BY MARK ITSIBOR, OLUSHOLA BELLO, KEHINDE SALLAH |
Following statistics by the National Bureau of Statistics (NBS) suggesting that Nigeria’s economy has plunged into its worst recession in 33 years, experts have proffered solutions to quick economic recovery.
According to data released by the NBS yesterday, the economy recorded a gross domestic product (GDP) growth rate of –3.62 per cent, year-on-year, in real terms in the third quarter of 2020.
Cumulatively, NBS said the economy contracted by -2.48 per cent in the third quarter of 2020, making the second consecutive time after contracting for the second quarter of 2020.
The Q3 figure however represents an improvement of 2.48 per cent points over the –6.10 per cent growth rate recorded in the preceding quarter (Q2 2020). It also indicates that two consecutive quarters of negative growth have been recorded in 2020.
The NBS figure showed that growth in Q3 2020 was slower by 5.90 per cent points when compared to the third quarter of 2019 which recorded a real growth rate of 2.28 per cent year on year.
“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,” the NBS said in the 96 pages report on the nation’s economic growth yesterday.
Nigeria Officially Slides Into Worst Recession Since 1987
The statistics office said a total of 18 economic activities recorded positive growth in Q3 2020, compared to 13 activities in Q2 2020, pointing to a positive response to the unlocking of the economy by the authorities.
It said during the quarter under review, aggregate GDP stood at N39,089,460.61 million in nominal terms.
This performance was 3.39% higher when compared to the third quarter of 2019 which recorded an aggregate of N37,806,924.41 million, based on the latest GDP figures. This rate was, however, lower relative to growth recorded in the third quarter of 2019 by –9.91% points but higher than the preceding quarter by 6.19% points. For clarity, the Nigerian economy has been broadly classified into the oil and non-oil sectors.
The average daily oil production recorded in the third quarter of 2020 stood at 1.67 million barrels per day (mbpd), or 0.37mbpd lower than the average production recorded in the same quarter of 2019 and 0.14mbpd lower than production volume recorded in the second quarter of 2020.
Real growth for the oil sector was –13.89% (year-on-year) in Q3 2020, indicating a sharp contraction of –20.38% points relative to the rate recorded in the corresponding quarter of 2019. Furthermore, real oil growth decreased by –7.26% points when compared with oil sector growth recorded in Q2 2020 (6.63%). Quarter on quarter however, the oil sector recorded a growth rate of 9.64% in Q3 2020. The sector contributed 8.73% to total real GDP in Q3 2020, down from 9.77% and 8.93% respectively recorded in the corresponding period of 2019 and the preceding quarter, Q2 2020.
The non-oil sector grew by –2.51% in real terms during the reference quarter, which is –4.36% points lower than the rate recorded in Q3 2019 but 3.54% points higher than in the second quarter of 2020.
The non-oil sector was driven mainly by Information and Communication (Telecommunications), with other drivers being Agriculture (Crop Production), construction, financial and insurance (Financial Institutions), and Public Administration.
In real terms, the non-oil sector contributed 91.27% to the nation’s GDP in the third quarter of 2020, higher than its share in the third quarter of 2019 (90.23%) and the second quarter of 2020 (91.07%).
Meanwhile, proffering solutions to the economic downturn, economic experts said they were optimistic that the economy will soon recover from the recession.
They also expressed hope that the early passage of the 2021 appropriation Bill will also go a long way in supporting economic recovery for Nigeria.
“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,” Nigeria’s first professor of Capital Markets, Uche Uwaleke Uwaleke of the Nasarawa State University stated.
Prof Uwaleke said the NBS Q3 real GDP number was 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, he said the Q3 figure 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.
He noted that the improved confidence has also manifested in PMI readings and stock market performance.
This, he said, explains why even though they are still in the negative territory, sectors like manufacturing, trade, transportation and education recorded improvements over the Q2 numbers.
“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,” he added.
Also, the Nigeria Employer’s Consultative Association (NECA) called for urgent economic recovery effort in view of the GDP data released by the NBS, which confirmed that the nation has entered recession.
Speaking with journalists in Lagos, the director-general of NECA, Dr Timothy Olawale, stated that with negative GDP growth in two consecutive quarters, the economy has invariably entered into recession, even as he called for a reassessment of government’s economic policies.
Olawale noted that the cumulative effects of the COVID-19 pandemic, which almost caused a global economic meltdown with serious impact on the Nigerian economy and the attendant lockdown, contributed to the negative contractions.
“It is, however evident that with the high level of inflation and unemployment rate, reducing exchange rate of the Naira and other macroeconomic indices, there is need for urgent reevaluation and reassessment of Government’s economic policies,” he said.
Offering a way out of the impending economic quagmire, the NECA Boss urged added that there is urgent need to increase aggregate demand in the economy as a way to spark economic activities.
