With the double effect of Covid-19 and oil price crash, Nigeria’s economy is teetering towards recession and Nigerians, again, are jittery. BENJAMIN UMUTEME in this report seeks remedies.
As the coronavirus pandemic has forced global economies to shut down, analysts are of the view that it is only a matter of time before Nigeria slips into another recession, especially with the oil price crash wiping close to 80 per cent its foreign earnings.
And for close to ten weeks, the entire country has been in one form of lockdown or the other. Apart from essential services and foodstuff, every other sector of the economy was in limbo. Therefore, it was not any surprise when the International Monetary Fund (IMF) in March projected that Nigeria’s economy might once again head into recession.
Nigeria went into recession in 2016, after the price of oil crashed to less than $30 per barrel in mid-2014, eroding a substantial chunk of her dollar earnings. Though, the recession was short-lived, it left a scare on the country which it has yet to fully recover from.
And in April, the IMF in its April 2020 World Economic Outlook report stated that Nigeria could be heading for its worst recession in three decades. The economic downturn is one of the effects of the coronavirus pandemic predicted by experts around the world.
According to the IMF, the economy is projected to drop by 3.4 per cent in 2020 as a result of the Covid-19 pandemic. IMF’s Chief Economist and Director of Research Department, Gita Gopinath, said, “For the first time since the Great Depression, both the advanced economies and emerging and developing economies are in a recession.
“For 2020, growth in advanced economies is projected at -6 per cent. Emerging markets and developing economies which typically have normal growth levels well above advanced economies are also projected to have negative growth of -1 per cent and -2.2 per cent if you exclude China.”
The World Bank towed the path of the IMF by affirming that Nigeria’s economy is in a bad shape.
And when the minister of finance, budget and national planning, Mrs. Zainab Ahmed, admitted to journalists after the National Economic Council (NEC) meeting in Abuja on May 21 that the economy was heading towards recession Nigerians became jittery once more. According to her, the impact has already started showing on the federation’s revenues and on the foreign exchange earnings.
“Net oil and gas revenue and influx to the federation account in the first quarter of 2020 amounted to N940.91 billion. This represented a shortfall of N125.52 billion or 31 per cent of the prorated amount that is supposed to have been realised by the end of that first quarter. 40 per cent of the population in Nigeria, today, is classified as poor; the crisis will only multiply this misery.
“The economic growth in Nigeria, that is the GDP, could in the worst-case scenario, contract by as much as minus -8.94 per cent in 2020. In the best case, which is the case we are working on, it could be a contraction of minus -4.4 per cent, if there is no fiscal stimulus But with the fiscal stimulus plan that we are working on, this contraction can be mitigated and we might end up with a negative –0.59 per cent,” she said.
Experts speak out
In a chat with Blueprint Weekend, public affairs commentator, Godwin Ubochi, said the comment by the minister of finance that Nigeria will ‘definitely’ go into recession is a fait accompli.
He declared that with world economies going into recession, Nigeria will not be an exception; “no thanks to Covid-19 pandemic that is ravaging the world.”
“The drastic fall in oil price, loss of jobs, devaluation of the naira, reduced productivity, etc, are all factors that that lead to recession. Many of the factors responsible for the recession of 2016/2017 are still at play today. The difference, however, is in the Covid-19 which is key factor in this instance,” he said.
In the same vein, a development consultant, Joe Afolayan, told this reporter that the prospects of Nigeria going into deep are very high due to Covid-19 and its attendant issues including economic lockdown. According to him, “The low price of crude oil in the global market is another reason, as we rely on this commodity as the major foreign exchange earner.”
“And the latest Gross Domestic Product (GDP) first quarter 2020 report by National Bureau of Statistics (NBS) also speaks to the fears of Nigerians.”
NBS’ GDP report
Amidst global health and economic crises, Nigeria’s economic grew in the first quarter of 2020 by 1.87 per cent, the National Bureau of Statistics (NBS) stated on Monday. The rate of growth, however, was the slowest in more than a year, at a time of significant global disruption resulting from the Covid-19 public health crisis, a sharp fall in oil prices and restricted international trade.
The growth rate declined to –0.23 per cent compared to the first quarter of 2019 and –0.68 per cent compared to the fourth quarter of 2019. The oil sector recorded a real growth rate of 5.06 per cent (year-on-year) in Q1 2020, indicating an increase of 6.51 per cent relative to the rate recorded in the corresponding quarter of 2019.
The sector contributed 9.50 per cent to aggregate real GDP in Q1 2020, up from figures recorded in the corresponding period of 2019 and the preceding quarter, as the share of the non-oil economy declined.
During the first quarter of 2020, the NBS reported average daily oil production of 2.07 million barrels per day (mbpd), higher than the 1.99mbpd recorded in Q1 2019 by 0.08mbpd and the fourth quarter of 2019 by 0.06mbpd.
However, the non-oil sector grew by 1.55 per cent in real terms during the first quarter of 2020). This was slower by -0.93 per cent compared to the rate recorded during the same quarter of 2019, and –0.72 per cent slower than the fourth quarter of 2019.
