When at the weekend the National Bureau of Statistics (NBS) released the third quarter Gross Domestic Product (GDP) report on the country’s economic status, not many were surprised as the signs had always been there. In this report, BENJAMIN UMUTEME looks at the way out of the present predicament.
When the National Bureau of Statistics (NBS) released its third quarter GDP report on the economic situation of the country Saturday last week, it did not come to the informed as a surprise as the signs had been obvious.
For a monolithic economy built majorly on proceeds from oil, it has become very difficult for Nigeria especially as the vagaries of the oil market continue to take their tolls on earnings.
As the authorities were still trying to recover from the devastating impact of the coronavirus pandemic, the OPEC+ oil cuts and recently the #EndSARS protest all conspired to fast-track the recession. Even the government was aware that it was only a matter of time before it would become official.
In his speech at the 2021 budget presentation before the joint session of the National Assembly, President Muhammadu Buhari said the government was already preparing for the “coming recession.”
He said: “The Nigerian economy is currently facing serious challenges, with the macro-economic environment being significantly disrupted by the coronavirus pandemic. The real Gross Domestic Product (GDP) growth declined by 6.1 per cent in the second quarter of 2020; this ended the three-year trend of positive, but modest, real GDP growth recorded since the second quarter of 2017.
“GDP growth is projected to be negative in the third quarter of this year. As such, our economy may lapse into the second recession in four years, with significant adverse consequences. However, we are working assiduously to ensure rapid recovery in 2021.”
With productivity dropping in virtually most sectors of the economy, it was, therefore, not a surprise that the long-awaited news was finally released.
Speaking on AIT Breakfast Show, Kaakaki, monitored by this reporter in Abuja, an economist, Paul Alaje, said with the way things were going, it had become “very difficult to avert the recession because of the pandemic and falling crude oil price.” According to him, “Every time global oil price is affected for a long time, we are most likely to go into recession.”
Fielding questions on Channelstv, flagship breakfast show, Sunrise Daily, monitored by Blueprint Weekend, the senior analyst at Chapel Hill Denham, Omotola Abimbola, said the recession was a fait accompli aggravated by OPEC+ production cut. According to her, the country was yet to recover from the 2016 recession as income data was still on the decline before this present one set in.
NBS’ Q3 GDP report
And because the economy was still on the road to recovery, different sectors of the economy faced significant pressures. One thing analysts agree on is that structural undertones added to Covid-19 played their own roles.
In its Q3 GDP report, the NBS’ GDP declined by –3.62 per cent (year-on-year) in the third quarter of 2020, which is an improvement of 2.48 percentage points over the –6.10% growth rate recorded in the preceding quarter (Q2 2020).
A country is said to be in recession when it records two consecutive quarters of negative growth. The report showed that the performance of the economy in Q3 2020 reflected residual effects of the restrictions to movement and economic activities implemented across the country in early Q2 in response to the Cocid-19 pandemic.
During the quarter under review, the aggregate GDP stood at N39, 089,460.61 million in nominal terms. This performance was 3.39 per cent higher when compared to the third quarter of 2019, which recorded an aggregate of N37, 806,924.41 million.
“This rate was, however, lower relative to growth recorded in the third quarter of 2019 by –9.91% points but higher than the preceding quarter by 6.19% points.
“Real growth for the oil sector was –13.89% (year-on-year) in Q3 2020, indicating a sharp contraction of –20.38% points relative to the rate recorded in the corresponding quarter of 2019. Furthermore, real oil growth decreased by –7.26% points when compared with oil sector growth recorded in Q2 2020 (6.63%).”
But “on quarter-on-quarter, the oil sector recorded a growth rate of 9.64 per cent in Q3 2020. 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 2020.”
For the non oil sector, the story was not much different as the sector grew by –2.51 per cent in real terms during the reference quarter, which is –4.36 percentage points lower than the rate recorded in Q3 2019 but 3.54 per cent higher than in the second quarter of 2020.
“In real terms, the non-oil sector contributed 91.27% to the nation’s GDP in the third quarter of 2020, higher than its share in the third quarter of 2019 (90.23%) and the second quarter of 2020 (91.07%),” the NBS stated further.
“The implication of all these is that there will be gradual reduction in demand leading to the declaration of less and less inventories as the days go by,” according to Alaje.
Experts, other Nigerians react
Many Nigerians have continued to finger the pandemic on one hand, production cut and the #EndSARS protests as fuelling the recession, but finance experts think differently.
Speaking at the Nigeria Economic Summit, President Buhari said the country’s second recession in five years was a consequence of the severity of the global economic downturn caused by the Covid-19 pandemic.
For the Anambra state governor, Peter Obi, “For Nigeria to pull itself out of this economic recession, the second in the last five years, there’s a compelling need to cut the pork out of the budget and expenditure at all levels of government and re-direct the economy from a wasteful consumption-based one to a productive economy.
In the same vein, a former deputy governor of the Central Bank of Nigeria (CBN), Kingsley Moghalu, on his verified twitter handle, said the lack of intellectual and competent leadership was responsible for the recession. According to him, blaming Covid-19 pandemic and oil price as reasons for the recession did not make sense.
