By Merit Ibe
Economic experts are currently sounding discordant notes on the economy, and urging the Federal Government to sit up to avert a looming recession that can cripple the economy.
Those who raised fears of another recession, agreed with the views expressed by the President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Ide John Udeagbala, who said recently that economy was operating below its productive capacity as reflected in all key indices such as high unemployment rates, slow growth, negative terms of trade and rising debt service obligations among others.
Udeagbala had drawn attention to the fact in the last seven years, Nigeria had experienced two recessions. He stated that if the right policies were not put in place to improve economic growth, the country might head into a third recession in the fourth quarter of this year.
Nigeria had recorded a recession in 2016, followed by a second one in 2020 occasioned by the COVID-19 pandemic, which caused a significant decline in oil revenues as global economic activities stalled for months.
Generally a recession occurs with two consecutive quarterly negative growth of Gross Domestic Product (GDP).
However, while allaying the anxiety of a third recession raised by Chief Udeagbala, the Chief Executive Officer, Centre for the Promotion of Private Enterprises (CPPE), Dr Muda Yusuf, argued that if the uptrend in crude oil persists, it was unlikely that Nigeria will slip into a recession, adding that there is a strong correlation between GDP performance and global oil price.
His words: “But there are headwinds to the macroeconomic environment. The debt service burden may remain elevated, inflationary pressures would persist, risk of further depreciation in the exchange rate remains high. These macroeconomic fundamentals pose significant risks to business confidence, and the welfare of citizens.
“Of course, we would continue to contend with the challenges of insecurity in the near term. This of course has significant implications for agricultural output and food security.”
However, Yusuf said the bigger issue to address is not the abstract concept of recession, but the impediments to productivity and welfare.
“Players in the economy are more concerned about what can be done to moderate energy cost, stabilise the exchange rate and improve the security situation in the country. There are also human capital development issues which require a lot more attention.
“The truth is that as the 2023 elections draw closer, governance distractions increase. There is much more attention now on politics than on governance. Such scenarios have adverse implications for the economy.
“So, for sustainable economic recovery, we need to accelerate the activation of critical reforms. This would be in oil and gas, especially the full implementation of the Petroleum Industry Act (PIA), the foreign exchange policy and trade facilitation issues.”
On his part, Chairman, Manufacturers Association of Nigeria (MAN), Apapa branch, Frank Onyebu, agreed with the concern expressed by the NACCIMA president, saying: “It is quite apparent that Nigeria is headed for another recession. All available indices support this assertion. To avert it would be an uphill task. The government would have to go out of its way to make it happen – not by the usual aimless spending jamboree but by a deliberate, structured expenditure pattern that targets the real sector of the economy.
“The government should create a deliberate policy to support agriculture as well as manufacturing. These sectors, if given the required support, have the ability to lift our economy out of any potential recession. The support should come in the form of massive investment in infrastructure, preferential credit availability as well as FX allotment, tax holidays and a deliberate improvement of the Ease of Doing Business policy put in place by the Muhammadu Buhari administration. At the same time, the government should, as a matter of policy, reduce the high cost of governance while tackling the high prevalence of corruption as well as insecurity.”
He said if these measures are properly implemented, they have the combined potential of not only sustaining existing investments in agriculture and manufacturing but would, in the longer term, attract a lot more investments. The enormity of jobs created would surpass any short-term shortfall in government revenue.
“The budget would definitely be reduced to a manageable level if corruption and high cost of governance is controlled. That is why the government has to do something about the current unsustainable high cost of governance.
“Unfortunately we have borrowed so much that we have fallen into the category of highly indebted countries. We are obliged to service our debts. We can renegotiate the debts, but a large chunk of our budget would still go into debt servicing. We could, of course, call for debt cancellation, but that would be very difficult to achieve without a deliberate effort to fight corruption.” In the same vein, Chairman, SMEs Group of the Lagos Chamber of Commerce and Industry (LCCI), Daniel Dickson-Okezie, concurred that the economy is obviously heading towards a third recession.
He said: “I’m surprised that the economy is still moving going by what is happening. The economy is not doing well. Before COVID-19 pandemic, we were managing, but after the pandemic things got worse. Some countries are already recovering. But in the case of Nigeria, our economic managers are not getting it right. In the sense that the economic policies don’t seem to have a particular direction. Policies keep changing. The rate of inflation has been on the increase, the nation is still import-dependent, our production capacity is not improving. The volume of export has drastically dropped by more than 60 percent between 2018 and now.
“The agric sector is now bedevilled by security issue, especially the core North. The South East is gradually turning to a war zone and Mondays have been cancelled as a work day, which has cost the loss of billions of naira. In this political era there is mobilisation of touts and light arms are in circulation, worsening the case of insecurity. Investors cannot come in.”
Dickson-Okezie berated the top echelon of the public officials responsible for managin g the petroleum sector, saying, “It is not managed well. We keep hearing of stealing of crude and nobody is doing anything about it.
“We have been clamouring for diversification of the economy. Now the fluctuating price of refined petroleum products is affecting the economy and has multiplier effect on both goods and services, thereby putting pressure on inflation.”
