Exiting the second economic recession

Nigeria has relapsed yet again into another economic recession after exiting one just three years ago. The economy had gone into recession in the first quarter of 2016 and remained for five consecutive quarters before exiting in the second quarter of 2017. The latest recession beginning third quarter of this year is said to be the worst in the last 35 years. It means that in the last five years of the current administration, the country is experiencing a second period of serious economic challenges.

While some economic experts are saying that this second recession might affect virtually all sectors of the national economy if not well managed, both the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, and the Central Bank Governor, Mr Godwin Emefiele, are optimistic that the country’s economy will likely crawl out of recession in the first quarter of 2021. However, we are careful to caution that the optimism should be based more on strategic positioning than political rhetoric. Nigerians need to know in clear terms measures that would be adopted, because indicators show that exiting recession may not happen until the second quarter.

While we note that the current economic meltdown appears to be a global malaise following the swift and massive shock of the coronavirus pandemic and shutdown measures to contain it, the Nigerian situation is made worse by extenuating factors which are largely internal. The World Bank forecast indicates that the global economy will shrink by 5.2% this year, a situation it noted would represent the deepest recession since the Second World War.

According to the third quarter report of the National Bureau of Statistics (NBS), Nigeria’s economy slipped into recession as Gross Domestic Product (GDP) contracted by 3.62% in the third quarter (Q3) of 2020. In real terms, the GDP declined by -3.62% (year-on-year) in Q3 2020, thereby marking a full-blown recession and second consecutive contraction from -6.10% recorded in the previous quarter (Q2 2020).

Nigeria is blessed with enormous human and natural resources. If these potentials had been properly harnessed, the country would have no business going through the slow economic growth situation it has been afflicted over the years, a development that has resulted in the economy relapsing into recession twice in five years.

The entire scenario is unwholesome. Real inflation rate is at 33%; largely driven by high food commodity prices and the non-competitiveness of the country’s currency. The fluctuating prices of petroleum products and increase in charges on other public utilities have resulted in high spending and compounded the inflation levels. The effects of multiple taxations, inadequate supportive infrastructure and inclement operating environment have increased the burdens of the small and medium scale enterprises (SMEs).

This in turn has worsened the already precarious unemployment situation as youth unemployment and underemployment rates have reached 34.9% and 28.6% respectively.
The non-oil sector which had started experiencing positive growth following the implementation of some prescriptions of the Economic Recovery and Growth Plan (ERGP) 2017 – 2020 is slipping back to negative levels. This could be attributed to the precarious security situation in the country which has made it almost impossible for any reasonable agricultural activity to go on. This has also affected the manufacturing sector, particularly those linked with the agriculture value chain. The uncoordinated spending spree of both federal and state governments has not helped matters.

Apart from getting very serious with prudent management of resources at all levels, government must prioritise its spending. More attention should be given to spending in strategic sectors like infrastructure, agriculture, solid minerals etc., to galvanise economic activities and empower the people. Serious efforts must be made in generating enough revenues to meet the challenges of the economy.

All hands must be on deck to ensure that this looming recession is tackled from all angles. Government should eschew rhetoric and focus instead on strategies that will help in diversifying the economy. This is not the time to spend scarce resources on unproductive ventures. Instead of spending money in running wasteful national assets, such facilities should be sold off and accrued revenues ploughed into more productive areas. The four refineries which gulped N81.4 billion on Turn Around Maintenance (TAM) between January and August this year without anything to show for it should be sold or privatised without further delay.

Above all, government must declare a state of emergency on insecurity across the length and breadth of the country. The scourge of terrorism and banditry in the North and violent robbery and kidnapping in the South are assuming very frightening dimensions. There is an urgent need for a more proactive measure to contain the scourge, if progress is to be made in the effort to reflate the economy. Fresh ideas must be injected into the country’s security architecture immediately.

The economic team inaugurated by the President more than a year ago should chart a new and dynamic course for the economy. As earlier indicated, there must be a massively reduced, all inclusive cost of governance including cut in salaries and other entitlements of government officials and reduction in the overhead expenditure of government agencies in the three arms of government. Government, as a matter of necessity, must explore other avenues of cutting down costs, including travels, training, purchase of routine items and other such expenditure sub heads that are not very critical.

Just as the ordinary people are making sacrifices daily, government officials must also be seen to be doing same for the sake of the economy. State governments must not be allowed to continue with the current level of reckless and unaccountable spending. There must be checks and balances to curtail the indulgence. The states which are the custodians of land across the country, except the FCT, should make agriculture the focal point of their economic policy. Both the state and federal governments must invest massively in physical and social infrastructure to stem economic migration.

In addition, as we strive to diversify the economy, our focus should be to create a productive economy instead of the current scenario where we import almost everything that we need. Over dependence on oil with unstable prices in the global market has hurt the economy badly and “conspicuous consumption” has also not helped our situation. A stitch in time saves nine – the federal government must act quickly to save the economy.