By Amechi Ogbonna
Although the recent pronouncement by the National Bureau of Statistics (NBS) that the Nigerian economy had entered its second recession in five years may have sent shockwaves down the spines of millions of the citizens, it was however not unexpected.
With series of economic lockdown across states following the outbreak of the Coronavirus pandemic, loss of private and public sector revenues due to tumbling commodity prices as well as rising cases of insecurity in parts of the country, not many could have dared a bet that the nation’s frail economy would end the year on a positive growth trajectory.
According to the NBS, the economy slipped into its second recession when gross domestic product contracted for the second consecutive quarter.
The Bureau had announced in November that the nation’s GDP recorded a negative growth of 3.62 per cent in the third quarter of 2020, after a 6.10 per cent contraction in the second quarter of 2020. It was indeed the nation’s second recession since 2016, and worst economic decline in almost four decades, after being battered by the coronavirus pandemic, which caused a significant decline in oil revenues as global economic activities stalled for months.
Hobbled by the pandemic, Nigeria’s crude oil production also fell to 1.67 million barrels per day from 1.81 million barrels in the previous quarter, according to figure obtained from Bloomberg, making that the lowest since the third quarter in 2016 when the economy last experienced a recession.
The decline came amid World Bank’s forecast that the economy will contract by 3.2 per cent in 2020, if government’s efforts to contain the spread of COVID-19 were sustained up to the third quarter of the year. It was about the same time that the International Monetary Fund came in with a forecast 4.3 percent contraction for the Nigerian economy.
Prior to the pandemic and its attendant disruption, Nigeria’s economy was projected to grow by 2.1 percent in 2020. That growth trajectory was also predicated on the assumption that key sectors of the economy including manufacturing, services, agriculture and logistics sectors would be working optimally to deliver on the growth.
Meanwhile as part of the Federal Government’s rescue plan for the economy at the outset of the COVID-19 pandemic in March, the Central Bank of Nigeria (CBN) had earmarked over N2.3trillion financial warchest to support various ailing sectors of the economy.
However, in its report at a recent Monetary Policy Committee meeting, it was revealed that total disbursements from the apex bank’s interventions in the wake of the COVID-19 pandemic had risen to N3.5 trillion including a Real Sector Funds, of N216.87 billion, a COVID-19 Targeted Credit Facility (TCF), of N73.69 billion, an AGSMEIS, N54.66 billion, Pharmaceutical and Health Care Support Fund, N44.47 billion, and a Creative Industry Financing Initiative of N2.93 billion.
In addition to these initiatives, the CBN said it would also contribute over N1.8 trillion of the total sum of N2.30 trillion needed for the Federal Government’s 1-year Economic Sustainability Plan (ESP), through its various financing interventions using the channels of Participating Financial Institutions (PFIs).
This was in addition to the fiscal authorities’ pledge of tax incentives with the Minister of Finance, Budget and National Planning, Zainab Ahmed on April 30, 2020, issuing a Circular exempting importers of specified medical supplies from payment of import duties and value added tax (VAT) on such items for a six-month period in the first instance, with effect from May 1, 2020.
Earlier on, the Federal Inland Revenue Service (FIRS) on March 23, announced some tax relief measures to mitigate the impact of the coronavirus (COVID-19) pandemic on taxpayers, including extending the due date for filing of value added tax (VAT) and withholding tax returns from the 21st day of the month to the last business day of the month, following the month of deduction.
But the concern for most observers is why these fiscal and monetary interventions have failed to save Nigeria’s economy from a second recession at the end of the third quarter of this year.
Some economic experts who spoke to Daily Sun, however blamed the problem on the depth of policy implementation by various government agencies. They have argued that in addition to government’s intervention measures, conscious efforts at attracting local and foreign investors should be pursued with vigour. At national and grassroots level investment in high revenue yielding enterprises that also create jobs should be emphasised.
For instance, Dr Andrew Nevin, Partner and Chief Economist at Price house Water Cooper (PwC), observed that increasing headline GDP growth in Nigeria would be a strategic step for economy to exit the current recession.
According to him, Nigeria needs structural changes to be able to increase its headline GDP growth. “We need to grow at 60 percent in an inclusive and sustainable way, but that would require a much higher level of investment.”
To achieve such an ambitious target, the government needs to focus on helping or enabling states develop on their own, for sustainable economic growth, he argued.
Nevin noted that a lot had happened at states level that need constitutional changes that will make it easy for them to take responsibility for their development. “But there are some states that are already pushing hard for their development and that is very necessary if the country must develop in agriculture and manufacturing.” He said
The PwC boss said “Another point is that government needs to recognise the economic power of the diasporans remittances such that a strategic approach to the diasporans would be necessary for fast exit from recession.
There is the need to create industrial avenues for the diasporans .
The Diasporans need to see the right structures where they can see their money being invested wisely and getting returns.
Foreign investors are apprehensive, as risks to domestic economy are heightened.
Aggressive promotion of peace and tranquillity across the country to attract potential capital should be encouraged”
To exit recession occasioned by the COVID -19, investment is the way. PwC continues to see unlocking dead capital as most important policy.
Government needs to cut waste and leverage digitalisation to build a trail for data to expand tax base.
