How Nigeria can manage recession, avert depression

The Bloomberg L.P., a privately held financial software, data and media company headquartered in Midtown Manhattan, yesterday described Nigeria’s economic challenges as somewhat similar to the experiences of 1987 when volatility in the global oil market and lack of clear-cut government policies for stemming excessive imports that were backed with scarce crude oil earnings nearly brought the country to its knees.

Responding to an enquiry by The Guardian sequel to his earlier postulation that Nigeria could be facing the worst economic challenge in 29 years, Bloomberg’s chief economist for Africa and Middle East operations, Mark Bohlund, yesterday suggested that the nation could avert the trend only if it chose to tackle the current economic challenges with a remarkably different policy direction from that of a similar situation in 1987.

Nigeria had experienced a significant drop in oil revenue in the early 80s to mid-1980s and more sharply in 1986, followed by what Bohlund would describe as heightened degree of uncertainty about economic policy and how to source and produce goods that were previously imported and paid by oil revenue. “Not much appears to have changed in terms of the power situation with generators still filing the gap from insufficient grid output,” said the economist.

A leading economic analyst who runs the Lagos-based Financial Derivatives, Bismarck Rewane, also told The Guardian that economic recession was ‘imminent’ but added that recovery could come in the first quarter of 2017.

“The second quarter is about to end in another two weeks and it’s quite imminent that we are going to have a recession. But the question is: When will recovery start? Recovery will start in the first quarter of 2017 but the measures will be taken in the third quarter of 2016.”

“What has happened has happened already. After recession, you could go into a depression or you can start a recovery. But in our own case, there will be a recovery,” he said.

On the back of crude oil price shocks, low production as a result of renewed attacks on critical facilities in the Niger Delta region, as well as foreign exchange (forex) instability, the economy is currently grappling with a downturn as seen in the negative growth it recorded in successive quarters with unemployment rate moving northwards.

Analysts told The Guardian that stagflation, a situation where inflation, persistent negative growth in Gross Domestic Product (GDP) and rising unemployment occur at the same time, could make the already recessive economy worse, and correction difficult and protracted.

Output had contracted by 0.4 per cent in the first quarter from a year earlier, with economists, including Prof. Leo Ukpong of the University of Uyo and Dr. Ikechukwu Kelikume of the Lagos Business School (LBS) affirming Bloomberg’s assertion that a technical recession is imminent and that devaluing the naira would not ‘ help much.’

Of particular concern to analysts is the combined negative impact of drop in oil output to a 27-year low and ‘paralysis’ in other sectors due to the shortfall in fuel and foreign exchange.

The Niger Delta’s crisis currently being stoked by the Niger Delta Avengers has affected fuel supply to thermal electricity generation plants now being run by private sector investors, with far-reaching implications on the already dilapidated transmission and distribution infrastructure jointly run by government and private investors.

Kelikume and Ukpong had told The Guardian that the combined impact of double-digit inflation, rising unemployment and persistent negative growth in GDP indicated that the country could be experiencing stagflation.

Rising black market rates for foreign exchange have continued to push up inflation, with the Central Bank of Nigeria offering to reasonably loosen up on controls, the modalities of which were presumably announced yesterday after long weeks of waiting.

Bohlund in another email exchange with The Guardian yesterday, said: “I don’t claim to be the foremost expert on the 1987 economic recession in Nigeria but the similarities with the current situation are salient.

“The economic policies now proffered by President Muhammadu Buhari are similar to those he advocated with disastrous results in 1983 and former Military President Badamasi Babangida followed him with subsidies and import restrictions, creating shortages and opening up for smuggling to and from neighbouring countries.”