His words: “Government should give more tax cut to promote business capital investment while encouraging local and foreign investment. Government should fast track the implementation of policies to diversify further its export potentials, mostly the huge stock of natural and agro resources in order to reduce pressure on the foreign reserves.
“We call for more robust and comprehensive expansionary fiscal and monetary policy packages to expeditiously reflate the economy out of the current crisis”.
On his part, a Senior Advocate of Nigeria (SAN), Dr Olisa Agbakoba, suggested that for Nigeria to experience rapid economic growth there is the need for some agencies of the federal government to come together and harness their potentials.
“I like to see agencies such as the Nigerian National Petroleum Corporation (NNPC) and the Nigerian Maritime and Safety Agency (NIMASA) come together with the Minister of Finance, to review how far we can harness our resources,” he said.
He noted that harnessing of potentials and resources could be done under the auspices of the Office of the Vice President which, according to him, has shown “intellectual diligence’’.
Agbakoba who is a founding partner of Olisa Agbakoba and Associates, a maritime law firm, gave the advice yesterday in Lagos at a forum organised by the Finance Correspondents Association of Nigeria (FICAN).
He said Nigeria could take a cue from former US President Barack Obama, who in 2009 came up with the American Recovery Act under which the American economy was revived.
According to Agbakoba, it is possible for Nigeria to do something similar, noting however that it would require “a lot of critical thinking’’.
He said after putting the necessary structures in place the government would need to involve the private sector.
He warned the government not to involve itself in the running of enterprises, stating that what the country needed was a new economic planning and ideology.
The maritime lawyer expressed dissatisfaction with the current economic sustainability plan of the government, pointing out that the operational aspect of the plan ought not to be in the hands of the government but the private sector.
On the 2021 federal budget, he noted that it was full of procurement by public institutions and said such was hardly seen in the United States federal budget.
Acknowledging the challenges facing the Nigerian economy Agbakoba advised that for the economy to work, the government should limit itself to policy formulation and to play the role of a regulator while the private sector runs the enterprises.
“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,’’ he said.
Agbakoba added that Nigeria did not need to have a big budget as its economic resources in the states could determine each state’s capacity and not the money that it has.
The SAN 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 the government could collect taxes from their operators.
Agbakoba expressed his support for the closure of the nation’s borders and urged the government to also look into the trade subsector which, according to him, is responsible for 14 per cent of the GDP.
“The border closure is right because it is giving us money and the Nigerian Customs Service is making more money with the closure,” he said.
He also advised the government to come up with a proper policy and investment at the ports and allow the private sector to run them.
He said if properly harnessed Nigeria could garner N7 trillion yearly from the maritime sector
Also the director-general of the Lagos Chamber of Commerce and Industry (LCCI), Mr Muda Yusuf, said to facilitate quick recovery, government needs to restore normalcy to the foreign exchange market by broadening the scope of market expression in the allocation mechanism.
Noting that the news of the recession did not come as a surprise, Yusuf averred that the ports system, especially the key institutions in the international trade processes, needs to be more investment-friendly, as trade is critical to recovery.
He said, “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 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.”
He said hopefully, the economy will return to the path of growth in the first or second quarter of 2021, barring any new disruptions to the economy.
Similarly, an entrepreneurship and business management expert, Dr Timi Olubiyi, said the recession is a long-awaited reality considering the multi-impact of the pandemic – weak consumer spending, inflation, unemployment and general lull in business and economy activities among others.
He noted that “a recessed economic comes with contraction of the Gross Domestic Product (GDP) growth for two consecutive quarters and this was unavoidable because Nigerian economy has been somewhat pressured from March 2020 as a result of the novel coronavirus and the attendant consequences particularly the lockdown and border closures.
“In my view, the negative GDP growth was largely due to the fact that, as a nation, we are over-dependent on importation and the value chain has been grossly impeded by the current realities. Therefore this portends stiff climate for businesses, households and livelihoods,” he added.
Stating that government can encourage consumer spending with policy responses and also stimulate investments particularly foreign direct investments and inflow of strategic funds for infrastructure development to assist in the reversal of the trend, he said, “Since a recession is a significant decline in economic activity, efforts should be made to rejig the weak consumer confidence which can help generate more spending, and in turn, could lead to higher business productivity and fewer job losses.”
Also, in a phone interview with LEADERSHIP Sunday, the Registrar, Institute of Credit Administration of Nigeria (ICA), Prof Chris Onalo stated that one of the ways out of recession was for government to cut down on its expenditure.
Onale said, “When a country is in recession, it means the people of that country will experience high cost of living as things in the market will become more expensive as already being witnessed in the hike in food prices.
“The only way government can come out of this recession will be to embark on very severe measures, such as cutting down expenditure on the part of the government, even though largely cutting down expenditure on the part of government will also lead to loss of contracts”.