Crisis of confidence and legitimacy cause of Nigeria’s recession – Mailafia
The crisis of confidence and the crisis of legitimacy have been attributed as factors responsible for the looming recession in Nigeria.
Obadiah Mailafia, former deputy governor of the Central Bank of Nigeria (CBN), told BusinessDay that Nigerians were losing confidence in their government and in their future and unless the government offered them grounds for renewed hope, things would get worse.
Mailafia raised the alarm that Nigeria’s economy was back in the woods and lamented that there would be hunger in the land, more poverty, more unemployment and more general misery.
The former CBN deputy governor was of the view that the task of leadership was to bring the people back together, offer them hope of a better future and to institute long-term reforms that would unleash the energy and creativity of the people.
He said it was not only worrisome but also bad for long-term investments and long-term sustainable growth given that
the two recessions were almost coming back-to-back.
Mailafia expressed fears that Q4 2020 might find Nigerians in the same pernicious trend unless urgent policy action was taken.
The former CBN deputy governor pointed out that it would be worrisome if the prediction that the annualised average for the economy this year might be a negative growth of -3 percent considering the fact that the population grows at an annual average of 3.2 percent.
He explained that Small and Medium Enterprises (SMEs) were among the first to feel the impact when the economy goes into recession because the bulk of the economy was being run by SMEs.
On food crisis, Mailafia noted that food prices had shot up dramatically due to the agrarian crisis the rural countryside had been facing, particularly in the Middle Belt.
His words: “Obviously, it is a worrisome development, especially that the two recessions are almost coming back-to-back. Such traumas are very bad for long-term investments and long-term sustainable growth. We were once the hope of the continent. Unfortunately, we are on the verge of becoming “the Sick Man of Africa”. This cannot be a good testimony.
“If the data from the National Bureau of Statistics (NBS) are anything to go by, the nigerian economy is already technically in recession. An economy is said to be in recession when negative growth is registered for two consecutive terms within a year. As to whether this trend will affect the next quarter of Q4 remains to be seen. One of the laws of motion in Newtonian physics says that a body continues in motion until an equal and opposite reaction causes it to stop or change direction.
“Economists often talk about the phenomenon known as path-dependence. Whether negative or positive, a growth path is likely to continue on the trajectory it is on until we decide to do something about it. So, I am afraid, Q4 might find us in the same pernicious trend unless and unthil urgent policy action is taken. Some are already predicting that the annualised average for the economy this year might be a negative growth of -3 percent. That would be quite worrisome indeed, especially considering the fact that our population grows at an annual average of 3.2 percent. That would amount to a net negative growth of -6.2 percent for 2020.
“Obviously, when recessions occur, businesses large and small suffer. The bulk of the economy is run by SMEs, many of them in the informal sector. They are among the first to feel the impact when the economy goes into the doldrums. This will translate into more unemployment and more poverty, unfortunately.
“There is already anecdotal evidence of a major food crisis looming ahead, particularly in the far North. Food prices have shot up dramatically. Much of this is due to the agrarian crisis the rural countryside we have been facing, particularly in the Middle Belt, which is indisputably the food basket of the country. Rural banditry and herdsmen militias have compounded the challenge of insecurity in the rural areas. Many farmers are too scared to go their farms. This translates into dwindling food production. Simple economics tells us that where there supply shortages, prices will shoot up. This is what we are facing at present. In addition, the recent EndSars youth protests that were hijacked by hoodlums led to sacking of warehouses. Many of those ransacked were food security silos. Unfortunately, what this means is that when hunger rears its ugly head, there will be no emergency supplies to help the most vulnerable groups.
“No, in purely technical tearms, we had fully recovered from the 2015/2016 recession by 2018, when the economy had resumed on the path of growth. Unfortunately, that growth has never attained anything close to 3 percent, which, for me, is the minimum rate that the economy needs to be in. Technically, we had recovered. But now that, within two years, we are back in the woods, it is going to be tough for all economic actors and for our citizens in general. There will be hunger in the land. There will be more poverty and more unemployment and more general misery. This could also translate into a deepening of social problems such as crime and social unrest. Some are saying we haven’t seen the last of youth restiveness. As a development economist, I worry about the ultimate implications in terms of collective welfare , social cohesion and long-term stability of the polity.
“Your question presupposes that there is a magic wand to these things. Unfortunately, the lessons of experience make it abundantly clear that there are never magic wands anywhere. Leaders need to think deeply about the challenges we face and they must come up with comprehensive solutions that are both sustainable and effective. The wisdom of John Maynard Keynes is relevant here. During an economic downturn, countercyclical policies are needed to get the economy back on track. But these are not just about economics. There is a crisis of confidence and a crisis of legitimacy underpinning the looming recession. Nigerians are losing confidence in their government and in their future. Unless we offer them grounds for renewed hope, things will get worse. The task of leadership is to bring our people back together; to offer the youth hope of a better future; and to institute long-term reforms that unleash the energy and creativity of our people.”