As expected, Nigeria’s economy slipped into its second recession in four years after Gross Domestic Product (GDP) contracted 6.1 percent in the second quarter of 2020 and -3.62 percent in the third quarter, respectively. This may have been induced by the COVID-19 pandemic, however, reveals lack of proactiveness on the part of policy makers and weak “shock absorbers” of the economy.
Nigeria’s performance may have outperformed contractions witnessed in most advanced economies of the world and some sub-Saharan peers; however, the reality of things is darker, especially when the GDP is unpacked.
For instance, the wholesale and retail trade sector of the economy recorded its biggest contraction ever at -16.59 percent in Q2 2020 and further dipped -12.12 percent in Q3 2020. This sector is home to Micro Small and Medium Scale Enterprises (MSMEs) which accounts for about 80-85 percent of jobs in the economy.
A contraction of this magnitude explains, to a large extent, the direct impact of the COVID-19 pandemic on households. Relative to the US, retail grew by 2 percent which reflected the government’s $1.6 trillion stimulus package to households to ameliorate the effect of the pandemic.
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Therefore, in contrast to the “not-so-bad” conclusion many analysts or government officers, we maintain that Nigeria’s current economic situation is very bad and unacceptable given years of snail-paced growth in GDP, high unemployment rate, widening poverty net, accelerating inflation and declining disposable income among other disturbing issues.
Hence, instead of pride in a performance obviously poor, we advise that policy makers must focus on matters that require urgent attention if we must lessen the
suffering of the people and restore the economy on a path to prosperity.
For a guide, we encourage the federal government to listen to the advice of the Nigerian Economic Summit Group (NESG) not to encourage policies that make Nigerians poorer. NESG in a recent document highlighted the need to address the high level of insecurity across the country and its impact on the business environment and investment flows, which has contributed massively to the current food crisis, unemployment, poverty, increasing community clashes, rising bloodshed and the absence of peace and tranquillity in the land.
More so, it emphasises the need for a better structured and effective diversification of the economy, addressing distortions in the liquidity and interest rate management of Nigeria’s financial system which is at disadvantage to domestic investors and pensioners.
The government must re-open Nigeria’s closed borders given its negative impact on trade and employment, consider a strong communicating strategy that engages the people and prepares them for tougher times ahead whilst the current reforms take effect.
It should address the mutual distrust and build institutions that work regardless of persons; do complete overhaul of the management of and support for the Agriculture sector and all related sectors with a view to getting more value for our investments, among other things.
In agreement with NESG, we commend the federal government on the political will to end the petrol and electricity subsidy and deregulate these key sectors. However, according to NESG, policies, processes and procedures must be put in place to ensure that all the reforms (beyond price deregulation) necessary to facilitate the smooth functioning of both the fuel and electricity markets are effectively and conclusively implemented.
Though COVID-19 pandemic may have accelerated the impending woes of the Nigerian economy, on the flip side, it has clearly provided opportunities that must be seized and lessons that must be learnt.
It is our expectation that policies should be people-oriented and market stimulating. We advise that bold reforms must be encouraged while myopic policies are discouraged. It may hurt now but we see promise of medium to long-term gains.
Nigeria has experienced the worst recession in the last four years. Hence, a quick recovery should top the priorities of our policy makers. Above all, there is much work to be done and the government must have the political will to alleviate people’s suffering.
