Beyond faltering economic data, recession
The Nigerian Bureau of Statistics (NBS) last week reeled out sombre numbers about the economy, which also dented the country’s status among the League of Nations and the investment community.
But behind the “dark cloud” from the Gross Domestic Product (GDP) report, Nigeria’s indigenous rating agency, Augusto&Co said there are bright spots to cheer about and build on in the fight for survival.
Fortunately, the report identified some sectors, which have the potential to create jobs, as well as rub off on the planned diversification of the economy away from crude oil, if only the script would implemented faithfully.
Specifically, while many sectors of the economy failed the growth hurdle, agriculture emerged one of the resident segments, which also helped to moderate the negative record. It grew 13 per cent year-on-year and 8.5 per cent quarter-on-quarter, largely on the back of crop production.
Trade also grew 15 per cent year-on-year and four per cent quarter-on-quarter even amidst stringent difficulties in the foreign exchange market. The growth was achieved on the back of growing investments in distribution chains and online trading. It also showed the capacity of supply and distribution chains to accelerate even further as manufacturing picks up.
Construction also posted a similar performance to the trading sector, reflecting strong year-on-year growth of 12 per cent and a benign four per cent quarter-on-quarter growth.
Rail transport which has being described as the artery of major global economies like the United States and UK, has long been ignored in Nigeria. However, recent investments seem to be gaining traction, although marginal. It grew by 8.3 per cent year-on-year and 187 per cent quarter-on-quarter.
Was the Recession Needful?
It was hovering around the for years before it finally made the landfall. Nigeria is familiar with boom-burst cycle of crude oil economy. It has been experienced before and always expected. But the difference this time around is the stretch (longer period) and the price volatility level, which fell close to 80 per cent at a point. But the common factor was the country’s unreadiness to handle the crisis due to the profligacy and maladministration of public officials.
The latest round of the volatility, which started subtly in June 2014, was enough signal for the country’s top managers to restrategise until December 2015, when the fall became dramatic. For too long, the Nigerian economy rode on the fortunes of commodity pricing, the resilient population and inherent entrepreneurial culture of the citizens.
Of course, the resilience and entrepreneurial culture have been pushed to the limit. They were hindered by deep structural bottlenecks that were largely ignored by successive policy makers owing to the fortunes of commodity pricing, leaving the economy to remain at the fringes of its potentials.
“The drop in oil prices from the highs of over $100 per barrel to the current $40—$45- $50 levels, helped expose the underbelly of the Nigerian economy. The inactions and poor response of policy makers put the economy on the path of recession.
“For too long, the Nigerian economy has been brought back from the brink, by the rise of commodity prices particularly crude oil. The 2016 recession has occurred at a time when there will be very little support from the oil markets for a number of factors. Firstly, the dynamics in the oil markets have changed for good with the entry of shale oil. Secondly, the growing insignificance of OPEC (30 per cent of global crude oil supplies) and further dysfunctions in its politics suggests the cartel has little power to stimulate and sustain a rally in the oil market,” the rating company said.
What this implies is that Nigeria will finally have to think, plan and act beyond oil. Again, the diversification option should also rise beyond mere campaign. But mostly, it should be strategically focused such that already existing “cabals” are dislodged and no new ones are take advantage of the unsavory development.
The Tough Path of Recovery
Granted, huge policy turnover and economic reforms are now needed to get out of this recession and remain afloat again. Whether concocted or real, the economy posted growth numbers in the range of five per cent-seven per cent in the last decade. But it is also on record, that the growth struggled with its inability to create jobs, which raised controversy over the propriety of the numbers. This time around, Nigeria must grow its economy and create jobs as well. We have tasted the worse now, the worst cannot be covered and from “bad to good” status will be like truth that speaks for itself.
Communications and clear ones are the basics. Policy directions must be made clear and on time. This is important because confidence is too low now and communication is the only announce positive development and plans.
“At Agusto & Co., we have long argued that the core function of government in the Nigerian economy should be the generation of revenue through taxes and the prioritisation of government spending. We believe that taxation remains by far the largest and most sustainable source of government revenues.
“The change in mindset to taxation will require three major principal objectives. The first is that businesses will be encouraged to thrive because the more profitable the businesses, the higher the tax revenue generated thereon.
“The second is that revenues generated by the government will be used to finance its spending and thirdly, the tax revenue will be used to redistribute income from the rich to the poor.
“It is these time tested principles that have worked successfully for the rich global economies and it is on this premise that the diversification of the Nigerian economy will need to be built. By adopting progressive tax rates for individuals, competitive tax rates on profits of businesses and discriminatory rates of taxes on spending, the Nigerian economy can begin to evolve into a more competitive one, even while consolidating on the social contract between government and the citizens,” the company said in a statement.
According to the company, through the diversification of government equity holding in state owned enterprises, especially in key sectors like energy and transportation, the Nigerian economy can be gradually weaned off its statist leanings that have long stymied output, productivity and tax revenues from these sectors.
Reiterating that the private sector is best equipped to create jobs, the company said the government should seek to transform more state enterprises into private sector firms.
It advocated similar reforms in the telecommunications and pensions industry and sea ports, expressing faith that it will also work in other high impact sectors like energy and transportation.
“With bold reforms, Nigeria can attract capital, generate revenues for social investments and stimulate job creation,” it added.