By Amechi Ogbonna
For most analysts, Nigerian economy’s sudden exit from recession in the fourth quarter (Q4) of 2020 came as a surprise, driven largely by growth in agriculture and telecommunications sectors.
According to the National Bureau of Statistics (NBS), the nation’s Gross Domestic Product (GDP) grew by 0.11 percent (year-on-year) in real terms in the fourth quarter of 2020, representing the slimest positive quarterly growth in the last three quarters.
But while this developmentcould be considered weak by some observers, it indeed headlines a much anticipated return of economic activities constrained by COVID-19 pandemic since the first quarter of 2020. It also marked the resumption of local and international commercial economic activities including tourism and travels badly affected by Coronavirus induced lockdowns in the preceding quarters.
But regardless of where one stands on this debate, one issue that continues draw attention to the current development was the role the Federal Government and its agencies played in pulling the economy out of the woods.
Some economic experts who spoke to Daily Sun on how the lean 0.11 per cent GDP growth can be enhanced, however admitted that there is a lot more that the Federal Government can do to improve on the numbers.
For instance, the Director General of the Lagos Chamber of Commerce and Industry, (LCCI) Dr Muda Yusuf, while assessing the quantum of GDP growth that lifted the economy out of recession admitted that the Central Bank of Nigeria (CBN) and other Federal Government agencies played a very significant roles in ensuring the country’s exit from recession.
According to him, the CBN played a lead role in terms of providing funds for stimulus packages to various economic entities, in addition to restructuring of facilities, granting of moratorium on credit, providing stimulus loans to SMEs, and several companies in the health sector among others.
“These roles were very impactful. For the CBN, it was a lead role in terms of financial support to enable companies come out of recession. The stimulus package of N2.3trillion that helped financed the economy out of recession came from the central bank just as the financing components also came from the apex bank.
“So, what the government did, particularly within the framework of the economy; the stimulation plan was a good intervention, which also helped to ease the recession and promote exit from the COVID-19 induced recession.
So, there were strong interventions both from the monetary side and the fiscal side,” he said.
The LCCI boss however believes there is still much to be done by the authorities to achieve a more robust economic growth.
“We need to first address the security problem as a new dimension to the economic issues we have. It’s not just a security issue, its now an economic problem because of its disruptive activities in the agricultural sector, which is a major component of our GDP that accounted for about 23 percent of the GDP. It is also disrupting the distributive trade because if you are not secured how do you move around to trade. Trade iconstitutes about 16 percent of our GDP. It employs a lot of labour, so we need to deal with the issue of insecurity.”
Yusuf also underscored the need for the government to deal with issues around the nation’s ports infrastructure to facilitate trade especially now that AfCFTA is already in place. He stated “We need to deal with the issue of infrastructure. Energy cost, transportation cost, all of these are important, particularly from the point of view of small businesses.
The govt and the CBN are doing a lot but more can still be done to improve financing for SMEs.
Commenting on how the government can further achieve a more vibrant economic growth, he said a more robust vaccine rollout would further expand the frontiers of economic activities to ensure a higher GDP growth in the years ahead.
For one, the LCCI DG believes a more robust vaccination rollout would improve the general confidence in the economy because if you have a major pandemic and there is now a solution to it, its a sort of relief which will have a major impact in terms of restoration of investor’ confidence. This will also lead to more investment in the economy, coupled with growth with more jobs being created. It’s very important.
“We hereby plead with the government to roll out the vaccines faster than what we have currently.”Yusuf said
For his part, Dr. Andrew Nevin, PwC lead, and chief economist argued that the quarterly growth of 0.11 percent was a commendable performance, giving the economic impact of the COVID-19 pandemic.
“I think Nigerians should be pleased with that. The growth is not quite high, but we will continue to grow the GDP per capita.
We advocate a few things and see how we can turn that around and grow the GDP at 60per cent inclusively in a sustainable way.
So what to focus on is the FX issue and may be the increase in oil prices would give us some respite and allow the CBN to move us to the unified exchange rate it has been discussing for a while, which has been the policy direction of the apex bank and the ministry of finance. It has been quite a difficult FX position as par COVID-19 and the drop in oil, but oil is come back now and perhaps there will be a chance to do that.
In terms of policy areas, key sectors need structural performance like the real estate,
investment in infrastructure, power, ICT, and human capital development.
He said “We will like to see focus on dead assets, which need to be turned to profitable assets, like the CBN and others are working on revitalising the national theatre, which is a viable asset that can give returns to Nigeria.”
