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Drastic economic decisions are required to avert depression

By Geoff Iyatse, Femi Adekoya and Gloria Nwafor
22 November 2020   |   4:30 am
Nigeria, yesterday, yet again slipped into another round of recession recording a negative Gross Domestic Product (GDP) growth of 3.62 per cent in the third quarter (Q3) of 2020.

President Buhari

• Contraction May Extend To Q4 Over #EndSARS Crisis – LCCI
• Economists Warn Against Sluggish Growth
• NECA Wants Robust Fiscal, Monetary Packages To Reflate Economy
• FG Must Shun Exploitative External Debts
• Cyclical Issues Triggered By COVID-19, Other Endemic Risks Must Be Addressed –Saibu

Nigeria, yesterday, yet again slipped into another round of recession recording a negative Gross Domestic Product (GDP) growth of 3.62 per cent in the third quarter (Q3) of 2020.

But experts were quick to warn that underlying signs were deep and require drastic economic decisions to reflate the economy and stem its gradual drift into depression.

They also advised the government to shun exploitative external debts and consider “leveraging the underground money” (including ill-gotten resources kept away from the formal intermediation process).

The latest economic downturn, which economists have described as a severe recession and the worst since 1987, is also the second recession (within four years) under President Muhammadu Buhari’s administration.

Indeed, the back-to-back contraction in GDP officially declared by the National Bureau of Statistics (NBS), is the second time in the past 30 years that the country would be experiencing a recession twice in half a decade. There were recessions in 1991 and 1995, during which the economy shrunk full year by 0.6 and 0.3 per cent respectively.

President Buhari had, during the presentation of the 2021 appropriation bill to the National Assembly, hinted that the country would slide into recession when the Q3 2020 GDP figures are released.

His warning came after the World Bank projected that the country’s economy could contract by as much as 3.2 per cent this year. This projection assumed that the spread of COVID-19 in the country would be contained by the third quarter of 2020. If it continued beyond Q3 as it has, the global institution predicted a more severe contraction.

The 3.62 per cent Q3 contraction followed a wider 6.1 per cent decline experienced in the second quarter. The fall may be modest compared to projections and when compared with other countries, but experts said the figures might not have reflected the real state of the economy.

HOWEVER, despite the moderate contraction in the Q3 as against the 6.1 per cent recorded in the second quarter, the Lagos Chamber of Commerce and Industry (LCCI), yesterday, said that the worst may be over, but recovery might come later as country struggles with the aftermath of the #EndSARS crisis.

According to the LCCI, the protests and the destruction that followed it remain a major setback for the country’s economic recovery prospects.

Director-General of the LCCI, Dr. Muda Yusuf said: “From an economic perspective, 2020 has been a very bad year. The worst in recent history.

We are faced with the double jeopardy of a stumbling economy and spiralling inflation. The October inflation numbers of 14.23 per cent was the highest in 10 months. In economic parlance, this condition is characterised as stagflation.

“The effects of these developments are evident in business and in households. Sales are slowing, profit margins are being eroded, production costs are escalating, unemployment is rising, poverty situation is worsening, purchasing power is weakening and there is a general social discontent.

“Regrettably, and as if these were not bad enough, the business community continues to grapple with unfavourable policy, institutional and regulatory challenges impeding investment,” he noted.

The LCCI chief said to facilitate quick recovery, normalcy has to be restored 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. Trade is critical to recovery. We should show greater commitment to the fixing structural issues to reduce production and operating costs for investors in the economy.

“Following the #EndSARS experience, the state of internal security is beginning to impact negatively on investors’ confidence. Security presence is becoming less visible, especially in the major cities. The psychological effects 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-farmer clashes have not abated. These also have grave implications for investments. Hopefully, the economy will return to the path of growth in the first or second quarter of 2021, barring any new disruptions to the economy,” he added.


THE Nigeria Employer’s Consultative Association (NECA), also yesterday, called for an urgent economic recovery through robust fiscal and monetary policies to expeditiously reflate the economy and navigate it out of current crisis.

Speaking in Lagos, the Director General of NECA, Dr. Timothy Olawale, noted that the cumulative effects of COVID-19 pandemic, which almost caused a global economic meltdown, coupled with the attendant lockdown contributed to the negative contractions the economy witnessed.

