The collapse of oil prices coupled with the COVID-19 pandemic has expectedly plunged the Nigerian economy into severe economic recession, the second economic decline and the worst in five years. Nigeria’s Gross Domestic Product (GDP) growth has contracted by 3.62 percent in the third quarter of 2020 rendering the economy in a state of acute recession. The National Bureau of Statistics (NBS) in its third-quarter GDP report published on Saturday, November 21, 2020, stated that the GDP dropped consecutively from June to September this year. NBS report indicated that the economy shrank by 6.1 percent compared to the 1.87 per cent growth in the first quarter of the year, denoting that two consecutive quarters of negative growth have been recorded in 2020. Economists have said that a successive contraction of the GDP can best be technically described as a recession. Recession is defined as a fall in the overall economic activity for two consecutive quarters (six months) accompanied by decline in income, failing businesses and massive unemployment. Nigeria depends on crude sales for 90 percent of foreign exchange earnings.
The country accounts for an average output of two million barrels per day but the impact of the coronavirus pandemic and crashed oil prices have cut production to approximately 1.4 million barrels. “Q3 2020 Real GDP contracted for second consecutive quarter by -3.62 percent,” Yemi Kale, the Statistician General, stated on Twitter on Saturday. “Cumulative GDP for the first nine months of 2020 therefore stood at -2.48 percent.” The oil sector was hit hard. In third quarter, it shrunk by -13.8 percent against growth of 6.49 in the same period a year earlier, furthermore, oil sector plunged by -7.26 percent when compared with 6.63 percent growth recorded in second quarter 2020. Nigeria’s non-oil sector also had its share of plunge, with some of its segments flourishing and others in distress. It contracted for the second time as the economy continues to reflect the impacts of COVID-19 pandemic. According to the NBS report, in third quarter 2020, the non-oil sector shrank by -2.51 percent in real terms during the reference quarter, which is -4.36 percent lower than the rate recorded in same quarter in 2019 but 3.54 percent higher than in the second quarter of 2020.
The key sectors that contracted in third quarter 2020 in the non-oil segment include manufacturing, trade (wholesale and retail), accommodation and food services, real estate and a host of others. Conversely, the growth in the non-oil sector was driven mainly by Information and Communication (Telecommunications), with co-drivers being Agriculture (crop production), Construction, Financial institutions. In real terms, the non-oil sector contributed 91.27 percent to the nation’s GDP in the third quarter of 2020, higher than its share in the same quarter of 2019 (90.23 percent) and the second quarter of 2020 (91.07 percent). The coronavirus pandemic and a grinding lockdown caused massive disruptions to economic activity during the quarter. “The performance of the economy in Q3 2020 reflected residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 in response to the COVID-19 pandemic,” the Statistician General said in a report published on Saturday.
“As these restrictions were lifted, businesses reopened and international travel and trading activities resumed, some economic activities have returned to positive growth,” He said. The International Monetary Fund has forecast a 5.4-percent drop in Nigeria’s GDP this year. There have been symptoms of a recession in the Nigerian economy, just that it became full-blown under the President Muhammadu Buhari’s civilian regime due to certain drastic actions taken to solve perennial domestic economic problems. This admission on Saturday was just an official declaration of the situation the Nigerian masses have been battling with for quite some time. The Catholic Herald Weekly sought the views of Economic Analysts on the causes, effects and way out of the recession. The current antecedents of collapse of oil prices and COVID-19 pandemic provided justification for this economic woe, but Analysts claim that there is also the effect of an absence of a clear policy direction of the government. Economic experts have often traced the cause of Nigeria’s current recession to poor economic planning and implementation of the economic planning which includes budget delay and exchange rate policy. Reacting Prof. Pat Utomi, a political Economist accorded the recession to four classical reasons.
“In my view, there were four classic reasons. The first reason, the easiest to see, is the disruption of the supply Chain by COVID-19 because for example, one of the biggest challenges right now, is raw materials because bigger industries can’t find raw materials; everybody is running around, no raw materials. So, they can’t even produce if they want to produce because of the disruption of supply by COVID-19. “Second critical one, is collapse of oil prices, as a result of both COVID-19 pandemic and general development around oil. And already, last year, before the pandemic, the big power play between Saudi Arabia and Russia had already resulted in the decline of oil prices. “But here is the third and really critical factor. When that power play led to oil price decline, our decision makers did not react favourably. National Assembly was building up a budget on irrelevant things like repairing their building with more money than is going into education, public health; everything combined.
So, you see an irresponsible political class, which is perceived as incapable of driving development globally, and that perception was summarized in a Forbes article about May, of last year, which basically said that Nigeria was a money-losing machine. If you want to lose money, go into Nigeria. And what are the components of the money-losing of Nigeria? First of all, regulatory risk is one of the biggest risks of doing business in Nigeria. If you go into business, you are likely to be killed by government than by market factors. But the naked truth is that these causes were compounded by quality of the management of the economy, and so, recession is here; it didn’t come as a surprise.
The epic question is what is the strategy for trying to get out of the recession?” So what is the strategy? Dr. Muhammad Rislanudeen, former CEO/ Managing Director of Unity Bank Plc, recommended the need for persistent support to agriculture, as well as Small and Medium Enterprises (SMEs) to improve business activity, especially agricbusiness, agricultural value chain, and manufacturing. He said this would in turn support increased employment generation and output growth. Speaking on the strategy for recovery, Prof. Utomi said, “First of all, we have to become a producing country. We have to produce our way out of recession. Typically, people will tell you that one of the things that you do in recession is try to create economic activity through quantitative yielding, i.e. our money supply being pumped up by making more credits, government embarking on projects to give private sector work to do.
