By Babajide Komolafe, Peter Egwuatu, Nkiru Nnorom, Micheal Eboh & Tunde Oso
Nigeria has formally entered its second economic recession in five years as the severe impact of the COVID-19 pandemic on global crude oil prices and restrictions imposed to curb the virus caused the nation’s economy to contract for the second consecutive quarter by 3.62 percent in the third quarter of 2020.
Experts also blamed the #EndSARS crisis which not only crippled economic activities for weeks but also led to attack on business concerns and public property as well as widespread looting by hoodlums. Losses from the incident are still being computed but estimated at trillions of Naira.
To navigate out of the recession, the experts recommended realignment of national priorities with a renewed focus on infrastructure and industrialization as well as increased support for Small and Medium Enterprises (SMEs).
Those who spoke include the President of the Manufacturers Association of Nigeria (MAN), Mansur Ahmed, the Director-General of the Lagos Chambre of Commerce and Industry (LCCI), Dr Muda Yusuf, and maritime law expert, Dr Olisa Agbakoba (SAN).
A recession is defined as two consecutive quarters of negative Gross Domestic Product (GDP) growth. Negative GDP growth is also referred to as a contraction.
According to the National Bureau of Statistics, NBS, GDP report for Q3’2020, Nigeria recorded GDP growth of -3.62% in Q3’2020. This follows a GDP growth of -6.10% growth recorded in Q2’2020, hence two consecutive quarters of negative GDP growth.
The NBS stated yesterday: “Nigeria’s gross domestic product (GDP) recorded a growth rate of –3.62% (year-on-year) in real terms in the third quarter of 2020.
“Cumulatively, the economy has contracted by -2.48%. While this represents an improvement of 2.48% points over the –6.10% growth rate recorded in the preceding quarter (Q2 2020), it also indicates that two consecutive quarters of negative growth have been recorded in 2020.
“Furthermore, growth in Q3 2020 was slower by 5.90% points when compared to the third quarter of 2019 which recorded a real growth rate of 2.28% year on year.
The NBS further explained: “During the quarter under review”, aggregate GDP stood at N39.089 trillion in nominal terms. This performance was 3.39% higher when compared to the third quarter of 2019 which recorded an aggregate of N37.806 trillion.
“This rate was, however, lower relative to growth recorded in the third quarter of 2019 by –9.91% points but higher than the proceeding quarter by 6.19% points. For clarity, the Nigerian economy has been broadly classified into the oil and non-oil sectors.”
The above development is coming five years after the country entered its first recession in 30 years. The nation experienced the first recession in 30 years in 2016 due to impact of sharp decline in crude oil price, low crude oil production foreign exchange shortages, and energy shortfalls. As a result, the nation’s GDP decline by 0.36 percent and 2.06 percent in Q1’2016 and Q2’2016 respectively.
“The contraction in economic activities was attributed to the negative impact of low global crude oil prices on public sector investment and disruptions in oil production due to the militancy in the Niger Delta region, foreign currency shortages, energy deficit and other structural constraints in the economy”, said the Central Bank of Nigeria (CBN) in its 2016 annual report.
How COVID-19 induced recession
However, the current recession, according to economists, is caused by the severe impact of the COVID-19 pandemic which has led to the death of over one million people globally and 1,165 people in Nigeria.
The restrictions introduced in various countries led to sharp decline in economic activities and, in turn, sharp fall in demand for crude oil, which accounts for about 90 percent of Nigeria’s dollar earnings. This resulted in sharp decline in the price of crude oil, from about $70 per barrel in early January to below $45 per barrel last week. This led to decline in government revenue and the external reserves which triggered sharp depreciation of the naira in the parallel market to N482 dollar last week from N360 per dollar last year.
In Nigeria, the restrictions introduced by the federal and state government from late March till August, brought economic activities to near zero level while prices of good and services rose sharply across the country. As a result, the inflation rate rose for the 14th consecutive month to 14.23 percent in October 2020, the highest since February 2018.
These factors, according to the NBS, triggered the nation’s second economic recession in five years.
The Bureau said: “The performance of the economy in Q3 2020 reflected residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 in response to the COVID-19 pandemic.
