recession

Nigeria’s Economic Recession: Reasons, Implications, Solutions

Sometimes to a lay man, a recession means nothing more than shortage of food on the table and shortage of money in the pocket but explaining a recession goes beyond these.

Dr. Kemdi Chino Opara a Financial/Marketing Analyst, resident in the United States recently spoke with our correspondent on the meaning, causes, implications and way out.

Basically, a recession is the negative growth of the Gross Domestic Product (GDP) which lasts beyond two months.

GDP is the total value of goods and services produced within a geographical boundaries of a country during a specified period of time.

Oil rig

In 2016, the Nigerian economy slipped into a recession but the indicators were already obvious even before then.

In Nigeria, it all began in 2014 when a number of international and domestic problems happened almost at the same time.

At the wake of the Muhammadu Buhari administration in 2015, price of crude oil crashed in the international market; a bad omen for Nigeria, a country that runs a mono economy.

Price of crude at some point went as low as $20 per barrel while Nigeria’s budget has a benchmark price of crude oil at $50 per barrel with a production figure of two million barrels per day. Then selling at prices below the benchmark, the deficit is huge and must reflect on the economy that has not been weaned from oil and gas.

However, many Nigerians do not know why the economy went into recession but must blame the new government whose policies were supposed to at least salvage the situation. The truth remains that while other economies, like the ants had prepare ahead for the days of famine during plenty, Nigeria under the previous governments failed to prepare, failed to diversify the economy, setting the stage for a catastrophe.

CBN

There were years under the Goodluck Jonathan administration when Nigeria actually enjoyed good luck from high cost of crude- as high as $100 per barrel for massive two million barrels per day. Many Nigerians failed to ask questions along this line when the eventuality happened.

In 2016, Nigeria’s problem increased when she had problem meeting her target of two million barrels per day. She could only produce 1.69m barrels per day at some point at the end of 2016, while at the beginning of the same year, 2.11m barrels per day were produced.

The country’s economic woes continued however at the black market where the Naira traded at N463 to a USD. Also, about 4.5million people somehow lost their jobs in the same 2016. Then almost all indices were completed and enough for the country to proceed on a recession.

The cold war between the US and Russia had provoked the decline of oil prices globally to confirm an African adage that says where two elephants fight, the grass would suffer.

In the case of Nigeria, as if the country was deliberately paving way for a recession, the Federal Government had earlier in 2014 placed a ban on some agricultural products and began gradual removal of subsidy on oil, then the prices of agricultural products soared.

It can be argued that happenings on the global scene, policy inadequacies at home were the bedrock of the 2016 recession.

Again, the interest rate went up as high as 27% which scared investors and as if adding salt to injury, the Federal Government also increased tax regime.

MSMEs were hard hit and many could not do their businesses with ease any more. The GDP was negatively affected, hence a recession.

Market

Respite however came the way of the nation when in the second quarter of 2017, the National Bureau of Statistics (NBS) announced the end of the recession and gradually, a number of businesses jerked back to life.

Meanwhile, the nation still had many issues to grapple with. She could not meet the production of two million barrels per day though the GDP showed some growth and the cost of crude in the international market still stood around $50 per barrel which was however a respite.

Then by January 2020, the tension in the gulf area after the assassination of the Iranian General Qasem Soleimani pushed up the price of crude on the international market, a gain for Nigeria, but while the country was consolidating, the Corona Virus pandemic struck!

By end of March 2020, the country had no choice but to announce a lockdown. The economy was shut down and things went from bad to worse. As the nation grappled with the pandemic, the future was bleak and the market was left with no hope, Nigerians only had a goal-survival.

The three months lockdown was finally over, the economy badly affected, many lost loved ones to the pandemic and many jobs were also lost in the process. At some points during the lockdown, Nigeria’s crude oil was not a desire of buyers at the international market as vessels roamed the high seas for lack of buyers. The country needs no prophet to know that evil days were ahead.

By July, the interstate travel ban was lifted and businesses began to pick amid fear of the pandemic not yet over.

endsars

Gradually, people were picking the pieces of what remained by the third quarter, then another disaster struck! #EndSARS protest took over major parts of the country where commercial activities take place.

The protests culminated in wild destruction of properties, disruption of economic activities, many businesses lost the pieces they had salvaged from the days of the lockdown and the economy which according to the NBS shrank by 6.1 in the second quarter was further hit. Many business premises were destroyed and lives were lost nationwide to the riots.

This indicates that two consecutive quarters of economic contraction in the country and by November, Africa’s largest economy again slipped into another recession, this time, the worst since 1984.

According to Nairametrics.com, Nigeria’s GDP in real terms declined by -3.62% (Year-on-Year) in Q3 2020 making it a full-blown recession and second consecutive contraction from -6.10% recorded in Q2 of 2020.

However, for Nigeria to get out of her worst recession, certain policies must strictly be put in place. The government must invest in food production and reduce importation. The non-oil export must be improved upon and there must be massive job creation.

Also, the MSMEs must be encouraged with reasonable loans to operate and with friendly interest rate. The security of lives and property must be addressed and farmers/herders crisis must also have a lasting solution. Bandits attack in the northern part of the country must be addressed. The ease of doing business must be improved.

The federal and state governments must improve on infrastructure; power generation and distribution must be a priority and the transportation sector must be encouraged with good roads and rail networks. All these must necessarily cost money but these are what can encourage local and foreign investors.

@dayoemmanuel2

 

Post Author: Dayo Emmanuel