Spend more on agric, SMEs to mitigate recession, economists advise

With the fall in oil revenue, made worse by disruption of productivity and investment caused by the coronavirus pandemic, some economists have predicted that the nation’s economy may relapse into recession in the third quarter (Q3).

To mitigate the impact of such economic woe, experts urged government at all levels to increase spending on agriculture and small management enterprises (SMEs) to stimulate growth and boost the sectors’ contribution to the Gross Domestic Product (GDP).

Indeed, the economy has been grappling with weak recovery from the 2014 oil price shock and 2016 economic recession, with the GDP growth hovering around 2.3 per cent in 2019.
Finance Minister, Zainab Ahmed, had recently stated that there might be significant adverse consequences of the recession this time.

According to her, recession would happen unless Nigeria achieves a very strong third quarter 2020 economic performance.Ahmed, who spoke at a House of Representatives session on the 2021-2023 Medium Term Expenditure Framework and Fiscal Strategy Paper in Abuja, pointed out that the COVID-19 pandemic had compounded the foreign exchange crisis.

“Nigeria’s Q2 GDP growth is, in all likelihood, negative and unless we achieve a very strong Q3 2020 economic performance, the economy is likely to relapse into a second recession in four years,” she said.

The minister also expressed concern that disruptions in global trade and logistics would negatively impact on customs duty collections this year

Recession is a period of significant decline in activities across the economy- low industrial production and manufacturing, high inflation, rising unemployment, falling purchasing power, low fiscal spending, as well as poor consumer spending, among others.

THE Chief Executive Officer of Cowry Asset Management Limited, Johnson Chukwu, said that the nation’s economy, like most economies around the globe, might not escape sliding into recession this year in spite of measures that the Central Bank of Nigeria (CBN) and the fiscal authorities are taking to moderate the depth of the situation. 

According to him, the prediction that Nigeria will slide into recession in 2020, especially with IMF forecast of negative 5.4 per cent growth, seems to be obvious based on a number of factors.

He said: “First is the impact of coronavirus pandemic on not only the Nigerian economy but globally. The GDP figures coming out of countries with more robust fundamentals are already indicative of what fragile economies like Nigeria should expect. For instance, Q1 2020 China GDP was a contraction of 6.8 per cent, the Eurozone is expected to contract by about 10 per cent in Q1 2020.

“Although the Nigerian economy has been partially reopened in third quarter, economic activities are yet to fully resume, consumer demand remains very low, inflation is on the increase and unemployment has worsened.  

“It is expected that the economic fallout of the pandemic, notably disruptions to global supply chains, lockdowns, travel restrictions, weakening oil prices, foreign exchange liquidity challenges and weak export would manifest in the second-quarter growth numbers, with more pronounced impact on sectors struggling with growth before this crisis.”

Chukwu further noted that the Purchasing Managers’ Index, which is a proxy to the economic outlook, has been contracting, an indication that the third quarter GDP figure is likely to come out on a negative note.

“With two consecutive quarters of negative economic growth, an economy is said to be in a recession. As we all know, the UK economy is reported to have entered recession and virtually all the countries that have published their Q2 2020 GDP figures reported contraction in economic activities. 

“This was most expected as world economy was virtually shut down in the second quarter due to COVID-19. Similarly, expectation is that the Nigerian economy will record contraction in Q2, 2020 when GDP figures are released by the National Bureau of Statistics (NBS) as the economy was on near total lockdown in three months,” he said.

UCHE Uwaleke, a professor of Capital Market at Nasarawa State University, Keffi, said Nigeria would likely slip into recession by third quarter due to the impact of the pandemic.

He suggested increase in the size of the interventions against the backdrop of complaints by many SMEs of inability to access the funds. Uwaleke also urged the Federal Government to consider request for debt relief to reduce the huge amount spent on debt servicing in the country.

THE Director, Centre for Economic Policy Analysis and Research (CEPAR), University of Lagos, Prof. Ndubisi Nwokoma, said critical sectors like financial services, crop production, mining and quarrying as well as construction, had been impacted negatively by the pandemic.

“The third quarter GDP growth figures would indicate whether the country is fast heading towards recession or not. But it appears that, except something positive happens in the global economy, Nigeria is headed in the direction of a recession.”