As 2016 draws to a close and Nigeria appears to be accelerating steadily seemingly backwards, I write today about multiple recessions, charades and retrogression as well as share my sense of the political economy scenarios that the nation may be facing.
A deepening economic recession
Nigeria by the end of the third quarter of 2016 in August 2016 had recorded three consecutive quarters of contraction in gross domestic product otherwise called GDP, with the economy shrinking by -0.36%, -2a.06% and -2.24% respectively in the three quarters. Observers will note that the size of the contraction has grown progressively larger in each of the quarters! In the third quarter, while there might be a snippet of light in the fact that the non-oil economy as a whole marginally came out of recession with growth of 0.03%, the oil sector plunged further into negative territory at -22.01%. the recession remains fairly broad-based with many sectors apart from oil shrinking rather than growing-manufacturing (-4.38%), oil refining (-.86%)-the combined industrial sector plunged by -13.45%; within manufacturing virtually all sub-sectors performed woefully-cement (-6.26%), food, beverage and tobacco (-5.75%), textile, apparel and footwear (-0.91%), chemical and pharmaceutical products (-1.53%), motor vehicle and assembly (-33.31%), electrical and electronics (-4.08%), wood and wood products (-6.30%), pulp, paper and paper products (-4.33%) etc. Only three manufacturing sub-sectors are marginally growing-non-metallic products (3.02%), plastic and rubber products (3.18%) and basic metal, iron and steel (0.97%).
Other economic sectors outside oil and gas and manufacturing are similarly challenged. Trade has experienced a second quarterly contraction declining by 1.38% in Q3; construction troubled obviously by its dependence on government contracts has contracted for five consecutive months falling by 6.13%; transportation contracted by 0.72% with the key challenge being air transport which contracted by 3.12%; accommodation and food services (hotels and restaurants) contracted for a sixth consecutive quarter by 4.88%; and real estate contracted (its third consecutive quarterly decline) by 7.37%. The public sector contribution to GDP has been impaired since Q2 2013 and in negative for seven quarters falling by 3.57% in the third quarter of 2016. Only four major economic sectors-agriculture (4.54%), finance and insurance (2.84%), professional, scientific and technical (1.40%) and information and communication (1.11%) are growing with the financial sector only turning positive in Q3 after two quarters of contraction.
It is clear that the recession is getting worse, not better after three quarters and there is little reason to imagine that the fourth quarter may not be another tale of woe! Economic problems will not disappear of their own accord and deliberate policy is required to redress the situation.
Multiple recessions
Nigeria’s most significant recession, I think, is the retrogression on policy with the economic recession being a predictable side effect! Think about the gross retrogression concerning foreign exchange policy!!! In effect the country has regressed to an administrative system of FX allocation managed by the Central Bank of Nigeria (CBN), much like the import licensing system we experimented with in the 1980s. No one can say now with any precision how many exchange rates we now have in Nigeria with different exchange rates for pilgrims, CBN “interbank”, interbank, BDC, fuel importers and other groups, apart from the parallel market. Security officials are now chasing black market currency traders around the place, just like we did in the mid-1980s. I am told that a “premium” of between N60-70 per dollar has emerged to facilitate “access” to official dollars and just like it happened decades back, “middlemen” may now be emerging again!!! Beyond FX policy, government policy appears to be in disdain of private capital with government surreptitiously seeming to want to seize back the “commanding heights” of the economy. The most profitable employment, it is becoming clear, in the Nigerian economy, may now be in government and regulatory agencies!
Other policy recessions are emerging in the oil sector. Today it is likely, indeed probable that NNPC subsidises the price of petrol consumed by Nigerians while there are no fuel subsidies contained in the 2016 federal appropriation. The implication of this is that the national oil corporation is probably absorbing operational losses from downstream operations directly into its income statement. This is without transparency and may question the sustainability of the corporation! Everyone I speak to in the sector expects some “conflagration” sooner or later! The common sense option of fully deregulating the downstream petroleum sector has not been taken and everyone just lumbers ahead until inevitable crisis! In the power sector, Nigeria is testing a strange hypothesis-is it possible for privatized power generators and distributors to supply power to consumers at a subsidized price. I am certain that the experiment will fail and one day, perhaps the whole of Nigeria will be in darkness except we abort our march to the precipice.
Democratic retrogression; Political charades
I have previously described the process whereby Nigeria selected a governor in Kogi State as charade emerging from a gerrymandered process with the choice of who will be governor in that state made essentially by the Attorney General of the Federation in consultation with his bosses and INEC. Of course since that selection was made by someone knowledgeable in technical Nigerian law, rather than substantive justice, the Supreme Court of Nigeria may have had no option but to legitimize or ratify that selection. Since that charade in Kogi, we have advanced in similar exercises. The election in Edo State appeared certain to be won by the local opposition party, so a curious security report was contrived by the Police and State Security and the election was postponed for two weeks to enable the government and ruling party “put its house in order”. The result was a “flawless” process by which government’s preferred candidate swept the polls. The security issues that led to the initial postponement of the vote have not been heard of ever since!!! In Ondo State, the process produced a decent outcome in the person of former NBA president Rotimi Akeredolu SAN, but the hands of “Abuja” was seen all over the process!
And last week’s rerun legislative elections in Rivers state were more approximate to a civil war endorsed seemingly by the federal government, its security agencies and the supposed electoral umpire, INEC against a part of the Nigerian State. I have heard and read accounts of party officer shot in the head by security personnel; of persons dressed and appearing like security agents disrupting elections and seizing electoral materials; and of communities terrorized and subdued by agents of the Federal Government of Nigeria. The portents for elections in our nation in the run-up to 2019 do not appear very bright!
And our democratic recession is not only in the area of elections but also concerning the rights and fundamental freedoms of citizens! There are now many citizens who have been ordered released by the courts who remain in detention by the state, in clear violation of the rule of law.
Nigeria scenarios
My sense is that Nigeria is faced with three political economy scenarios which I name “Status Quo”, “Better Days” or “Meltdown”. The decision on where we end up is dependent on what choices policy makers make! Status quo is of course recession and/or low growth with GDP ranging from -2.0% to 2.0%. It is characterized by lack of clarity over economic policy, aversion for private capital, low FDI, and lack of investor confidence. Moving to better days is almost entirely contingent on an economy recovery and growth plan been urgently adopted and more importantly, implemented! It also requires political reconciliation especially in relation to the Niger-Delta to enable oil and gas activities be optimized. It will also require FX policy certainty and the return of private and foreign capital. In this scenario, Nigeria recovers from recession and gradually may find growth between 2.0% to 4.0%. The possibility that things get worse rather than better remains a distinct possibility and indeed with 2.24% recession, we have already taken some steps in that direction! What remains is any or a combination of financial sector deterioration, increasing political risk, continued or worsening social crises and a major anti-market move against perhaps banks, power entities or telecommunications companies.
Opeyemi Agbaje