He added that with the high level of inflation, rising unemployment rate, plunging exchange rate of the naira and other macro economic indices, there was need for an urgent reevaluation and reassessment of economic policies.

The NECA boss urged the government to give generous tax cuts to promote capital investments, while also encouraging local and foreign investments.

“THE depressive state and the indices are deeper than signs of an economy that is in recession,” Godwin Owoh, a professor of applied economist, told The Guardian, yesterday.

He explained that incessant business closures, an abnormal increase in unemployment, drying-up investments and prolonged uncertainty, which have become the harbinger of Nigeria’s economy, are not signs of a recession, but those of a depression, which is defined as a protracted recession.

If the data are doctored to portray the situation that the government wants to see, as alleged by Owoh, it implies that Nigeria is in a “deep mess” as the economic principles that could drag an economy out of recession are often defied by depression.

On his part, Dr. Olufemi Saibu of the Department of Economics, University of Lagos, warned that the recession could lead to depression if “drastic economic actions” are not taken to tackle the cyclical issues triggered by the Coronavirus pandemic outbreak and other endemic risks.

Saibu, who said the country could literally spend its way out of recession and address market issues to restore confidence among private investors, noted that the market has become excessively unpredictable, a development, which is a major concern for investors.

Spending may have worked for many economies, but experts said Nigeria faces a myriad of constraints supposing it wishes to throw money into the problem. At over N31.08 trillion-public debt profile, there is a limit to how far the government can go in its borrowing spree.

Economists, including Pat Utomi and Sheriffdeen Tella, are worried that the country’s mounting debt is unsustainable, and they are urging the government to be more prudent and creative in its funding plan.

Tella, specifically urged the government to shun exploitative external debts and consider “leveraging the underground money” (including ill-gotten resources kept away from the formal intermediation process) through bonds to bail out the economy.

But the Tella option has a huge moral burden on a government that is committed to “zero tolerance for corruption”. With bond yields also turning topsy-turvy, economists like Ken Ife are of the view that, “many people will rather keep their money than invest in bonds.”
In the latest figure, the NBS stated: GDP recorded a growth rate of –3.62 per cent (year-on-year) in real terms in the third quarter of 2020.

Cumulatively, the economy has contracted by -2.48 per cent. While this represents an improvement of 2.48 per cent points over the –6.10 per cent growth rate recorded in the preceding quarter (Q2 2020), it also indicates that two consecutive quarters of negative growth have been recorded in 2020. Growth in Q3 2020 was slower by 5.90 per cent points when compared to the third quarter of 2019, which recorded a real growth rate of 2.28 per cent year on year.

“The performance of the economy in Q3 2020 reflected residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 in response to the COVID-19 pandemic. As these restrictions were lifted, businesses re-opened and international travel and trading activities resumed, some economic activities have returned to positive growth. A total of 18 economic activities recorded positive growth in Q3 2020, compared to 13 activities in Q2 2020.”

According to the report, the performance of the oil sector has continued its extremely volatile nature, while the non-oil sector is relatively stable. Real GDP for the oil sector declined by 7.26 per cent in Q3 compared with a rise 6.63 per cent in Q2. The sector was also reported to have contributed 8.73 per cent to total real GDP in the referenced quarter compared to 8.93 per cent it contributed in the previous quarter.

“The non-oil sector grew by –2.51 per cent in real terms during the reference quarter, which is –4.36 per cent points lower than the rate recorded in Q3 2019 but 3.54 per cent points higher than in the second quarter of 2020. The non-oil sector was driven mainly by information and communication (Telecommunications), with other drivers being agriculture (crop production), construction, financial and insurance (financial institutions), and public administration. In real terms, the non-oil sector contributed 91.27 per cent to the nation’s GDP in the third quarter of 2020, higher than its share in the third quarter of 2019 (90.23 per cent) and the second quarter of 2020 (91.07 per cent),” NBS stated.

The total real value of goods and services produced in the quarter was N17.82 trillion. The demand shock in the international market has seen crude petroleum and natural gas dived from -6.63 per cent in Q2 to -13.89 per cent in the last quarter.

When the country climbed out of recession in 2017, it was the gain in the oil and gas sector that propelled the growth engine. There does not seem an end in sight for the crisis in the market with Bala Zakka, an energy economist, warning that the odds do not favour the country, even as he added that international oil companies would continue to dismiss the country in the final investment decisions (FIDs) in months to come.