For the power sector, he said things were getting worse, leaving individuals and corporate bodies to rely on generators to produce goods. End at the end of the day, producers and service providers would put the cost on consumers.
“Our foreign reserve is not getting better. The budget is a critical area. There is no money to fund the budget, rather we are relying on borrowed funds to finance our budget. It’s ridiculous.”
Countering the view that the country might go into another recession, Economist and Partner at PricewaterhouseCoopers (PWC), Andrew Nevin, noted that recession requires two quarters of the economy actually shrinking, stating that the country was just experiencing a slight slowdown in rate of growth and not a recession.
“Well, the western countries are going into recession, so I would not say no risk but let us pray we do not follow. The global economy is fragile and it’s very likely there will be recession only in developed countries given the inflation and the impact of the Ukraine-Russia war. But this does not stop Nigeria from having economic growth. We are optimistic.”
He said a lot needs to be done on developing human capital and critical infrastructures. “There is no reason that Nigeria can’t continue to grow. Our growth does not depend on world economy but on the decisions we make.”
For his part, Chairman, Financial Group of the Lagos Chamber of Commerce and Industry (LCCI), Obinna Anyanwu, said although the economy’s growth remains slow, it is not in any way heading towards recession.
He said: “I don’t see recession. Actually the economy has not done well as expected. We are supposed to have benefitted from the Ukraine and Russia war in terms of oil price, but due to vandalism and other challenges, we are not meeting up with our quota. The oil price has helped us in one way and on the other hand pushed energy cost up in Nigeria which is also driving inflation. The challenges from China are also affecting the economy. Two major cities, Shanghai an,d Beijing have been locked down. This will put pressure on the global supply chain that is already weak. However, the economy is beginning to adapt. People are looking inwards to see what they can produce. The general insecurity is still an issue. In the core North, farming has not resumed, so agric products are not forthcoming.
For the Fintech space, Anyanwu said Nigerians were doing very well in terms of foreign capital coming in for the venture firms to scale up operations.
“We are in a sort of shadow economy, the government is not capturing the data of what is happening. So, on the surface, one might say another recession is about setting in, but looking at it, there are those invisible hands holding the economy, making it resilient. Like what is going on in the Fintech space where many are working from home with their laptops and receiving payments from abroad in US dollars and converting to Naira. We don’t see such transactions going on. They are all not formalised, government is not engaging to understand actually what is going on in that sector. That sector is boosting the economy.
“Remittances from Nigerians in the Diaspora is helping the economy too. Nigerians abroad now send hard currencies, taking advantage of the high exchange rate. They build and establish businesses, taking many out of unemployment market. Government does not have any way of tracking these things because they don’t make efforts to do so. So these things are pushing the economy to stability. Economic activities are going on that government does not track, that is why when people predict doom for the country’s economy, it does not happen.
Developed economies have a way of tracking the rate of economic growth, which we should do in Nigeria.
Anyanwu is of the strong belief that the economy is resilient. “It operates like an orphan; fends for itself. That is what Nigerian businesses do here, we are operating on individual basis and levels. Operating like we don’t have a government. We use our generators, dig our boreholes for water and get security for ourselves. We just move on knowing we have a failed government. If you wait for government, you will wait for ever.
“The economy is slow but steady. It’s moving. Don’t be bothered about the shocks and inflation rate, people are engaged in jobs that are holding the economy. We are taking the bull by the horns and doing things for ourselves.
“Nigerians are hopeful and enthusiastic. The economy is not a ghost. It’s made up of human beings, it will never give up. This is a political era and money is changing hands. It’s circulating. Whether we like it or not, politics is big business.”
From observation, most SMEs run their businesses on loan facilities and the situation impeded their capacity to service these loans effectively, so government intervention is required to forestall massive business shut down.
Key sectors like manufacturing, maritime, aviation, education, hospitality, financial services and the creative industry, need target bail-outs, relief and supports to stimulate the economy to avoid business closures and huge job losses. Further more, to assist and support the real sector at this time, regulators and tax authorities can also come up with critical policy actions and economic palliatives to keep businesses in operation.
“As a nation, we can leverage and emulate the United Arab Emirates which diversified their economy by reducing dependence on oil receipts from100 per cent to only 35 per cent by considering investments and expansion of their service, tourism, real estate and smart industries. In Nigeria, some sectors can be considered to diversify our revenue base, they include – agriculture, transportation, information technology and digital economy.
“If put in place it will reduce millions of dollars if not billions spent yearly on importing basic goods and food commodities that can grow locally. Further attention should equally be given to our trade policy and SMEs which are the bloodline of most economies.
Having and strengthening a strong trade policy will help create millions of jobs, grow local industries and expand the economy. In simple terms, it will help with the industrialisation of the country and rejigging the economy in the long term.
Though the ease of doing business initiative is essential, the rule of law and efficient legal and regulatory system is also required for simple contractual disputes to be resolved. Investors, both local and international, will not likely consider investing in a country where simple contractual disputes take between 2 to 15 years to resolve.