Nigeria’s deepest economic contraction in 10 years in the second quarter (Q2) of 2020 means Africa’s largest economy will need to embrace rapid reforms if it is to rebound from the slump by early next year.
Exacerbated by the recent economic lockdown to contain the spread of the novel coronavirus, the second-quarter contraction of -6.1 percent is the deepest Nigeria has witnessed since 2004, as the economy was faced with the double challenge of lower oil prices and Covid-19 pandemic.
The National Bureau of Statistics’ (NBS) gross domestic product (GDP) numbers for Q2 2020 did not come as a surprise to many analysts given the outbreak of the Covid-19 pandemic, which worsened the country’s underlying economic challenges.
While analysts expect Nigeria’s economy to report less contraction in the third and fourth quarter of this year, it is almost inevitable that the economy will post negative full-year growth.
On what Nigeria can do to boost economic rebound, Oluebube Ezeoke, a senior analyst at Enzo, Krypton and Company, says Africa’s largest economy would have to bring down food inflation, the key driver of Nigeria’s inflation.
“The agricultural sector will need a revamp to keep the rising food inflation down. The financial services sector is also a point to focus on as there is prospect for growth,” Ezeoke states.
According to Ezeoke, “A lot of people are scared to put their money into the economy because of the uncertainties surrounding exchange rate. So, there need to be more incentives to attract inflows into the economy.”
While Gbolahan Ologunro, an analyst at Lagos-based CSL Stockbrokers, believes government can do very little to mitigate the decline in the remaining quarters because oil prices are not within its control and OPEC has put a peg on oil production, he explains that while there have been policies to drive the oil sector, “there is no incentives and coordination about how output can be increased.”
Yinka Ademuwagun, research analyst, FMCGs, United Capital plc, thinks that lifting the last layer of the Covid-19 restrictions, the dusk-to-dawn curfew (10pm – 4am) targeted at night-time economy, and limitations of gathering more than 50 people will create a further boost for the economy.
“We believe the government or monetary authorities will need to go beyond pumping or injecting liquidity to stimulate growth across sectors,” Ademuwagun says, adding that the Nigerian government would need to “concentrate on driving productivity across sectors by leveraging technology.”
He also recommends that the government “should refocus on the attainable milestone of further improving ease of doing business within the country.”
The International Monetary Fund (IMF) recently revised downwards its projection for Nigeria to -5.4 percent from a -3.4 percent projection in April 2020. According to the IMF, the forecast was influenced by the larger than expected storms to global value chains due to the coronavirus, affecting global demand for goods and services.
The Washington-based organisation expects poorer nations dealing with the disease to have longer economic recoveries as lockdowns continue in the worst-hit to global GDP since the financial crisis in 2008.
“Even oil-dependent Nigeria, which because of the oil price plunge should be hit worse than many in Africa, has outperformed most developed market economies in Q2 2020,” Charlie Robertson, tweeted on Monday. He thinks this could indicate a positive signal for other sub-Saharan African economies.
While this may be the case, Nigeria’s GDP contraction does not fully represent the sufferings of Nigerian households. The Nigerian economy now can be best described as a stagflated economy, a condition described by slow, declining or contracting economic growth and relatively high unemployment, or economic stagnation, which is at the same time accompanied by rising prices (i.e. inflation).
The NBS recently reported unemployment rate rose to 27.1 percent while inflation accelerated to 12.8 percent.
According to a World Bank report that assesses economic and social developments in Nigeria, the country’s economy would contract by 3.2 percent this year. This was on the assumption of a yearly average oil price of $30 per barrel. It also assumes Covid-19 would have started easing out by the second quarter of 2020.
Based on the World Bank’s projection, BusinessDay’s analysis expects Nigeria to see a slower contraction by 3.85 percent in Q3 and Q4, respectively, to validate a full-year contraction of -3.2 percent in 2020.
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