Also, the residential real estate market needs to function ideally.Legislation and structures need to be improved.
According to him, “Other assets that need to be looked into are government assets, currently not earning returns for citizens of the country. Refineries like those belonging to the NNPC that are not making proper returns should be addressed.
We already know the impact of diaspora remittances through whose activities one or two Nigerians are impacted, so the government needs to focus on that too.
We have a chance now in the new world to increase the amount of work done by Nigerians, which is their brain capital .
We need to groom Nigeria’s brain power to work without leaving the country in areas business processing, out sourcing, being part of coding teams, animation teams and so on. So, we would like to see more focus put on the brain power and exporting brain capital while in Nigeria. Also reacting, Mr Chidi Ajaegbu, CEO, Heritage Capital Market Ltd, said the marginal growth in the economy was the result of throwing money at the economy and peoples pockets. The various interventions embarked upon by the CBN impacted the economy positively, making it cheaper for banks to access money to lend to customers. Essentially, there has been a lot of spending and interventions that have helped to fuel economic activities and consequently growth.
The expansionary policies are essentially what they are doing that helped us record the lean 0.11 per cent growth to exit recession.
“At some point, the government will see whether it will keep pouring money into the economy or allow the economy work itself out of reccession, which is a more sustainable model, than just throwing money into the economy.
Such models will include increasing industrialisation, manufacturing, and being able to sustain itself to recovery, which is more sustainable because it is independent.”
With the coming of the vaccine however, it means that psycologically, the confidence of the citizens are deepened. There will be more spending. A vaccine solution to the pandemic will make the people comfortable with others without fear, thereby drive economic activities and growth. The vaccine is a good thing despite skepticism and conspiracy theories around it.
This is because there can’t be a sustainable economic recovery without a solution to the pandemic.
Also commenting on the how CBN and the fiscal authority can consolidate GDP growth rate going forward, Gregory Kronsten – Head, Macroeconomic and Fixed Income Research at FBNQuest observed allowing headline inflation continued its unrelenting upward trend in February, with an eighteenth rise in succession to 17.33 per cent year-on-year ( y/y), was part of the expectation, shared with the newswires, and the highest rate since February 2017. It noted that while the CBN does not formally target inflation, confining itself to a reference range of between 6.0 per cent y/y and 9.0 per cent for the headline measure, the trajectory of inflation was such that it would be a challenge to argue for further monetary easing. Nigeria’s monetary policy committee last meeting never allowed any decision other than an unchanged stance.
For them, the impact of the virus, the FGN’s response to it and fluctuations in the crude price were again quite visible. The Bureau’s commentary notes that among the highest price rises in February were those of hospital, medical and paramedical services, passenger transport by road and air, and vehicle spares. Food prices are driven upwards by structural and supply-side factors including: the legacy of the land border closures in August 2019; rising insecurity in growing areas; poor roads; shortages of many inputs such as fertilizer; and the disruption to traffic between states due to the selective lockdown. There is little evidence of a positive supply-side factor such as the harvest season.
In contrast, we find relative stability in imported food prices. This is surprising when we consider the exchange-rate adjustments of the past 12 months and the challenges in securing access to foreign exchange. Our explanation is that importers are wary of passing on the increase in their own costs from tapping the parallel market for fx.
Our call is for a further increase in the headline rate in March, to 17.9 per cent y/y, in addition to the many factors that drive farm prices, there is a need for the government to track movements in the retail fuel price and other regulatory interventions.
Recovery on vaccines rollout
As a batch of almost four million doses of the AstraZeneca (AZ)/Oxford University vaccine for COVID-19 arrived in Abuja on March 2, 2021, we can start to look tentatively ahead to the new normal. Drawing on the experience of countries where the rollout of vaccinations is more advanced, we can give some pointers as to the benefits and the pitfalls. The first on a personal level is that, while no injection for any condition is 100 per cent effective, the shot in the arm provides a psychological boost to the individual.
Another area to look out for is the definition of ‘key workers’ for priority vaccinations beyond frontline health employees. Should the police, refuse collectors and others in daily contact with the public be included? Another sensitive area, and one that the media is likely to pursue, is preferential treatment for the well-connected.
We should all be looking forward to life post-COVID-19 (or at least with contained COVID-19) even though this batch through the COVAX initiative is relatively small. It is essential to look through the tunnel for the light at the end of it, however distant, for morale-boosting and emotional health.