The sector was reported to have contributed 90.50 per cent to the nation’s GDP in the first quarter of 2020, less than its share in the first quarter of 2019 which was 90.78 per cent and the fourth quarter of 2019 recorded as 92.68 per cent.
A Professor of Capital Market at Nasarawa State University, Uche Uwaleke, told Blueprint Weekend that against the backdrop of the negative impact of Covid-19 on the economy, the supply chain disruptions, the associated public health crisis and the collapse in oil price, the drop in the country’s real GDP growth rate from 2.55 per cent in the 4th quarter of 2019 to 1.87 per cent in the following quarter, that is Q1 of 2020, should not come as a surprise to anyone.
He noted that it was a reason the non-oil sectors that drives growth such as ICT, financial institutions and agriculture experienced relatively less disruptions.
He said, “On the other hand, the sectors that recorded the highest drop included road transport and accommodation/hotel industry due in part to the movement restrictions and lockdown in many towns and cities in Nigeria. As a matter of fact the drop in real GDP growth rate would have been more severe, but for the moderating impact of the relatively greater tempo of economic activities in the month of January.
“It is instructive to note that while the non-oil sector with over 90 per cent contribution to GDP managed to eke out a growth rate of 1.55 per cent, the oil sector grew by 5.06 per cent. By extension, the growth in Q1 2020 was powered by the oil sector that contributed just 9.5 per cent of GDP. This has implications for economic planning going forward. First, the oil sector performance was based on average crude oil production of 2.07mbpd. This may not be achieved again this year given that the 2020 revised budget is based on 1.94mbpd in tune with OPEC cut agreement. So, the oil sector’s real GDP growth rate will be negatively impacted in 2020. This is the more reason much attention should be shifted to the Non-oil sector especially agriculture, health, education and the enabling infrastructure such as power, roads and ICT. Mechanised farming will go a long way in boosting food production. Doing so will bring down food inflation which was over 15 per cent as of April according to the NBS.”
Similarly, an economist and chief executive officer of Global Analytics Limited, Tope Fasua, said the recent GDP report indicates that a recession is imminent, adding that the situation calls for urgent revival of key sectors of the economy to boost growth.
“As you know GDP is stated in dollars, so when you convert it to naira, you will realise that GDP has dropped significantly.
“Consequently, recession is measured in two ways, first is by quarterly consecutive drop of GDP and secondly if the GDP drops by -5%, then a country is headed towards recession. However, in our case, ours contracted by -14.27 per cent which means we have even exceeded the threshold,” he said.
Ubochi said, “There is bound to be slow growth in production, massive loss of jobs with skyrocketing inflation. Also, with minimal infrastructure development as a result reduced revenue. There will be less money in circulation.”
The way out
A former Minister of Finance, Mrs. Kemi Adeosun, who supervised the economy when it entered recession in 2016, said to get out of it, Nigeria would have to spend; and indeed, it did work to an extent coupled with oil price rise.
But Ubochi insists that unless government finds a way to introduce stimulus measures, rough time looms for business.
“Whatever methods that were adopted to exit Nigeria from the pending recession should be employed in addition to finding an urgent solution to Covid-19.
“There is no doubt that the CBN’s interventions in agriculture, especially the Anchor Borrowers Scheme, has helped in no small measure to grow the sector. It is time to expand and scale up the interventions to cover more products and states of the federation. The IMF has projected that the Nigerian economy will tank by -3.4 per cent this year. In order to reduce the size of the economic recession below forecast global average of -3 per cent, it is important that the Covid-19 stimulus packages both by the government and the CBN are well targeted and executed in ways that will protect jobs and speedily reverse the present downturn in economic activities.
Speaking further, Fasua advised the CBN and the Ministry of Finance to channel the Covid-19 palliatives and stimulus package to manufacturing and the agricultural sector and getting them back on track to produce what Nigeria needs.
He noted that the coronavirus pandemic has brought huge opportunities to diversify the economy and Nigeria cannot be left out.
“Covid-19 pandemic has taught us that every country is on its own. Thus, it offers huge opportunity for Nigeria to look inwards and produce what it wants to eat. As such we can produce whatever we want to eat and meet even demands of other countries when we have it in excess.”
To mitigate the effects of the looming recession, the Nigeria Employers’ Consultative Association (NECA) said more fiscal and monetary policies aimed at boosting non-oil sector to help salvage the economy from external shocks should be introduced.
“There is the need for the Fiscal and Monetary authorities to develop a more aggressive and decisive policies to sustain an economic recovery in the wake of further low oil prices. We believe that a more coordinated stimulus packages targeted at the worst-hit sectors of the economy would sustain the economy from experiencing contraction of 8.9 per cent as predicted.”
Afolayan is of the view that Nigeria can get out of the recession “quickly by means of various interventions by national and sub-national governments.”
“Cut unnecessary expenses in governance; give adequate and necessary financial and non-financial supports to the private sector players and industrialists to reverse the economic downturn and job losses; and unleash opportunities in all agricultural value chains for employment generation and economic growth.”