“And the classic example of this in economics is the Great Depression and how General Roosevelt accepted the counsel of John Maynard Keynes that it is even better to be building the road going nowhere, so that people can be engaged in production of building that road, to stimulate economic activity. But the point of the matter is it’s got to be purposeful to add up. If you stand on the street and distribute money to people to spend, when they spend it, how does it stimulate production if most of what you consume is imported? It means that it goes out of the country, and does not add up to increase economic activity in the country. So, we have got to find ways of getting people to produce. “How, do we get businesses stimulated? Young entrepreneurs should have access to credits, and all of that. Unfortunately, the politics of Nigeria is such that we don’t want to create a programme like that.
What else will happen is that 70 percent of the money enters the hands of politicians. They don’t really stimulate the economy; they just put it into their pockets and invariably buy things like fancy cars or jets and stuff like that. So, how do we cure ourselves, purge ourselves of that drain on public treasury? These are fundamental things that we should address. But I’m not so sure that we seem ready yet to hold politicians accountable. That will be a huge struggle. Generally, they are not repentant enough, they can say something in public, but do exactly the opposite because for them, politics is like the hunter who has hunted down game, and it’s now chop time. If their attitude to public life is ‘How can we achieve immortality by the way we served our people’, then, you will have a different outcome.”
Lending his voice on the way out of the economic crisis, the Director General, Nigeria Employers’ Consultative Association (NECA), Dr. Timothy Olawale, in a statement titled ‘Another recession and its economic impact: NECA calls for urgent recovery action’, stressed an urgent need to increase aggregate demand in the economy as a way to spark economic activities. “Government should give more tax cuts to promote business capital investments while encouraging local and foreign investment. Government should fast-track the implementation of policies to diversify further its export potentials, mostly the huge stock of natural and agro resources in order to reduce pressure on foreign investment. “We call for more robust and comprehensive expansionary fiscal and monetary policy packages to expeditiously reflate the economy out of the current crisis,” he stated.
The Director-General, Lagos Chamber of Commerce and Industry, Dr. Muda Yusuf noted that from economic perspective, 2020 has been a bad year; the worst in recent history. Describing the impact of the recession, Yusuf said “Sales are slowing down, profit margins are being eroded, production costs are escalating, unemployment is rising, poverty situation is worsening, purchasing power is weakening and there is general social discontent. Regrettably, as if things are not bad enough, the business community continues to grapple with unfavourable policies, institutional and regulatory challenges impeding investment.” To expedite quick recovery, he said that the country should restore normalcy to the foreign exchange market and key institutions in the international trade processes, like the ports system should be more investment friendly, as trade was critical to recovery.
Oftentimes, the government has pronounced the usual generalities that every government indulges itself in such as diversifying the economy, improving the manufacturing sector, raising agricultural output, encouraging foreign investment among others, yet no concrete strategic plan for growth. The government through its policy has widened the gap between the rich and the poor – creating more economic hardship. This time around, the country’s GDP slipped by 3.61 percent compared to -6.1 percent growth recorded in second quarter. The fall was steeper than the figures that plunged the country into recession four years ago. What changed? What happened between four years ago and today? Prof. Utomi responded, “Oil price has been long on the downward trend, and then, we didn’t control spending to bar that price decline. So, this is happening because we didn’t control it. We just talked about raw materials; nobody’s been able to find raw materials.
So, those people who can’t find raw materials, what do you think they are doing to people who work for them? They are laying them off. Let’s take a simple Nigerian poll. The universities have not been opened for this year. Think of all the people who offer services to students in the country, what their current state of productive output would be. So many factors have just added up to this.” Speaking on the implications of the recession on the middle class and ordinary man, Prof. Utomi stated, “It means that many more companies will not be able to have people who can afford their services, so, more businesses will close. There will be more layoffs, and there will be more hunger in the land. That is what will happen. And more hunger in the land means more armed robbery. It means more Boko Harams; too many people with nothing to lose.
So, it’s a very compound problem. Not a simple one, not just a technical matter; it’s about real life.” The Federal Government who had previously said it expected the economy to contract by as much as 8.9 percent this year in a worst-case scenario without stimulus has lately stressed that the recession will be short-lived. The Minister for Finance, Budget and National Planning, Mrs. Zainab Ahmed, on Monday, November 23, 2020, said the country will exit recession by the first quarter of 2021 as the Nigerian government is working towards reversing the declining economic trend in the country.
She made this disclosure while speaking on the latest GDP figures released by the National Bureau of Statistics (NBS) about the current recession in the country at the 26th Nigerian Economic Summit, organized by the Nigerian Economic Summit Group (NESG) and the Federal Ministry of Finance, Budget, and National Planning. Ahmed noted, “Nigeria is not alone in this, but I will say that Nigeria has outperformed all of these economies in terms of the record of a negative growth.” Also at the Economic Summit, Vice President Yemi Osinbajo, emphasized that the government is committed to working in synergy with the private sector to foster equitable growth and underpin national development.
A Member of President Muhammadu Buhari’s Economic Advisory Council, Mr. Bismarck Rewane remarked that the depth and impact of COVID-19 were not as debilitating as originally envisaged. He hinted that the impact of the #EndSARS destruction will feature in the fourth quarter GDP. World Bank Country Director for Nigeria, Dr. Shubham Chaudhuri, however, advised government to urgently address bottlenecks that hinder the productivity of the economy and job creation.