The tweets read: “No surprise Nigeria is entering yet another recession. Until Nigeria is led by an intellectually competent leader, with visionary politics backed by sound economic thinking and knowledge, economic transformation will remain a dream. It’s for citizens to do the needful.”
A development economist, Odilim Enwegbara, said increasingly, the government has spent most of its small revenues on debt service obligations with the remaining simply on recurrent to the extent that there little or nothing left to invest in social and industrial infrastructure.
“It is this absence of infrastructure investment that has been driving the cost of doing business in the country and with the high cost of money, the majority of local producers are priced out of our consumer markets by imported similar products. So, with real sector economic activities stalemated, everyone seems to look up to the government for their daily survival. In such a case, no one should expect a vibrant growing economy in place, and these are the drivers of recession in the country.”
Options for recovery
For President Buhari, the government is rolling out the N15 trillion Infraco Fund to be independently managed and would be utilised to see Nigeria out of the recession. Also, he announced that the Finance Bill 2020 will make provisions for the exemption of minimum wage earners from the Personal Income Tax.
Also speaking, the Minister of Finance, Budget and National Planning, Zainab Ahmed, expressed the optimism that the country would quickly exit the recession as a result of the various interventions.
“To achieve this government has developed an economic sustainability plan to cushion the effect of Covid-19 pandemic and is already vigorously implementing these policies that aimed at stabilising the economy,” she said.
She said the federal government through the principle in the Economic Sustainability Plan (ESP) was taking action to stimulate the economy by preventing business collapse through ensuring liquidity, maintaining and creating jobs through support to labour-intensive sectors, and direct labour interventions.
The minister also said the government “will activate the economy by undertaking growth-enhancing and job-creating infrastructure investments in roads, rails, bridges, solar powers as well as communication technologies.”
“Promoting, manufacturing and local production at all levels and advocating the use of made in Nigeria goods and services as well as creating job opportunities. Achieving self-sufficiency in critical sectors of our economy and curbing unnecessary demand for foreign exchange which put pressure on the exchange rate. Extending protection to the very poor and vulnerable including women, persons living with disabilities through proper spending,” she said.
Economic sustainability plan
The Nigeria Economic Sustainability Plan (NESP) was to, among other things, develop a plan that would respond robustly and appropriately to the challenges posed by the Covid-19 pandemic; identification of fiscal measures to enhance oil and non-oil government revenues and reduce non-essential spending; creation of a financial stimulus package for the Nigerian economy; and support for MSMEs and job the creation.
The Plan would be funded by N500 billion from Special FGN Accounts; N1.1 trillion from the CBN in the form of structured lending; N334 billion Naira from external bilateral/multilateral sources; and N302.9 billion from other funding sources. It is expected that the implementation of the Plan would cut across various sectors with key interventions in Mass Agricultural Programme (MAP), infrastructure, Mass Housing Programme (MHP), Installation of Solar Home Systems (SHS). Others are: Investment in Healthcare Infrastructure, Informal Sector Support, and Business Support for MSMEs, Technology, and Expansions of the National Social Investment Programmes, Cut Non-Essential Spending, and Support for state governments.
Putting a hole in her argument, economist and former chairman NESG, Bukar Kyari, told Channelstv that some of the government’s policies over the year have been a knee-jerk approach to issues. He added that the government should go beyond churning out policy documents that it has no intention of implementing.
“The sooner the ESP is implemented the better for the country,” he said.
Similarly, an economic researcher, Emmanuel Abolo, said the ESP might just another document like the ERGP “if it is not implemented diligently.”
According to him, “The document cannot take us anywhere without diligent implementation of the Plan.”
Uche Uwaleke, a professor at the Nasarawa State University, is hopeful that the economy will experience a quick recovery.
He told this reporter that “Yes, the economy has officially entered a recession but I see a quick V-shaped recovery as the effect of Covid-19 recedes and the impact of the interventions by the government and the CBN begin to manifest including the implementation of the Economic Sustainability Plan.
“The early passage of the 2021 appropriation Bill will also go a long way in supporting economic recovery.”
The director-general, Lagos Chambers of Commerce and Industry (LCCI), Muda Yusuf, is of the opinion that to facilitate quick recovery, there is need to restore normalcy to the foreign exchange market by broadening the scope of market expression in the allocation mechanism.
“The ports system, especially the key institutions in the international trade processes need to be more investment friendly. We should show greater commitment to the fixing of the structural issues to reduce production and operating costs for investors in the economy,” he said.
Yusuf said following the EndSARS experience, the state of internal security had begun to impact negatively on investors’ confidence. He noted that security presence was becoming less visible, especially in the major cities, with psychological effects which, he noted, could adversely affect investment and economic recovery.
“We appreciate the setback suffered by the police as a result of the recent protests and we empathise with them. But we need to give security confidence to citizens and investors. Incidents of kidnapping, banditry, herders, farmers’ clashes have not abated and these also have grave implications for investments,” he said.
Lending his voice, the director-general, Budget Office of the Federation, Ben Akabueze, said “the country needs to address all the bottlenecks that militate against agric produce getting to the market.”
Whether the government will heed the expert advice in diligent implementation of some of its lofty plans will determine how fast Nigeria will exit the recession woods.