Now Nigeria Is In Recession, What Next?
Nigeria has been plunged into its second recession in four years, the National Bureau of Statistics (NBS) confirmed on Saturday. In statistics made available on its website, the NBS said Nigeria’s GDP has contracted for the second time in 2020.
The third quarter GDP contracted by -3.62%, a figure that slightly evades World Bank’s projections of -3.2%. Nigeria also had a second quarter GDP of -6.10% as a result of the ills of the Coronavirus pandemic.
The World Bank had warned in a June 2020 report that Nigeria runs the risk of facing a recession, a hypothesis confirmed by the Nigerian government in August. Five months since World Bank made the projection, Nigeria is running in the murky waters of an economic recession. How We Got Here Nigeria has always depended greatly on oil revenues and has stuck to it despite calls for massive diversification of the economy.
This is to prevent such situations that may happen as a result of a dip in oil prices. In 2016, when Nigeria got thrusted into its first recession in 25 years, it happened as a result of plunging oil prices and despite the warnings it brought and the rather long recovery it took, we didn’t learn any lesson.
While oil revenues contribute less than 10% to the nation’s GDP (it contributes 8.75%), its importance is still the greatest to the Nigerian people. Unconvincing fiscal policies, and economic decisions have also warranted criticisms from a section of Nigerians. Although the pandemic has left most countries of the world in a bad state, with the situation being the worst since 1870, it was preventable for Nigeria.
A sharp drop in oil production from 1.81m barrels per day to 1.67m barrels has also done very little to help Nigeria, with the current production rate being the lowest in 4 years. Suddenly, the Nigerian economy that should continue its modest growth, with 2.1% projection, has to grapple with the critical effects of a recession. The CBN in its reaction also cut interest rate in September by 100 basis points, four months after it first did in May 2020. Currently, the interest rate lies at 11.50%, and it is to encourage local lending and credit creation.
This however seems too little too late for the government to save the economy.
Better Q3 But Bleaker Times
The NBS says there were more activities in the third quarter of the year with a positive growth recorded in that aspect. The aggregate GDP has also been pegged at N39trn. The non-oil sector, which represents over 90% of the economy contracted by 2.5% in the third quarter.
An extremely high unemployment rate at 27.3% and underemployment rate at 28.1%, coupled with an ever rising inflation rate means Nigeria is moving in shallow waters.
Border Closure Effect
The Nigerian government has closed its borders from importation for almost a year. This has reduced local remittances and has ensured the microeconomics is dying gradually.
The importation of raw materials for local productions have been stifled, further reducing local availability of products and causing an increase in prices of commodities. Analysts met by Accountable Nigeria have said the border needs to be reopened for a sort of balance to happen to the economy. A unified exchange rate, and devaluation of the naira by 20% have done very little to help the situation.
Other Effects like a fall in private investment due to uncertainty, causing reduced remittances and increased overall development assistance have also been dubbed as key points to note.
- Key oil industry reforms
- Repair of the refineries
- Reduction in cost of governance
- Conscious and achievable fiscal projections and processes to achieve them
- Creation of jobs
- Driving productivity of the economy
What The World Bank Says
The World Bank says at least 7 million Nigerians will be thrusted into poverty this year, as a result of the effects of COVID-19. Of Nigeria’s population, 42.5% are projected to be in poverty by the end of the year 2020. Nigerians have been losing their jobs and a difference may not be in the pipelines yet. Road To Recovery The economy will not recover without proper diversification, and this is where areas like tourism help. In African countries that depend on less-intensive economies, they have the benefit of fighting harder to evade economic recession. It may be Nigeria’s worst recession in 33 years, but the federal government has said a rapid recovery will be seen in 2021. It’s high time the Nigerian government opened borders and allow better local competition, and remittance. Without all of these, there’s little hope and the coming days will tell where the nation stands.