To exit Nigeria’s worst recession in 36 years
The recession into which Nigeria has entered – the third in its history since independence in 1960, did not really come as a surprise to many watchers of the direction of the economy. The signs were there all along with the negative GDP growth rate in the second quarter of 2020 and the subsequent poor economic performance that followed in the year. Other factors also came into play. To exit, government needs to frontally address the persisting challenges of the economy – insecurity, uncertainty and poor budget management. These challenges affect sectoral output in agriculture and manufacturing and truncate growth.
The factors that contributed to the recession were exacerbated by the lockdown effects of the COVID-19 pandemic. The -3.62 per cent negative growth rate of the third quarter simply reflected the downtown expected long ago with oil prices falling to very low levels. This sort of put the “nail on the coffin” – in the interim.
Instructively, this recession and the two that preceded it all took place under the watch of Muhammadu Buhari, the current President of the Federal Republic. Under his watch as Military Head of State in the 1984-1985 periods, the Nigerian economy went through a serious turmoil with series of curious policies put in place by the Buhari military junta which further worsened the state of the economy beyond the situation he inherited from the Shehu Shagari administration. Over the period, essential commodities became very scarce and rationing was virtually entrenched as an official policy, under a “command and control” posture. Relief came when the succeeding Babangida administration liberalised the economy, bringing in some reprieve, though with its own implementation consequences.
Next, came May 29, 2015 when Buhari returned to power under a democratic setting, and again adopted a “command and control” set of policies aiming to “defend the naira” as a flag and pursuing a relatively fixed exchange rate regime that drove the market for foreign exchange underground with most of the imports, even by manufacturers, financed largely from the parallel market. Delays in constituting a cabinet and the economic consequences of creating uncertainty in the direction of government policy had damaging effects on the economy. All these coupled with the drastic fall in the price of crude oil over the period, set the stage for the second recession which lasted for five quarters between 2016 and 2017. The recession, which exited only marginally, could have lasted longer but for positive developments in the global oil market. Even the government’s Economic Recovery and Growth Plan (ERGP) which largely underperformed, relative to actual date that came subsequently, did not help much in bringing the country out of recession.
Now, still under Buhari, the country has entered its third recession. Is this an accident of history or simply a case of incompetence in economic management by government? This current recession has been described in some quarters as the worst in the country’s history, no thanks to the ravaging effects of the COVID-19 pandemic and the still tottering effects of the global oil market on which the country depends mainly for its revenue. Under the present administration, the country has tripled the public debt burden and other macroeconomic indicators have gone haywire. Inflation is currently trending towards 15 per cent while food inflation is over 18 per cent. Unemployment and underemployment have since worsened, relative to what prevailed in 2015. These are sad tales in the life of a nation in search of development and a way to make life more meaningful for its citizens. The implication for the economy is that the macroeconomic indicators may further worsen with fiscal sustainability becoming a serious challenge.
Besides addressing insecurity, uncertainty and poor budget management which affect sectoral output in agriculture and manufacturing and truncate growth, government should also drastically cut the cost of governance. The reopening of the land borders portends some positives towards reversing the recession, but it should be under some conditions. The government appears to have ignored patriotic calls on the urgent need to cut the cost of governance. The role of the Central Bank of Nigeria (CBN) in addressing the effects of the recession include the retention of the monetary policy parameters focused on sustenance of its earlier growth-inducing policies, adopted over the COVID-19 pandemic era. This includes making credit cheap and available, particularly for small businesses. The onset of recession makes it virtually mandatory for the CBN to continue along these lines of growth stimulation process. Further adjustments may be necessary if the expected outcomes experience a greater lag.
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