This post is part of the series COVID-19
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The emergence of COVID-19 in the world has no doubt disrupted the economy of most countries. The factor credited for this disruption is none other than the brutal approach the governments adopted when they thought of combating the pandemic. Lockdowns were imposed, closure of markets, travel bans all across the world, no movement of goods, no movement of people which are factors generally agreed to be irreplaceable elements for economic prosperity. There was also a pre-pandemic cause which was simply the government’s big-spending that did not go down well on the economy.
When the outbreak struck the daily activities, to secure the survival of the citizens in the lockdown, our governments resulted in distributing palliatives in the form of money and food items. Of course, this could not solve the problem as there was no way the government could provide food for over 200 million citizens. While they may claim to take the health and lives of their citizens as a priority, they have erroneously ignored the irresistible impacts of retarding the movement of goods and people. The consequence—economic dilapidation—is there for everyone to see.
However, since the world has realized how impossible it is to continue the lockdown, we have only one choice, either to live by it or cease to live. We chose the former. Gradually, the government started easing the lockdowns they had earlier imposed. Markets began reopening, local and international traveling was resumed. But when we are coming back to a new normal world, it is imperative to learn the sour lesson of what brought us to our feet.
Impact on the Economy
At the peak of the COVID-19 outbreak in June, Global Economic Prospects projected both the present and near-term outlook to be the deepest global recession for the world to witness in decades, despite the efforts of the government to avoid such. The long-term damage is that countries of the world, especially developing nations, would start growing at a slower pace compared to the experience before the pandemic. And the most disturbing aspect is the economic toll on the informal sector which constituted up to 70% of employment and one-third of the world GDP.
While other countries with lockdowns have already begun to experience the second wave of the outbreak as they ease their lockdowns, Sweden has nothing to fear since it has already learned to live by it.
In Nigeria, where the country was barely recovering from the 2016 economic recession, the 2020 budget benchmarked revenue collection at N8.24 trillion on the assumption of the rise in the global oil demand and the stable market economic price at $57. Unfortunately, the outbreak of the COVID-19 turned the dream of the Nigerian government into a mirage when the oil price fell below $30 in March. Also, with many people losing their jobs as the pandemic hit the private companies, the growth in the informal sector and Small and Medium Scale (SMEs) business is rather plummeting. The worst was the country’s unemployment rate which stood at 23.1% could only skyrocket like never before. Meanwhile, the practical experience of countries that refused to impose lockdown proves the economic downtown could be avoided.
How Economic Disruption could be Avoided
Sweden, for instance, did not impose lockdown; the government says it trusts its citizens to maintain voluntary social distancing, working at home where necessary and other COVID-19 safety protocols. Therefore, there was no restriction of goods and people, business and markets were left open. Though, since no country can survive as an island on its own, the country’s GDP also witnessed a downturn in the second quarter of the year because international traveling—international trade—was impossible for other countries. According to the estimation from the country’s statistics office, the GDP tumbled 8.6% in the second quarter. But despite the fall, it still outperformed most countries in Europe with lockdowns. Europe’s economy lost 12.1% of the continent’s GDP in the second quarter of the year. Spain was so much affected as the country had an 18.5% decline, then Portugal -14.1% and France -13.8%.
Since Sweden’s performance is plausible—its economy did not witness a damaging decline—one would think the outbreak of the pandemic in the country would be out of control. Though just like any other country, the death rate from COVID-19 was indeed high in the first quarter, the country’s daily infections have fallen from the peak since June and currently down to almost zero. While other countries with lockdowns have already begun to experience the second wave of the outbreak as they ease their lockdowns, Sweden has nothing to fear since it has already learned to live by it.
Lessons Learnt and Prospect
Though projected to have a long-term effect on the economy, post-pandemic prosperity is still feasible. Every government which felt this pandemic as a burden on its economy must have learned the lesson of the danger of big government and big spending. A classical example is Nigeria where the spending for all three tiers of government is calculated to be more than N3 trillion each year since 2011 (an amount which is more than the money budgeted for capital projects). When the pandemic caused a fall in the oil price, and the revenue relied on by the government could no longer be achieved, it became impossible to fund the budget; they could only run to borrow money in order to fund its budget. Unfortunately, it did not go down well. With the total public debt presently at N31 trillion, it is obvious there was only one option for the government. Cut spending.
Fortunately, the Nigerian government was conscious enough to realize this earlier when it completely removed the oil subsidy which cost the country a whopping amount of N10 trillion between 2006 and 2019 and projected to consume up to N750.81 billion this year.
The prospect of post-pandemic has already started when the Nigerian government removed the subsidy; in the meantime, the money which used to go there will be diverted to infrastructure and other sectors of the economy that matter. But it should not stop there. The economic impact of the pandemic could be least felt if the post-pandemic government spending is kept at minimal, and most importantly, free movement of goods and people across borders is encouraged at all possible costs. These are necessary to get our economy back on its feet and enjoy the prosperity that lies ahead.
Abdullah Tijani is a Free Market Revolution Fellow at Global Campaign Fellowship and National Coordinator at Students For Liberty. He is a penultimate student of Law at Usmanu Danfodiyo University, Sokoto.
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