By Arize Nwobu
ACCORDING to the National Bureau of Statistics, NBS, the economy had slipped into another recession, the GDP having contracted for the second consecutive quarter by 3.62 per cent in the third quarter (Q3) 2020.
Recession is characterised by business cycle contraction, general slowdown of economic activity when output falls, unemployment rises and government borrows more.
The current recession is the second in five years. It was preceded by that of 2016 which was caused by the great tumble in global oil price, a development which reduced government revenue drastically and destabilised its projections. It also resulted to dollar scarcity which impacted businesses adversely and exchange rate volatility which weakened the naira to an all time low because of wide scale speculative activities by opportunistic dealers.
The Central Bank of Nigeria, CBN, rose to the occasion. The apex bank evolved innovative policies which included the Investors’ and Exporters’ (I&E) FX Window, for both the management of the demand and supply of dollars.
The establishment of the I&E Window stimulated dollar inflows which revived production and helped to pull the economy out of recession. Within six months the window attracted inflows of US$10 billion and generated a turnover of US422.85 billion at the end of December 2017. The economy regained traction but recorded slow growth up to 2.2 per cent in 2019.
CBN’s effort was widely applauded by stakeholders and reputable international organisations, including the World Bank which advised government to maintain the flow. “Government must sustain the regime of free-flow of foreign exchange into the economy through the newly established window which has helped to resolve the challenges of FX scarcity with flows into the economy in excess of US$7 billion.”
The current recession caused by the COVID-19 pandemic was anticipated and inevitable. In a report, CBN had noted that the “economic damages are unprecedented on several fronts: crude oil prices have declined drastically to as low as US$17 per barrel by the end of March, even before applying the discounts many oil exporters are offering; stock valuations for the NSE-ASI, NIKKEI, Dow Jones and FTSE 100 have declined by an average of 23.8 per cent between January and March 2020.
“Global airlines have lost about US$252 billion in revenue and across the broad range of industries from hospitality to services the pain is growing. These outcomes have expectedly thrown the global economy into a recession.”
Nigeria is not alone in the recession. And the development does not call for unnecessary criticisms especially those with political undertones which may be distracting to the efforts of government and relevant institutions in battling the malaise.
Many highly developed economies, including Germany and UK, are not left out. According to reports, the German economy contracted by a “nearly unprecedented” 10 per cent quarter to quarter from April to June because of the pandemic. But it rebounded from July by a record 8.2 per cent. As noted by one analyst: “German economy is capable of releasing growth forces under the conditions of the pandemic.”
The UK Chancellor of the Exchequer, Rishi Sunak, in a press report noted that the “nation’s economy is forecast to contract 11.3 per cent this year, the worst performance in more than three centuries.” But it was projected to rebound by 5.5 per cent next year and 6.6 per cent in 2022.
Other countries that are battling economic contraction include Austria, Belgium, Canada and Denmark. Others include Finland, Italy, Hungary and Estonia. The US economy did not fall into recession but it faltered. According to the Bureau of Economic Analysis, all the 50 states and the District of Columbia, DC, reportedly witnessed real GDP in Q2 2020 and the real GDP for the nation decreased at an annual rate of 31.4 per cent.
The current recession re-echo the persistent message of CBN and which had influenced the apex bank’s policies towards restructuring the economy and engendering self-sufficiency.
In a paper titled: “Turning the COVID-19 Tragedy Into an Opportunity for a New Nigeria”, CBN Governor, Godwin Emefiele, noted thus: “For a country of over 200 million people, and projected to be about 450 million in a few decades, we can no longer ignore repeated warnings about the dangers that lie ahead if we do not begin to depend largely on what we produce locally, because the security and well-being of our nation is contingent on building a well diversified and inclusive economy.”
As a proactive measure, CBN had developed a Policy Response Timeline to battle the recession and reboot the economy. The timeline is in three phases: Immediate-Term Policies, Short-Term Policy Priorities and Medium-Term Policy Priorities. The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed had projected that the country would emerge from the recession by the first quarter of 2021.