Enough of the recession hullabaloo!
Oh yes, it has finally happened! Nigeria is officially in recession. Heaven is about to let loose! If you can, please pack your luggage and check out on the next available flight (like the much-touted “Andrew” in the 1980s), or hop onto one of those rickety human-trafficking boats sailing perilously across the Mediterranean. Stay in Nigeria at your own peril!
These were indeed some of the veiled media depictions of the recession in Nigeria. But is the ongoing recession frenzy in Nigeria warranted? The truth is that recession is not an aberration. It is an inherent part of what economists call the business cycle, or the boom-bust phenomenon that characterises capitalism. Every economy that reaches the peak of the business cycle must someday slow down and may even descend into the more lethal economic depression. In fact, the Nigerian economy should be given credit for growing at an average rate of about 7 per cent between 2000 and 2014. That was the first time in the history of the country that the economy would grow at such an impressive rate for almost two decades. Previous growth spurts had faltered within a very short period of time. I don’t understand why pundits would be alarmed that an economy that grew impressively for such a long period of time has now slowed down and transited into the recession phase of an inevitable cycle. Even economies with a history of stellar growth are slowing down, including China and Ireland (which is currently in recession).
I urge ordinary Nigerians not to lose sleep about the onset of a recession in the country. Recession or no recession, their economic plight would be the same. Think about it this way. During the period that the country witnessed stellar economic growth, most Nigerians did not benefit from that growth. A July 2014 report by the McKinsey Global Institute revealed that only 25 per cent of Nigerian’s benefited from the country’s robust economic growth. Growth was not only non-inclusive, about 70 per cent of Nigerians lived in abject poverty (according to the World Bank). Despite being one of the fastest-growing economies in the world (yes, in the world, not just in Africa!) at that time, many Nigerians were selling recharge cards, “pure water” and bananas to survive; millions were on the streets and highways begging or hawking innocuous commodities such as handkerchiefs and chewing gum. Those who could not bear the intensity of the sun and the indignity associated with begging or hawking, resorted to kidnapping and a coterie of heinous crimes. Others joined Boko Haram, MASSOB, the Niger Delta Avengers and other competing militant groups. In fact, ordinary Nigerians have been living as if the country has been in recession for the past 20 years. In other words, the current hullabaloo about recession is superfluous.
Recession in Nigeria would have been a big deal if there is something at stake for ordinary Nigerians. Unlike other developing countries, most Nigerians do not benefit from social programme and safety nets that would now be susceptible to recession-induced cuts. A preponderance of Nigerians is not employed in the manufacturing sector that would have been hard hit by a recession. Most are not public-sector workers, whose jobs would have been vulnerable, due to shortfalls in government revenue. Many of those lucky enough to be employed in the public sector are hardly paid their salaries, even without a recession. What difference, then, would a recession make to their lives? Ordinary Nigerians should be elated about the recession, as there will no longer be huge amounts of public funds for the corrupt political elite to share. It is no wonder that this same class has been the most vociferous and bitter about the recession.
One way by which the recession might affect ordinary Nigerians is if it induces inflation, which could then result in a more dreaded economic dilemma known as stagflation. Stagflation is the simultaneous occurrence of recession and inflation. Most countries that witness a recession don’t typically experience inflation. In fact, the opposite is usually the case: recession comes with deflation (or a general decrease in the price level). During the 2007-2009 recessions in the United States, the inflation rate was near zero per cent. The looming problem in Nigeria is not recession per se but also the fact that it is occurring in the midst of rising prices.
According to the IMF, Nigeria’s inflation rate rose from about 8 per cent in 2013 to 10 per cent in 2016.
A persistent rise in prices would mean that the meager income people earn could become worthless; their assets would lose value rapidly and they might therefore, become more miserable. The worst thing that could happen to the poor is to live in a stagnating economy with rising prices.
Another reason why Nigerians should be wary of stagflation is that it complicates economic policies for addressing the problem of a recession. Assuming that a country does not have inflation problems, fiscal policy (such as a massive economic stimulus programme) can be used to rescue it from its economic abyss. That was exactly what President Obama did in 2009 when he inherited a recessionary economy. He pumped almost $1 trillion into the U.S. economy, which created jobs and reduced the country’s unemployment rate, from 10 per cent in 2008 when Obama became president, to the current level of about 5 per cent. Economic growth also rebounded in the U.S. following Obama’s stimulus programme, from a negative 2.7 per cent rate in 2009 to the current rate of almost 2.5 per cent.
It would be very tricky for Buhari to follow Obama’s fiscal template, for doing so could precipitates inflation. An expansionary fiscal policy would have been the best option for Buhari when he came to power last year; a period when the risk of inflation was relatively low. He may now have to rely on an expansionary monetary policy, which presumably would lower interest rates and incentivise businesses to borrow, invest and employ people. Assuming these new investments occur in manufacturing and agriculture and not the usual unproductive oil, gas and real-estate sectors, the increase in output would help tame inflation, while at the same time boost income that will subsequently increase aggregate demand. If this trend is sustained, then the economy might emerge from recession.
One problem associated with the use of monetary policy, rather than fiscal policy, is that it takes time for its impact to be felt. If Buhari, through the Central Bank of Nigeria, decides to use an expansionary monetary policy to tinker with the country’s recession, then Nigerians should brace for a long recession —— unless the price of crude oil rebounds significantly. Meanwhile, the government should try and cushion the effects of the recession by providing basic safety nets for the extreme poor.
These may include subsidised food and transportation, income transfers, easy access to credit for the poor and free education. It may become necessary for government to borrow money and spend it on social programmes that alleviate the plight of poor Nigerians. This will have the additional benefit of reducing the severity of the recession, by preventing aggregate demand from falling further. In conclusion, the frenzy about the onset of a recession in Nigeria is unwarranted. The real issue is whether the government can introduce policies that would shorten the duration of the recession, while at the same time making sure that its impact on the extreme poor is not debilitating.
• Onyeiwu is professor and chair, Department of Economics, Allegheny College, Meadville, Pennsylvania, USA.