Government also needs to carefully manage the risk of debt traps that can result from increasing debts accumulation.
For Nigeria’s Organised Private Sector and the Labour Movement, the economy would be able to rebound in the first or second quarter of 2021 if there are no new disruptions.
The Lagos Chamber of Commerce and Industry ( LCCI) believes the economy will return to the path of growth in the first or second quarter of 2021, barring any new disruptions.
Director General of the Chamber, Muda Yusuf, told Daily Sun that in order to facilitate quick recovery, the government will need to restore normalcy to the foreign exchange market by broadening its scope of expression and allocation mechanism.
According to him, the nation’s ports system, especially the key institutions in the international trade processes equally needed to be more investment friendly as trade is critical to recovery.
The LCCI boss then charged the Buhari’s administration to show greater commitment to the fixing of the structural issues that would help reduce production and operating costs for investors in the economy.
He said, “Following the EndSARS experience, the state of internal security is beginning to impact negatively on investor’ 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 empathise 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.”
For his part, the Deputy President of the Trade Union Congress (TUC) who doubles as the President of the Association of Senior Staff of Banks Insurance and Financial Institutions (ASSBIFFI), Oyinkan Olasanoye, lamented that uncoordinated policies have been the albatross of the nation’s economy and has impacted mostly on the financial sector.
She reasoned that the assistance operators need from government is more on policies.
She said, “Part of the problems we have in the financial sector is so many uncoordinated policies.
When they roll out policies they don’t think of the aftermath effect. That is the reason if you have dollars in your account, you can’t withdraw to make transactions.
“This is a country that we thought wants to increase production so we crashed interest rate; but how do you go into production when there is no electricity and necessary raw materials. Until we put policies that are citizen-friendly then our sector would begin to benefit from it.”
On exchange rate challenges, she also blamed government policies, which she said are unfriendly, noting that as long as supply cannot meet demand, Nigeria will continue to have multiple market rates which will not help the economy to recover.
According to her, “it is unfair to leave our Naira without protection.”
Also reacting, the Nigeria Employers Consultative Association (NECA), argued that there is no one-size-fit-all approach in salvaging an economy faced with multi-faceted challenges like Nigeria, stressing that a mix of fiscal, monetary and trade policies with political will in delivery the necessary impetus.
The Director General of NECA, Timothy Olawale, advancing diversifying the mono-cultured sources of revenue noted that with the unpredictable nature of global oil prices and developments in the use of alternative sources of fuel and modern technology, it is more appropriate to hasten the process of diversification of the non-oil economy in expanding the revenue sources away from oil.
He said, “It is obvious that revenue from non-oil is more feasible than the oil revenue. This will result in buoyant and robust economy which will reduce the need for external debt to the barest minimum. Exploration of the various natural mineral deposits in the country for processing and exportation should be intensified.”
He also called for the curtailment of the nation’s rising debt accumulation, explaining that NECA’s analysis of debt servicing provisions to revenue projections in the yearly budget over a period of 5 years revealed that in 2016, 38.34 percent of the yearly budget was earmarked for debt servicing, similarly in 2017 (36.2 percent 2018 (30.7 percent 2019 (32.14 percent and 2020 (35.6 percent
“This is a disturbing situation which could portends the country into a debacle, if unabated, as the country depends over 50 per cent on revenue from Oil to finance the budget as well as over 80 per cent for its foreign exchange earnings,” he warned.
Olawale said the association believed that the growth of external debt stock and debt service payments is becoming clogs on the wheel of national economic growth effort, adding that once an initial stock of debt grows to certain threshold, servicing them becomes a burden with debt crowding out investment and growth.
“As observed in the last 5 years, only about 19 percent of the debt load has been invested in further developing the nation through the creation of relevant infrastructure. The rest were spent on recurring expenses like salaries.
In the quest to reduce the rising debt profile, we suggest that Federal Government should sell-off or concession its assets that are lying fallow and moribund, proceeds from it should be channel into financing annual budget deficits. The crowding effect of borrowing locally has its tolls on the private sector in securing funds, in order to secure private sector driven development, managers of the economy need to address this angle.”
He added, “We believe that, the Debt-to-GDP ratio does not really reflect the financial health of any economy. Similarly, the prescribed debt-to-revenue ratio, for emerging economies like ours, to be more encouraged was pegged at 22.5 percent but currently, we are in a more threatening and precarious state, as the country services its debt with 99 per cent of its revenue (for every N2 earned, N1.98 is used to service debt), meaning that our revenue cannot support our borrowings.”
Also speaking with Daily Sun, Advisory Head/CEO, Kamany Marine Services Limited, Charles Okorefe, said that the drivers of the economy, should know what to do to be able to restructure it.
“For instance, look at the forex regime, why is it that we don’t have uniform exchange regime?
Why do we have different rates for different people in government and business people and all of that?
“The country needs a proper harmonisation of its currency to have a unified exchange rate that applies to all. To achieve this the CBN needs to avoid it current policy summersault that favours those in government more than the private sector. “Why is it that Apapa road is forever under construction? How long does it take to construct that length of road leading to massive congestion through corruption of officials of government?” he queried.