“As these restrictions were lifted, businesses re-opened and international travel and trading activities resumed, some economic activities have returned to positive growth. A total of 18 economic activities recorded positive growth in Q3 2020, compared to 13 activities in Q2 2020.”
Govt needs to quickly reflate economy – Ahmed, MAN President
Reacting, last night, to the recession news, Ahmed, MAN President, said it was not unlikely that Nigeria would slide into recession given the uncertainties in global oil prices. “The unrelenting negative economic consequences of the second wave of COVID-19 in many advanced countries is affecting our international trade partners and therefore the Nigerian economy is hit by these”, he said.
The MAN President added that massive flooding in many food producing northern states affected farmers output, leading to high food prices and aggravated the upward surging inflation.
“The Federal Government must mobilise and work with the organised private sector and find amicable ways to encourage the productive and manufacturing and the agricultural sector to reflate and reinvent the economy”, Ahmed said.
Need to restore normalcy in forex market – LCCI D-G
On his part, Yusuf, Director-General, LCCI, said the economic contraction was 3.62% in the third quarter as against 6.1% in second quarter. With these numbers, we can possibly say that the worst is over as the contraction in the third quarter was much less than what we experienced in the second quarter”, he stressed.
“Regrettably, the #ENDSARS crisis may perpetuate the recession into the fourth quarter. The protests and the destruction that followed was a major setback for our economic recovery prospects.
“From an economic perspective, 2020 has been a very bad year. The worst in recent history. We are faced with the double jeopardy of a stumbling economy and spiralling inflation. The October inflation numbers of 14.23% was the highest in 10 months. In economic parlance, this condition is characterised as stagflation. The effects of these developments are evident in business and in households.
“Sales are slowing, profit margins are being eroded, production costs are escalating, unemployment is rising, poverty situation is worsening, purchasing power is weakening and there is a general social discontent. Regrettably, and as if these were not bad enough, the business community continues to grapple with unfavourable policy, institutional and regulatory challenges impeding investment. Government must remove these impediments to investments.
“We need to restore normalcy to the foreign exchange market by broadening the scope of market expression in the allocation mechanism. The ports system, especially the key institutions in the international trade processes need to be more investment friendly. Trade is critical to recovery.
“We should show greater commitment to the fixing of the structural issues to reduce production and operating costs for investors in the economy. Following the #ENDSARS experience, the state of internal security is beginning to impact negatively on investors confidence.
“Security presence is becoming less visible especially in the major cities. The psychological effects could adversely affect investment and economic recovery. We appreciate the setback suffered by the police as a result of the recent protests and we empathize with them. But we need to give security confidence to citizens and investors.
“Incidents of kidnapping, banditry, herders-farmer clashes have not abated. These also have grave implications for investments. Hopefully, the economy will resume to the path of growth in the first or second quarter of 2021, barring any new disruptions to the economy.”
Prune wasteful expenditure in 2021 budget— Onyekpere, CSJ Lead Director
Eze Onyekpere, Lead Director, Centre for Social Justice Limited by Guarantee (CSJ), on his part, said Nigeria is unfortunately descending into recession for the second time within the tenure of President Muhammadu Buhari’s administration.
Onyekpere explained that while the economic and social circumstances that led to this recession were deeply rooted in the dislocations occasioned by the coronavirus pandemic, it is also common knowledge that economic growth before the pandemic was tepid and had not accelerated to the progress previously reached before the dawn of 2015.
According to the CSJ boss, the recession is coming at a time of more than “quadruple whammy” with increased national indebtedness, reduced revenue inflow, accelerated insecurity and a divided nation as demonstrated in the just ended #EndSARS protests.
“We are living witnesses to aggravated deficit financing and deployment of 85.5% of actual revenue accrued between January and August 2020 to service debts; requests in the 2021 federal budget estimates for borrowing in the sum of N4.2trillion as well as vast parts of states in the North West and North East geopolitical zones taken over by terrorists”, he stated.
The Lead Director maintained that these development calls for actions, re-strategising and re-engineering of the Nigerian economy and polity to fundamentally respond to the challenges of the time.
