By Afe Babalola
“It was always a matter of time before we would realize the dangers of an economy that is largely based on oil revenue. This dependence coupled with the huge cost of running and maintaining our political structure was always a recipe for disaster.”
After months of speculation, Nigerians have finally been confronted with the stark reality that the economy is in recession. For many who before then had struggled to cope with a downturn in their conditions of living, there really was nothing new in the acknowledgment of that which was already being felt by them in the form unpaid salaries, inability to pay rent, inability to pay school fees of their children and even inability to feed.
For such people the only sense of satisfaction may have come with the addition of a new word to their vocabulary of financial and economic hardship. For others who saw the recession coming and who had warned government the need to take proactive action to prevent its occurrence, there was a sense of bewilderment that those in power had seemingly failed to appreciate and guard against an occurrence that now affects virtually every Nigerian.
I fall into the latter category as some months back I had stated as follows:
“The drop in Oil prices from about $100 per barrel to less than $80 per barrel portends lots of ills for the Nigerian economy that is largely based on Oil generated revenue.
Signs of concern
There is not only cause for concern within government circles but across the board rooms of several private companies and the citizenry in Nigeria. With the drop in prices the whole business of governance might be affected adversely. The effects of such an occurrence are better left to the imagination.
However the fact that cannot be disputed is that the situation in which Nigeria has found itself was always going to happen; it was always a matter of time before we would realize the dangers of an economy that is largely based on oil revenue despite the instability of the pricing of that essential commodity which time and time again has been proven to be malleable to a host of factors ranging from deliberate manipulation to unforeseen political events in far flung places on the planet. This dependence coupled with the huge cost of running and maintaining our political structure was always a recipe for disaster.
Thus issues such as inflation, falling wages, inability of governments to pay salaries, rising taxes, rising cost of petrol are prime topics of discussions at bus stops and beer parlours as much as they are at board rooms and elite sports and country clubs. Whilst some may state that there is nothing new in the obvious negative public perception of the economy, I am of the view that given the scale of the recent discussions, it is a development that must urgently be addressed by government.”
As subsequent events have now shown, governments across the Federation failed to prepare for the looming crisis. As we all know many state governments are now unable to pay salaries of workers and also provide much needed infrastructural development. Health and education services have suffered.
The word recession
Just what is meant by the word “recession? Wikipedia defines recession as:
“…a negative economic growth for two consecutive quarters. It is also a business cycle contraction which results in a general slowdown in economic activity.
Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.