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Nigeria’s Misery Index: The COVID-19 Effect

Nigeria’s Misery Index: The COVID-19 Effect

Well-being, corruption perception, global competitive and misery indexes are used for measuring a country’s economic performance. This article will focus on the misery index– which shows how happy or miserable a particular populace is.

Given the rapid increase in the number of confirmed cases of COVID-19 in Nigeria, the massive disruptions in systems, businesses, supply chains and the nation’s economy, as well as the resultant lockdown order in some parts of the country, it seems more Nigerians are becoming miserable. The lay-offs, pay cuts, business closures, increased unrest stemming from hunger and desperation, crumbling oil prices and demand, and the looming economic recession have dealt terrible blows to everyone.

The pandemic is causing an economic downturn in Nigeria but what does it mean for Nigeria’s misery index? Projections from four key indicators show that the score for 2020 is going to be higher than the 36.8 score[1] for 2019 by over 70%.

People’s happiness is closely linked to economic growth, ample jobs, low inflation and bank lending rates.1 Every year, countries use the misery index to discover if their citizens are getting happier with the analysis of certain key economic parameters. In ascertaining the economic well-being of the citizens of a country, Arthur Okun – the famous American economist who propounded economic theories such as Okun’s law – defined misery index as the sum of a nation’s unemployment and inflation rates. Over the years, other variants that capture additional relevant economic indicators have been developed, such as Steve Hanke’s Misery Index, which is the sum of unemployment, inflation and bank lending rates, minus the percentage change in real GDP per capita or real GDP growth rate.1 With the impact the pandemic is having on the indicators, economic distress will increase, thereby increasing Nigeria’s misery index. The higher the index, the higher the misery felt by Nigerians.

Outlook & Projections

Unemployment: In 2019, unemployment rate was 23.1% and had been projected by Nigeria Bureau of Statistics (NBS) to be 33.5% in 2020.[1] However, with Nigeria’s unemployment growing at an average rate of approximately 16%,[2] and the impending nationwide job losses as a result of COVID-19 outbreak, unemployment rate might increase to approximately 38% in 2020 meaning more misery for Nigeria.

Inflation: The Consumer Price Index (CPI) increased to 12.26% (year-on-year) in March 2020, 0.06% points higher than February 2020’s 12.20[3]. Although the border closure impacted food prices, the pandemic has massively disrupted supply chains, decreased production and increased production/distribution costs, resulting in an increase in the overall prices of goods and services. With the increase in CPI, consumers will face a decline in purchasing power. This will negatively impact the economy and further increase Nigeria’s misery index.

Bank lending rate: Banks are key providers of funds in most economies, including Nigeria’s. Since lower rates increase money supply and make businesses thrive, Nigeria’s bank lending rates will most likely come down to about 14.60, as the struggle to contain the virus and reboot the economy continues.  Real GDP: In Q1 2019, the non-oil sector contributed 90.86% to real GDP, while the oil sector contributed 9.14%.4 In the same quarter, average daily production of crude oil was 1.96 million barrels per day (mbpd).[4] With the pandemic outbreak, oil prices have crumbled and the nation’s oil production has decreased to 1.85 mbpd as at March 2020. Although OPEC has agreed to cut production to protect many economies, India, one of the largest buyers of Nigeria’s crude oil, recorded a 70% slump in their oil demand.[5] This will affect Nigeria as it is dependent on oil. In response to the fall in prices and demand, the IMF has lowered Nigeria’s GDP growth forecast from 2.5% to 2%[6] even though some experts think it could be lower. 

Whilst some non-oil contributors to real GDP like trade and transport have been negatively affected by the pandemic, others such as ICT and e-commerce are performing well. In ICT, the work from home policy being adopted by most businesses is boosting telecommunications. Physical meetings are being replaced with virtual ones, increasing the demand for airtime and data. With the lockdown order, the demand for social media, Netflix and other entertainment alternatives have also increased. Online shopping is now a preferred option for people who must shop; the availability and affordability of logistics services have given e-commerce a boost in the wake of this pandemic.  However, with a sustained spread or delayed containment of the virus, real GDP in Q2 2020 and beyond would further decline due to slow global demand for commodities, increased foreign exchange rate, and reduced amount of funds flowing into the foreign reserve.

All these show that there is not only a threat to the economy, but also to citizens, as it negatively affects their ability to attain their potentials and contribute to the development of the country. Although a higher misery index indicates low morale, higher levels of uncertainty and misery, everyone must seize the opportunities in this crisis to explore solutions that align with the socio-economic dynamics of Nigeria. The CBN has taken the lead and has developed a Policy Response Timeline (PRT) to guide the crisis management and rebooting of Nigeria’s economy for the short and medium term. In the interim, the availability of loans to healthcare companies, distribution of relief materials, provision of shelter, targeted tax incentives, social transfers, and regulatory support could help suppress the misery.

When the country recovers from this pandemic, there will be an urgent need for diversification and more investments in education, healthcare, security, modeling and emergency facilities. This will have a ripple effect offering opportunities for consumer spending and job creation.

[1] (Nigeria Bureau of Statistics (NBS), 2019)

[2] (Knoema, 2018)

[3] (Nigeria Bureau of Statistics (NBS), 2020)

[4] (Nigeria Bureau of Statistics, 2019)

[5] (Sundria, 2020)

[6] (Soto, 2020)

[1] (Hanke, 2019)

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