Delta variant, threat to Nigeria’s economic outlook: Capital Economics

As the highly contagious Delta variant of COVID-19 seems to be dominant now across much of Sub-Saharan Africa, Nigeria’s economic outlook faces a threat, Capital Economics has said.

The London-based economic research firm said on Thursday that the Delta variant was driving new waves in many of the large economies, adding that “extremely low vaccine coverage makes the region particularly vulnerable to this variant and potential future ones”.

The Chief Emerging Markets Economist, William Jackson, said, “Nigeria’s recovery appears to have gathered some steam in the second quarter. High-frequency mobility figures have shown a steady improvement over the course of 2021.

“However, the country’s emerging virus outbreak threatens the outlook. New cases have started to rise again, seemingly driven by the highly contagious Delta variant.”

According to him, the country’s very low vaccination rate – less than one percent of the population have been fully vaccinated – means that the latest outbreak risks putting the health system under strain, resulting in more economically-damaging containment measures.

Jackson said, “This cloud on the outlook will probably start to weigh on the central bank’s thinking and discourage it from tightening policy.

“Policymakers are also likely to be reassured by the recent fall in inflation. We expect the policy rate to be left on hold over the next 18 months or so.”

Capital Economics said a recent change in foreign exchange provision to certain vendors suggested that the central bank was tightening control over FX supply, probably to maintain its heavy-handed approach to managing the exchange rate.

“The parallel rate weakened following the move and it continues to trade at a wide spread relative to the NAFEX rate,” it added.

According to the firm, African economies are particularly vulnerable to the Delta variant (and potential future strains) given the low level of vaccine coverage in the region.

“A lack of supply has kept rollout progressing extremely slowly outside a handful of countries (e.g. Mauritius and the Seychelles). This threat will cloud the outlook and prevent GDP from returning to its pre-crisis path any time soon,” Jackson said.