Getting out of recession: Real sector still suffocating
In order to bring the economy out of recession, the rule of the thumb has always been that government can do two things; it is either government increases spending and/or cut the tax. By increasing government spending, government saves the idle production outputs and hence sustain the production activities. The continued productions benefit people by giving them wages, interest, rent, and profits. In the end, people’s income and buying power increase. In Nigeria however, it is a dire situation as operators in the real sector have to deal with hydra-headed challenges of low purchasing power from consumers, inflation and high cost of doing business. How are Nigerian firms coping in recession? FEMI ADEKOYA writes.
When the Minister of Power, Works and Housing, Babatunde Fashola, in February argued in favour of the increase in electricity tariffs, describing government’s move as “a painful pill,” which consumers have to “swallow”, little did many know what is yet to befall the economy.
According to him, “It is a painful pill that I must appeal that we swallow. It is like quinine and malaria. It’s painful; it is not sweet, I know that, but I do it because we are not left with many choices… There are other problems.
“I can only appeal for some understanding and some trust that we do this in the best interest of our country. It is a hard decision, but I think down the line, we will have cause to look…”However, the full-blown fever became apparent last month when the Finance Minister, Mrs Kemi Adeosun stated that the country is already in a technical recession.
Appearing before the senate, Mrs. Adeosun made efforts to allay public fears about the implication of the country’s troubled economy, saying, “things are tough,” but there should be no panic.
“Things are tough, but we are not ignorant,” Mrs. Adeosun. “I want to assure Nigerians the economy is in good hands and we are absolutely doing our best. We want to assure Nigeria we are on the right path, we are on the right track.”Mrs. Adeosun’s assurance came four days after the National Bureau of Statistics said the Consumer Price Index used in measuring inflation in the country hit 16.5 per cent, the highest in 11 years.
It also came after the International Monetary Fund said Nigeria’s economy was projected to contract in 2016. It cut the country’s GDP growth forecast from 2.3 per cent in April to – 1.8 per cent, lowest in 29 years. But Mrs. Adeosun brushed aside the grim predictions by the IMF projections.
“We should not be worried about IMF. We should be confident about what we are doing,” she said. “Technically, Nigeria is in recession but we should not go into definition; but what we are doing?”To revive the economy, she said government had devised strategic measures, chief of which is discipline regarding how public money is spent.
However, the real sector seem to be on the gloomy side, going by events in the sector in the last seven months, with many already shutting down their operations and many workers added to the rising labour market.
Indeed, the latest monthly survey of the Statistics Department of the Central Bank of Nigeria (CBN), the Purchasing Managers Index (PMI), again recorded declining levels of production, new orders, employment and raw material inventories, in the build up to the release of the second quarter Gross Domestic Product (GDP).
Specifically, the manufacturing index, which rose marginally to 44.1 index points in July 2016, compared to 41.9 in June, is still below the basic level. The Manufacturing PMI had dropped to 41.9 index points in June 2016, compared to 45.8 in May, implying that the manufacturing sector declined at a faster rate during the period.Of the 16 manufacturing sub-sectors, 13 recorded decline in the review month, led by electrical equipment; primary metal; non-metallic mineral products; furniture and related products; fabricated metal products; printing and related support activities; and food, beverage and tobacco products.
Others include textile, apparel, leather and footwear; paper products; petroleum and coal products; plastics and rubber products, transportation equipment; and chemical and pharmaceutical products, while appliances and components sub-sector recorded no change.
At 43 index points, the production level index for manufacturing sector declined for the seventh consecutive month, although at a slower rate than in June 2016. President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs at a forum said, “The absence of conducive manufacturing environment and basic infrastructure would continue to draw back the sector, except something urgent is done to reverse the situation.”
According to him, at least 50 industrial firms have shut down operations this year due to restricted access to foreign exchange to procure raw materials needed for production, high production costs and low consumer purchasing power.On cost of energy, he told The Guardian that manufacturers are already considering “conversion of diesel generators to gas as a viable alternative but it is not cheap for small scale industries”.
The President, Dangote Group, Aliko Dangote, said the nation is going through economic contractions with very palpable consequences.He said: “Some of the consequences of economic contraction include, declining government revenue; scarcity of foreign exchange; stalled projects; dwindling capacity utilisation, rising unemployment, inflation, erosion in purchasing power and the likes.”
“While the root cause of these problems clearly pre-dates the present administration, government being a continuum has meant that Nigerians look up to those presently at the helm of affairs in the three-tiers of government and the three-arms of government to come up with creative solutions to address our current challenges. “Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf noted that businesses are being killed every day through poor power supply and low purchasing power from consumers.
“Businesses are complaining. Petrol and diesel costs are unbearable at the current rates. It is a suffocating situation and I hope the issues of ease of doing business are addressed before opening markets to other economies,” he added.Managing Director and Chief Executive of Financial Derivatives Company Limited, Bismarck Rewane had stated that government embarking in a deficit budgeting is part of measures to address the recession into which the nation is slipping.
Rewane noted that the monthly allocation from the Federation Account may rise to about N800b from the present N500b thresholds with the Federation Accounts Allocation Committee distributing more to the three tiers of government to intervene in many states.“Though the government has not announced the second quarter GDP growth even when we are in the third quarter, the standard formula of getting the nation out of recession is increased spending, enhanced investment and accelerated growth.
“If the stimulus package announced by the government had been embarked upon before now, this situation could have been avoided. The currency adjustment process also took a toll on the economy. With increased spending, projects will be embarked upon and jobs will be created. However, it is better late than never. We are getting there”, he added.