“It is time for President Muhammadu Buhari to rise to the occasion and ensure that the most competent Nigerians irrespective of their religious, ethnic or political party affiliations are brought on board to manage the economy; the most competent Nigerians irrespective of their religious, ethnic or political party affiliations are brought on board to manage the security agencies fighting terrorism and the insurgency;
the most prudent use of the little available resources through blocking leakages in the system and recovering all resources stolen and mismanaged from the treasury as identified in various federal audit reports; proper investment in economic growth drivers and realignment of our priorities;
Pruning the inappropriate, unclear and wasteful expenditure proposals in the 2021 budget estimates which are in excess of N235billion; formulating and implementing new economic, legal and policy frameworks that are responsive to the reality of our times.
“Finally, President Muhammadu Buhari should ease the tension in the land, curtail the abuse of human rights and fundamental freedoms by his appointees as a condition precedent for Nigerians to unleash their creative and productive potentials and energy in unity, bound by a common goal to establish a prosperous, growing and developmental economy which will benefit Nigerians in Nigeria and in the Diaspora”.
Reduction in over-bloated civil service inevitable— Adetunmbi, Capital Market Round-table Convener
Seye Adetunmbi, Convener of Capital Market Round-table in Nigeria, said the COVID-19 debacle, no doubt, triggered how badly Nigeria’s economy has been managed, saying foreign income receipts substantially reduced.
He said Nigeria needs to massively move away from crude oil export dependence, deploy gas wealth to locally power all sectors of the economy, get a new constitution for Nigeria to work properly and let the oil producing states have a larger share of their wealth for their area to develop appropriately. States not creative enough to meet their obligations substantially, according to him, should give way.
“The federal and state governments have too many civil servants majority of whom are redundant. This is not sustainable in this jet age of digital system where services are provided online. Nigeria has to jettison the status quo in order to get out of our perpetual economic quagmire”, he said.
Agbakoba: Sell refineries, airports, others
Agbakoba, maritime law expert, urged the Federal Government to look within and sell off “unwanted assets” to the private sector. He listed some of the assets that should be sold off to include the airports, refineries and the Federal Secretariat, pointing out that government could collect taxes from their operators.
Agbakoba, the founding Partner of Olisa Agbakoba and Associates, gave the advice yesterday in Lagos at a forum organised by the Finance Correspondents Association of Nigeria (FICAN).
Agbakoba expressed support for the closure of the nation’s borders and urged government to also look into the trade sub-sector which, according to him, is responsible for 14 per cent of the GDP.
He said: “The border closure is right because it is giving us money and the Nigerian Customs Service is making more money with the closure.
“When you look at the 2021 budget, you find out that there is no way Nigeria is going to grow at three per cent next year. No country comes from minus eight per cent to three per cent, from the negative or minus to a positive of three.”
Uwaleke seeks aggressive implementation of Economic Sustainability Plan
Uche Uwaleke, Professor of Finance and Capital Market, also speaking, called for early passage of the 2021 Appropriation Bill and aggressive implementation of the Economic Sustainability Plan (ESP), as the country entered recession.
Uwaleke, of the Nasarawa State University, said that the aggressive implementation of the ESP and early passage of the 2021 appropriation bill would go a long way in supporting economic recovery.
“The economy has officially entered a recession but I see a quick V-shaped recovery as the effect of COVID-19 recedes and the impact of the interventions by the government and the Central Bank of Nigeria begin to manifest. The NBS Q3 real GDP number is a confirmation of the fact that in terms of economic contraction occasioned by COVID-19, Q2 2020 represents the worst experience for Nigeria,” he said.
Uwaleke, also the President, Capital Market Academics of Nigeria, said that the third quarter GDP figure was an improvement when compared with -6.10 per cent achieved in the previous quarter.
Further job cuts
Noting that the impact of the recession is already being experienced by Nigerians since the NBS report is historical, Mrs Tonyi Sanni, Group Chief Executive Officer, Emerging Africa Capital Group, said that the economic recession means more job cuts, pay cuts and general reduction in income for households which may trigger further unrest in the country.
“The confirmation of these figures will, however, send a clear message to investors including international institutional investors who have been beating a systematic retreat in the last few quarters which with our continued import dependency means further downward pressure on the naira.
