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Getting out of recession: Real sector still suffocating

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Babatunde Raji Fashola, Minister of Works, Power and Housing.

Babatunde Raji Fashola, Minister of Works, Power and Housing.

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.


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6 Comments
  • Okoro Tonye

    Nigeria doesn’t even have authentic data to measure economic performance. It was the IMF that told us that we are in recession, and we agreed. Do we have practicing economists in Nigeria ? As in other professional field in Nigeria, there is an inability to practicalize knowledge

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  • pmagroup

    it is only in Nigeria that a Minister of Power, Works and Housing will be talking about finance. What does he know about finance, does he know anything about how the Monetary policy works. This is mad of this guys ruling us in Nigeria. You should be talking about how to increase our electricity to steady, improve our road network, and affordable housing for people to buy. ….

  • agbobu

    THE PDP UNDER THE LEADERSHIP OF GOODLUCK JONATHAN
    AND HIS GOD FORSAKEN ADMINISTRATION DEALT BUHARI A VERY BAD HAND. HE DID
    NOT MENTION THE VERY MASS LOOTING AND STEALING THAT WERE THE HALLMARKS
    OF THE ADMINISTRATION OF CURSED GOODLUCK JONATHAN. THESE VERY SHAMELESS
    PERSONS STOLE ALL OUR MONEY AND WEALTH, LEFT THE TREASURY VERY EMPTY AND
    YET THEY HAVE THE AUDACITY, THE TERMERITY AND THE BOLD FACE TO BLAME
    THE ALMIGHTY GOD SENT BUHARI, WHO IS DOING ALL IN HIS POWERS TO CLEAR
    AND CLEAN UP ALL THE VERY DIRTY MESS GOODLUCK JONATHAN LEFT. IF THE PDP
    AND GOODLUCK JONATHAN THINK THAT WE THE PEOPLE THE MASSES WILL ALLOW
    THEM GET AWAY WITH MURDER THEN THEY ARE NOT LIVING IN THIS PLANET EARTH.
    IF THE PDP AND GOODLUCK JONATHAN CAN NOT DO THE TIME, THEN THEY MUST
    NOT DO THE CRIME. END OF STORY.

  • juliusonny

    NIGERIA WE HAIL THEE!!!
    Once, I had a chat with a guy in Nigeria. I guess this guy was a former government official from one of the southern
    states. I got engaged with him in a conversation about why Nigeria with all these natural and human resources she possesses cannot jump out of this retardation. He gave me two answers, which I still mull over till today. One, he said, Nigeria is not a country, but different kinds of people trying to forge a country where mismanagement, corruption, dishonesty, avarice, stinginess and political lunacy prosper. Well unfortunately, he is right about that. Two, many Black African countries most specifically Nigeria are working hard to demand a formal apology and indemnification from western nations for what they did during slavery. Then I started to think. Do Black African nations most especially Nigeria need this? My answer is capital NO. You do not need to demand any apology and respect because these things will come naturally, once you eradicate all this malevolence and or at least bring them to a bearable level and two, if a considerable part of the natural and human resources available in Nigeria are harnessed and developed economically and technologically, with a high human development index. Nigeria at 56 cannot boast of any achievement with regard to development. No house in the whole Nigeria can boast of running tap water supplied by government or any private water company. No place in Nigeria where anyone can boast of uninterrupted supply of electricity, unless of course the official residence of our president.I am so sorry my fellow Nigerians, I forgot to mention these apostles of evil — who play on intelligence of common Nigerians — and their homes and their private jets. It is right time we Nigerians (regardless of our tribe, tongue, ethnic, political affiliation, religious orientation) group woke up and say enough is enough, using our best arms ever. That is our votes.

    Without the intention or any sort of inclination to playing tribalism or ethnicism. When will the northerners be integrated with the rest of the country? When will Islamic become peaceful religion? When will 1914 amalgamation really take place? When will past hero´s souls ever rest in peace? When will Mohamed followers learn to coexist with whatever religion anyone chooses? When will Mohamed himself resuscitate to tell his followers how they are misinterpreting the Holy Koran? When will the northern leaders lead their people to embrace peace? When will the northern leaders and those they lead learn that only peace can develop a nation and her people? When will the state and federal governments ban this form of raising animals and do it as it is done in developed countries? When will these nomads learn to settle in a place intelligently and raise their animals like civilised people? When is there really going to be one Nigeria? When will northern Nigerians and Niger Delta Scavengers stop chasing away tourists to Nigeria? When will Nigeria learn with South Korea? When? When? When? You see, God feeds on Satan. When Satan vanishes, God will die of hunger.

    • amador kester

      Your galvanization of socioeconomic resources for sustainability does not mitigate the drive for reparations for slave trade. The centuries old trade helped in debilitating the continent economically, demographically,culturally and socially. There should be class action litigation until justice is achieved. If not how are you sure it will not recur even indirectly? Already we are experiencing massive brain drain and capital flight. Has it ever occured to you that beyond the western aid media hoopla that africa is perhaps the net giver of aid to the west? Time to put on thinking caps