New Telegraph

Economy battling recurring recession

Nigeria’s economy has been in and out of recession on many occasions. The current third quarter 2020 GDP contraction coincides with a period Nigerians are grappling with high cost of living, rising double digits inflation and insecurity, ABDULWAHAB ISA reports

Nigeria’s economy is not new to recession. This current experience is the eight in a series of nagging experiences in over three decades. It started in the 80s. The economy recorded recession in 1982, 1983 and 1984 before recording growth for eight straight years.

It fell back into recession in the years 1993, 1994 and 1995 and recorded growth for 19 straight years until 2016 when it recorded one of its worst ever. Q3’20 GDP contraction The latest contraction in Gross Domestic Product was long foretold. Covid-19 earlier in the year had frozen all economic activities. Nigeria’s major source of income, the crude oil, experienced prices crash.

The World Bank and International Monetary Fund in their various reports predicted accurately about sluggish performance of the economy. Both institutions with the benefit of hindsight declared that the economy would slip into recession. The National Bureau of Statistics (NBS) released Nigeria’s Gross Domestic Product (GDP) for the third quarter, 2020 last week.

The GDP declined across board. NBS said GDP in real terms declined by -3.62 per cent (year-on-year) in Q3’20, thereby marking full-blown recession and second consecutive contraction from -6.10 per cent recorded in the previous quarter (Q2’20). According to the report, the performance of the economy in Q3’20 reflected residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 in response to the COVID-19.

The oil sector contracted by –13.89 per cent (year-on-year), indicating a sharp contraction of –20.38 per cent points relative to the rate recorded in the corresponding quarter of 2019. Furthermore, oil sector decreased by –7.26 per cent points when compared with growth recorded in Q2 2020 (6.63%).

The sector contributed 8.73 per cent to total real GDP in Q3 2020, down from 9.77 per cent and 8.93 per cent respectively recorded in the corresponding period of 2019 and the preceding quarter, Q2’20. The average daily oil production recorded in the third quarter of 2020 stood at 1.67 million barrels per day (mbpd), or 0.37mbpd lower than the average production recorded in the same quarter of 2019 and 0.14mbpd lower than production volume recorded in the second quarter of 2020 (1.81mbpd).

Rescuing efforts

The current recession didn’t get government napping. It was expected given the trauma that afflicted the economy in the face of Covid-19. The monetary and fiscal authorities initiated combined efforts to lift the economy from recession. Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, provided insight into measures designed by the monetary authorities to breathe life into the economy ravaged by the pandemic. The occasion was last week’s Monetary policy Committee (MPC) of the bank. Emefiele put various intervention initiatives of the apex bank in the face of Covid-19 at over N1.4 trillion.

He said the committee recognised the supportive developmental roles of the CBN towards addressing some of the structural issues in the economy and urged the bank to sustain the momentum, saying the interventions would pull the economy from recession.

“NBS numbers show that 8 sectors during the Q3 recorded growth ranging to 13 sectors during the Q2. These growth were recorded mainly from the agricultural sector, industry manufacturing. Indeed, we saw even services slightly increasing but at least agriculture coming up also means what we can achieve from agriculture. Whatever we are doing to stimulate agriculture and manufacturing we will do it to create job for our people and also stimulate spending, increase output and ultimately lead to moderation in the level of inflation in our country.

“If you recall in March at the outset of Covid -19, the CBN came out very quickly and we put on the table, initiative that we believe will amend and alleviate the pain of covid -19 on our people first. We talk about how the banks should restructure their facilities, how interest rates should come lower particularly for CBN interventions and how re-payment should be spread for those who are owing banks so that they have some more rest as their cash flow has been badly affected.

“On another hand, we also proposed that for Targeted Credit Facility to household and small scale businesses that are deeply impacted by the COVID- 19, we are going to put in the table N50 billion for them.

These are all secured facilities made for people who we feel are impacted and just need money either to start business or start some kind of consumption so as to help them live their lives during the period of the pandemic.

