Nigeria’s journey into another economic recession in four years has thrown up a lot of discussions, not least, the exit time of this latest episode. Naturally, scenarios are being simulated to forecast the likely exit time. However, a meaningful scenario must a fortiori take into account the a priori conditions that sent the economy into a tailspin.
It is no longer news that in Q2, the country posted a worse situation in terms of its GDP growth; -6.1 percent as against the succeeding Q3 which has been put at -3.62 percent, thus officially confirming the country as being technically in a recession.
The COVID-19 pandemic has been pinpointed as the chief culprit in dragging the country’s GDP in Q2 to its worst outing in recent times. With total lock down for the most part of the quarter, nothing extra ordinary would have been expected. Businesses could not operate, supply chains were disrupted and even purchasing power badly affected. Add all that to the dip in the crude oil (the main stay of the economy) price which sent the economy reeling and the fact that sound economic management has not exactly been the strong point of the country of recent, nobody would have expected anything otherwise.
The drop in Q3 figure to -3.62 percent has more to do with the easing of the lock downs and slight improvement in global oil price within the period than any other factor. Both internal and external easing of lock downs was experienced during this quarter; reasonable flights both domestic and international were recorded. Some hitherto shut down businesses breathed life, though many are yet to recover.
The expectation that the world economy will shrink by over 4 percent this year – more than what Nigeria’s GDP posted in Q3 – has been comforting news to many. That has made many in this group to posit that Nigeria’s current recession will soon be a thing of the past. To them the next quarter may signal the bouncing back of the economy, in which case the recovery will take a “V shape”.
A less optimistic view but close to the above is that the worst the economy can experience recession can’t be beyond Q1 2021. It may be possible but what parameters are there to inspire such optimism? However, it must be noted that if the economy exceeds Q4 in its recovery trajectory, the shape of recovery is technically no longer “V”.
Of all the contentions and postulations, one poser remains sticky: do the facts on ground conduce to a “V shape” recovery? Methinks not.
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For one thing, the negative effects of #EndSARS will come into play in the next quarter computation. For over two weeks in October, economic activities were grounded to a halt as a result of the #EndSARS protests. It was almost like the lock down, albeit to a lesser degree, experienced at the height of the COVID-19 pandemic.
Autarky is not an economic policy in Nigeria presently and therefore much of her recovery will depend on what happens to her trading partners, especially those buying her crude oil. Unfortunately, news of fresh lock downs in some parts of Europe obviously is not so cheery even with the COVID vaccines being developed. To date, Foreign Direct Investments (FDIs) have been so sparse, no thanks partly to the management of the country’s foreign exchange market by the Central Bank of Nigeria (CBN). Foreign Portfolio Investments (FPIs) have virtually dried up!
Talking of oil, Nigeria has serious exogenous factor to contend with. Its recovery will to a large extent depend on the favourable meeting of minds between OPEC and +OPEC in respect of production cuts in order to stabilize price. Nigeria will hope to recover in Q1 or Q2 2021 if it is allowed to maintain a production quota not less than two million barrels per day or at worst what is proposed for 2021 budget and at a price towards the high $40/barrel and possibly mid $50/barrel. The downside however, is that the pump price of imported Premium Motor Spirit (PMS) will increase beyond what it is presently on account of the deregulation of the downstream oil sector if the above range of prices will be maintained. This will impact negatively on many households and the Micro Small and Medium Enterprises (MSMEs) already reeling from harsh economic environment.
The place of the MSMEs in the Nigerian economy can never be over stressed. However, the situation today is that many of these enterprises have gone under, leaving in their trail massive unemployment. Unless something urgent is done to bring many of them back on their feet, bouncing the economy back quickly may be a mirage. Thankfully, the CBN appears to be on course in this direction through its many interventions and one can only hope that the efforts are diligently sustained.
Having dismissed the likelihood of a “V shape” recovery based on the foregoing, the country will better brace up for a “U shape” recovery if some of the factors highlighted hold sway. Aside the above, the country must as a matter of urgency beam its searchlight on the agricultural sector. Its performance so far is below expectation. What is more, with better synergy between the monetary and fiscal authorities coupled with quick and faithful implementation of the Economic Sustainability Plan, the “U shape” recovery may just be in sight.