“For the everyday Nigerian, we are looking at more layoffs, pay cuts and generally reduced income for households which amidst high inflation means grossly reduced purchasing power,” she said.
She stated that though the Nigerian economy had demonstrated resilience before by bouncing out of the last recession in under two years, but the challenge today “is that there is currently hardly any fiscal headroom to make the expected move of spending our way out of this recession.”
She stated that if the current situation is not properly handled, the country may face the risk of further unrest in the polity, especially amongst the youth, on account of the economic pressures faced by all.
Commenting on this development, some experts, who spoke to Sunday Vanguard, highlighted how the country can get out of the current recession. Among other things, they averred that there must be a realignment of national priorities with renewed focus on infrastructure and industrialization as well as increased support for Small and Medium Enterprises (SMEs).
Commenting, Ayodeji Ebo, Senior Economist/Head, Research & Strategy, Greenwich Merchant Bank, called for a national development plan with focus on boosting infrastructure and industrialization, noting that the NBS figure data affirms the difficulty Nigerians have gone through this year.
He said: “This just affirms the difficulty Nigerians have gone through within that quarter.
“Also, it shows the limit of what can be achieved with intervention funds.
“With population growth rate at positive 2.8%, more Nigerians are in poverty which has implication for security.
“The government needs to intensify efforts in creating an enabling environment for businesses.
“Nigeria needs a National development plan with focus on boosting infrastructure and industrialization. This can be achieved with stronger partnership with the private sector.”
Also speaking, Sola Oni, a chartered stockbroker and Chief Executive Officer, Sofunix Investment & Communications Limited, said that government should float revenue bonds through the capital market to raise funds to build infrastructure
He said: “The elephant in the house is how to grow the economy. Government should work its talk on series of policy initiatives that can enhance employment opportunities.
The manufacturing sector is a major platform for employment. There should be sustained support for the Small and Medium Scale Enterprises (SMEs) as they constitute a major source of employment.
“We need to see the impacts of increment in the banks’ Loan to Deposit Ratio (LDR) on the SMEs. It has inched up from 60 percent to 65 percent late last year but has that reflected in the SMEs access to funds?
The Federal Government should be more creative in its search for funds to implement the budget. The Capital Market remains a major sector for raising medium and long term fund to build infrastructure.
Government should float revenues bond through the market to build infrastructure. There can be no economic growth where there is no adequate infrastructure.
This is a period for re-alignment of priorities for our government. Nigeria should cease from being a consumption nation and aspire to be a major exporter. This will create jobs, boost our foreign exchange earnings and strengthen the Naira.”
Possibility of early recovery
On his part, Mallam Garba Kurfi, Managing Director/CEO, APT Securities & Funds Limited, Mallam Garba Kurfi noted expressed optimism lesser contraction in the nation’s GDP in Q4’2020, which may inspire confidence necessary to revive foreign investment inflow into the country.
He said: “ The performance of the economy thus confirmed that our economy is in recession but really is it is not that bad and performed better than what was predicted earlier. Therefore, there is likely the possibility that Nigeria would close the year with breakeven or less than 1% negative in comparison with the third quarter performance drop by about 3% and keep the performance up.
“Therefore, its shows the economy is all on the way out of the recession by the end of the year which give confidence to the Foreign investors and the resilience of our economy to the pandemic of COVID 19.”
Expressing a similar optimism, Uche Uwaleke, a financial Economist and Professor of Capital Market at the Nasarawa State University said: “The NBS Q3 real GDP number is a confirmation of the fact that in terms of economic contraction occasioned by COVID’19, Q2 2020 represents the worst experience for Nigeria.
“Compared to a contraction of 6.10% in Q2 of this year, it is actually an improvement reflective of 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.
“This improved confidence has also manifested in PMI readings and stock market performance. This explains why, although still in the negative territory, sectors like Manufacturing, Trade, Transportation and Education recorded improvements over the Q2 numbers.
“However, the performance of the Agriculture sector in real terms which came in at 1.39% was disappointing. This corroborates the high food inflation rate now above 17% caused in large part by insecurity in many parts of the country.
“Yes, the economy has officially entered a recession but I see 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.
The early passage of the 2021 appropriation Bill will also go a long way in supporting economic recovery.”