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Saturday, June 11, 2016

Can Nigerian Economy avoid Recession?

     The word recession according to investopedia means, "a significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP)". Due to the current problems Nigeria found herself in economists have started talking of recession to the extent that some have predicted it to occur next month, when the second quarter report on the economy would be ready. South Africa, Africa's other biggest economy has entered recession, according to  some analysts. This is the second time in the last one decade that Nigeria has inched near recession, the other time was during the global economic melt down of 2007 and its Nigerian version of 2009-2010. The last recession unlike the impending one was as a result of global financial crisis that affect the global financial industry including Nigerian banking sector. As a result, the Nigeria stock exchange collapsed, unemployment increased (including massive sacks by the private sector more especially banking sector), and closure of businesses. But, at that time Nigeria fall back on her savings and used them to bail the economy out (AMCON was funded from such savings). Unlike today when there is no savings left by previous administration to fall back on. It is now up to Buhari regime to come out with creative ideas of how to get the economy out of this quagmire it found itself. The first thing i will suggest is that Buhari shall welcome modern ideas that have already been tested elsewhere around the world and have worked. 

      What are the major factors responsible for the current economic woes, and that will probably push Nigerian economy into recession:

1- Falling oil price in the international market: oil is the major foreign earner for the Nigerian economy that provide almost 90% of our foreign exchange; it shall be clear now why continue fall in the price of this commodity pushes Nigeria into recession. Unless the country has large savings to fall back on, which i am very sure we do not have.

2- Empty Treasury: the treasury the present administration inherited from the former regime of Jonathan was virtually empty, even former President Jonathan himself last week declared that he was forced to squandered about $18 billion Dollars of Nigerian savings. With empty vaults there is no way government can have any leverage to fall back on when the economy goes into problems like we are at the moment. Thus, lack of saving is the same thing as saying the government is bankrupt.

3- Global economic slow down: the global economy has experienced slow grow in the last two years, due to slow down in world biggest economies such as the US and China. That is why demand for Nigeria's major export has continue to decline. 

4- Political transition: the in-coming government had to sort out a lot of other things before it hit the ground running. In the process of doing this there were delays and time was wasted. 

5- Delay in signing and implementing 2016 budget: the current and last government as well as legislative arm of the government shall all bear the blame for the delay in signing the 2016 budget. 

6- Poor revenues and declining earnings: businesses, the major movers of our economy, have experienced declining revenue and profit over the last one and half year mainly due to slow down in economic activities. This in turn plunge the nation into further recession as private sector employers sack workers, firms pay small dividend or no dividend to shareholders; as well as pay smaller tax to the government. This in turn lead to fall in government revenue. 

7 -Insecurity and violence: the current violence and attacks on oil facilities in the Niger Delta have no doubt help caused the current depression in the economy. The government efforts at dealing with Boko Haram insurgency in the North have help restored confidence in that part of the country.

    The answer to the question of 'whether Nigeria can avoid recession' is in negative. I don't see how we can avoid recession when we are already in it. Over the last two years both business and consumer confidence have fallen. Inflation rate has moved from a single digit to a double digit today. Government have to adopt both short term and long term measures to bail out the economy. For the short term measures, the government needs to quickly allow the value of Naira to be determined by the forces of demand and supply instead of being fixed by fiat. The current measures being put in place aim at removing wastage and leakages in government revenue must continue. Government shall continue with it fight against corruption, and the amount of money recovered shall be used judiciously. Government shall immediately release money for infrastructural project such as building of new roads and railway lines. Government shall also devise ways to put money in the hands of people as this will help boost purchasing power and reduce the hardship people are currently facing. In this year budget, government intends to spend more than N200 billion on road construction, this represents 1001 percent increase  from what the previous government budgeted for last year which was N18 billion. Government shall make it policies and plans on the economy open, so that the public know about it economic policy and its direction. This will help remove the uncertainty that is currently hanging over the economy as no body is sure of the next policy the government is going to take. For the long term measures, the government must redirect the economy away from dependence on oil through diversification. The current move toward rejuvenating the agricultural sector is commendable and shall continue. Likewise the development of the manufacturing sector and mining of mineral resources.