IN 2016 the Nigerian economy went into recession. The government spent its way out of the experience and by 2017 against many odds the economy picked up.
While still recovering from the experience the coronavirus pandemic struck in early 2020 forcing many governments around the world to shut down entire countries for months. Nigeria was not an exception.
Lagos State, the commercial capital of Nigeria, went into lockdown weeks ahead of other states in the country. This lockdown led to many businesses going under for good.
For two consecutive quarters because of the corona virus-induced lockdown, the nation’s Gross Domestic Product (GDP) suffered negative growths culminating in another recession last Saturday.
A nation’s GDP is the value of the goods and services produced in the country and measured in dollars. In Nigeria’s current case, in the last two-quarters of May to November, many businesses closed shop pending when conditions improve by placing their staff on furlough, others sacked their workers outright.
The nationwide lockdown of March and April, led to inflation, supply chain disruptions, halt in the sale of crude oil and severe pressure on the foreign exchange. All made it clear that Nigeria would experience another round of recession by year’s end.
The fiscal and monetary authorities sounded the alarm ahead of time. The Federal Inland Revenue Service (FIRS) rolled out several “tax palliatives” to cushion the effects of the COVID-19 pandemic to keep businesses afloat.
The Central Bank of Nigeria (CBN) pumped trillions of Naira as stimulus packages for different sectors of the economy to mitigate the impending recession.
These efforts are now under threat from the twin disasters of inflation and currency devaluation. If the CBN fails to check these two on time the trillions it has pumped into the system would have been a waste. The apex bank may have to review interest rates downwards again from the current 11.5 per cent to encourage businesses to access cheaper credit to stay open.
Economists hold different views about the current recession. Mr. Odilim Enwegbara a Development Economist, Chairman Pan Africa Development Corporate Company believes the country is walkin
g a tight rope and risks plunging into depression.
According to him, “if care is not taken the country could during the second recession go into bankruptcy because of the kind of unproductive economic system we have been running, unfortunately, the frequency of these recessions will begin to become shorter and shorter over time”.
This he said is possible because “ours is a dictatorial economic system, where the centre dictators what happens in the economy. In this central government system where it’s all about access to the instrument of government, no one wants to take the kind of entrepreneurial risk taken elsewhere especially when easy money could be made from the centre”.
Insecurity he added “has further worsened the fragile economy, where herdsmen have literally and with impunity terrorised farmers and businesses across the country”.
Enwegbara noted that “what has delayed this recession and that has made it not a depression is the creative interventionist financial actions of the present leadership of the country’s apex bank, where for the first time in the history of central banking in Nigeria, startups, small businesses, blockbuster big businesses now get loans directly from the central bank itself, especially in agriculture and import substitution manufacturing”.
However, Professor Ken Ife of the Centre for the Study of Leadership and Complex Military Operations, Nigeria Defence Academy (NDA) described the current recession as stagflation with galloping inflation, high-interest rates and fiscal and monetary challenge.
He was more optimistic with regards to the country getting a recession on time. According to
him, “at a contraction of -3.62%, there is a likelihood we might jump out of recession in the 4th Qtr of 2020, but certainly, in the 1st Qtr of 2021, all things being equal”.
“Whilst the oil GDP growth rate went deeper into the red at -13.89% and with a reduced contribution to GDP, non-oil sector outperformed by returning a marginal decline in the non-oil GDP growth rate of -2.51%,” he said.
The non-oil sector performance he noted “was boosted by the positive growth of 18 sectors compared to 13 sectors in Qtr2”.
Professor Uche Uwaleke of the Nasarawa State University sees “a quick V-shaped recovery as the effect of COVID’19 recedes and the impact of the interventions by the government and CBN begin to manifest including the implementation of the Economic Sustainability Plan”.
He noted that “the ease in lockdowns and movement restrictions, the reduction in the cases of COVID’19 and the gradual return of investors confidence in the economy have boosted the Purchasing Managers Index (PMI) readings and stock market performances”.
The possibility of an early exit from recession he said “is although still in the negative territory, sectors like Manufacturing, Trade, Transportation and Education recorded improvements over the Q2 numbers” if sustained will help move the economy into positive territory.
The last Monetary Policy Committee (MPC) meeting for the year will likely hold this week. Observers will pay rapt attention to every word the CBN governor will say particularly the committee’s stance on the interest rate and measures to check inflation.
The CBN may also extend the moratorium for its intervention beneficiaries to pay back in addition to the five per cent interest rate on the loans. Other options before the CBN include buying or selling government bonds, a tighter rein on foreign exchange rates, and then adjust the cash reserve ratio that is the number of money banks should maintain as reserves.
The Development Bank of Nigeria (DBN) is quietly supporting Small and Medium Enterprises (SMEs). The CBN might urge DBN and other development finance institutions to support more MSMEs.
On the fiscal side, the Federal Ministry of finance will be confronted with another number of options. The government can relax the tax regimes to encourage economic activities
The government may also consider economic expansion through increased spending like it did the last time by either borrowing more or dipping into the Excess Crude Account (ECA) and the Sovereign Wealth Fund (SWF). The balance in the Excess Crude Account as at 18th November 2020 is $72.409 million while the SWF has over $200 million which the government can draw from.
This is not the first time government has been forced to withdraw from these accounts, but it may convince those against keeping these accounts of the need to take seriously, the wisdom of saving for the rainy day.
Nigeria has learnt a lesson from the first recession and had forewarning of this one. It is only a matter of time before the government will reveal its agenda to address the recession.
According to Odilim Enwegbara, “by pumping new money and lending directly to the real sector, Mr Godwin Emefiele has saved this government not only from devastating depression but the inevitable bankruptcy that ought to have been witnessed in the country since 2016”.