How Nigeria can avert another recession –Experts

How Nigeria can avert another recession –Experts

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.