“We also put on the table N100 billion for healthcare industries, pharmaceutical and hospitals for their upgrade of building of new ones and made available also a facility of N1 trillion to Cooperate who are willing to expand either in the manufacturing or agricultural sector.

“Till date, rather than even the N50 billion, the CBN has disbursed through its institutions the sum of N149 billion to 317, 000 beneficiaries. Around N600 billion has been disbursed to 60 healthcare projects. On the road sector we have disbursed N350 billion to over 105 road sectors during this same period. For those going into small businesses like tailoring, hair making etc we have also disbursed over N92 billion to more than 27, 000 people.

For youths under the creative funding initiative, we have disbursed over 2.9 billion to our youths in the area of fashion, ICT, movie and music sector. “Now that we have seen that this has been quite impactful particularly the Targeted Credit Facility made for households and SMEs, we have been advised by MPC that given that this has been very impactful positively, CBN should do. We have been told that we have to increase it not just from the N149 billion that it’s now but to increase it to almost N250-300 billion to accommodate more people that have not accessed,” said CBN governor.

Eexpectant growth

Economy managers have expressed hope for a terminal exit period for the recession. They said it was not something that will drag for long periods. Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, assured Nigerians that the current recession would be short lived. In addition, the apex bank said it would post 2.0 per cent growth by the end of 2021. Emefiele stated this in his address at the 55th Annual Bankers‘ Dinner organized by the Chartered Institute of Bankers of Nigeria (CIBN) held in Lagos . According to Emefiele, the apex bank’s projection for a quick exit from the recession is due to the positive impact of the intervention measures it introduced to tackle the coronavirus pandemic as well as the latest positive Purchasing Managers Index (PMI) report.

Experts take

Informed analysts conversant with the economy have offered opinions on strategies to get back to resounding feet. A financial economist and renowned professor of capital market at the Nasarawa State University, Keffi, Uche Uwaleke, said a third quarter GDP contraction was expected. Speaking in a recent interview, he said: “There is no doubt that economic recession has grave implications for a fragile economy such as Nigeria if I may borrow your word – fragile –in the sense that the issue of diversifying the export base and creating multiple streams of income other than crude oil has remained seemingly intractable, a situation made worse by the huge infrastructure deficit and relatively low Human Capital Development Indicators.

“Economic recession as you know can be viewed as the downturn in economic activities. Even before the release of the NBS report, it was obvious to most Nigerians, including the government that the economy, like many other economies of the world, was in a recession.

The NBS report merely gave it an official status since the economy had gone through two consecutive quarters of negative growth in GDP contracting by -6.10 per cent in Q2 of 2020 and yet again by -3.62 per cent in Q3 of 2020.

Way out

Uwaleke said steps taken so far by monetary and fiscal authorities would restore calm to the economy. He said: “I think overall fiscal and monetary policies appear synchronised and in the right direction. In response to the pandemic, the government scaled up the social investment programmes.

It has also provided cash support to some households that were seriously affected by COVID-19 as well as rolled out tax incentives to business enterprises. In addition, the government came up with an Economic Sustainability Plan outlining bold measures aimed at helping economic recovery, including mass agriculture, housing and investment in infrastructure especially solar energy.

“The major challenge now is its implementation in order to ensure a quick return of the economy to the path of growth. On its part, the CBN has been deploying its development finance function, beyond the use of the traditional monetary policy tools, to support economic recovery.

All said, I think the policies are in the right direction.” Reacting to the latest GDP report, developmental economist, Odillim Enwegbara, attributed the recession to consequence of mismanagement of the economy, saying it had nothing to do with Covid-19. “Covid-19 or no Covid-19, Nigeria’s economy has been badly managed by this government, where revenues are falling, and consumption recurrent debt growing”

Last line

Given that Nigerians are facing peculiar challenges such as high cost of living, rising inflation and insecurity, a recess economy is an end result of everything that ails Nigeria’s economy.

Read Previous

Addressing consumer issues in telecoms

Read Next

How quarries exploit children for survival (3)

Leave a Reply

Your email address will not be published. Required fields are marked *