solely sourced from China
iv. global slowdown
v. economic slowdown due to localised panic

6. None of these is necessarily bad nor insurmountable UNLESS we do not plan for it.

At the end of the day, the CBN keep talking of defending the currency but we haven't come to realise that you only defend something that is vulnerable. So, what's making the NGN vulnerable?

7. Our vulnerability lies in the fact that we do not produce enough and we find ourselves operating an inverted economic pyramid.

We export low value raw materials and import high value finished goods aka we need to borrow sense.

8. Raw materials extraction creates limited job opportunities and produces limited benefit to the economy but processing/productivity, as @NaijaFlyingDr keeps saying, is where real value lies in: job creation, wealth creation, tax collection, export revenue, economic independence

9. So, to defend the currency and our economy, we MUST grow it by ensuring we produce...not just raw materials but that we process and manufacture finished goods.

Like @Chxta said in 2018, "we wasted a good recession", I just hope we don't waste the door COVID19 opens for us

10. So the Almighty question: what exactly are we doing to ensure that in the foreseeable future, we can manufacture and export processed goods much more than import them and become a net importer of raw materials? How does closing land borders help us achieve this? @TunjiAndrews