Just as widely predicted, the Nigerian economy slipped into recession at the end of the quarter ending September – the aftermath of two successive quarters of growth in the negative territory. The confirmation came vide a twitter by Yemi Kale, the statistician-general: “Q3 2020 Real GDP contracted for second consecutive quarter by – 3.62 per cent”.
The National Bureau of Statistics (NBS) would later explain the scenario: “The performance of the economy in Q3 2020 reflected residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 in response to the COVID-19 pandemic”.
It noted further: “As these restrictions were lifted, businesses reopened and international travel and trading activities resumed, some economic activities have returned to positive growth”.
Merely from the NBS statement, the recession would appear inevitable. In the second quarter, it was a case of an unprecedented lockdown forcing a massive contraction of 6.1 per cent. For the third quarter, the easing of the lockdown did some mitigation although it still fell far short of pulling off the magic of positive growth, particularly with the rippling effects of the COVID-19 pandemic still evident.
Pandemic or not, the fact remains that the latest recession, just like that of 2016, could also have been explained by the same old vagaries of production and prices of crude oil in the global energy market. In both cases, oil price was a major factor, with output and demand thrown into the mix. To that extent, it seems reasonable to state that the prospects of imminent recovery would be tied to those twin dynamics of crude output and price. For a country whose crude supplies some 50 per cent of the government revenues, and also accounts for nearly 90 per cent of the country’s foreign exchange earnings, the impact can only be imagined. This is where, in our view, government’s projection of an early recovery appears somewhat exaggerated.
In the meantime, we commend the government for the vast range of initiatives currently being undertaken to reflate the economy, particularly the growing number of relatively low interest loans being made available to operators in agriculture, manufacturing and other areas of commerce – sectors with proven potential to generate employment. But the government must also tame the Boko Haram monster if these efforts are to yield results. The killing of 43 rice farmers in Borno State on Saturday can only compound food insecurity in the country.
We expect greater push to ensure the completion of on-going railways and roads infrastructure to give muscle to the diversification efforts. It seems the least the government can do to keep the economy on an even keel, reduce poverty and ensure that the economy exits the recession at the shortest possible time.
Overall, we must state that the real challenge remains one of getting the different classes of actors in the economy to play their part. To state that the government cannot do it alone is merely stating the obvious. Part of the urgency of the moment is for the government to take deliberate and measured steps to redirect the economy from the current consumptive path to a productive one. Incentivising the banks to lend more long term and on reasonable terms would certainly be a good step forward, just as our manufacturers will need to demonstrate greater resourcefulness at this time.
For instance, we cannot have the body of manufacturers perennially pressing their case for more and more forex even when it is common knowledge that a good number of the requests are no more than covers for illicit capital transfers. With COVID-19 putting the global supply chain under severe strain, it seems to us the best time for industry leaders, government and the monetary authorities to finally get together to fashion out a workable framework for backward integration, with specific timelines. The manufacturing sector has for far too long made fetish of forex; the time has come for the sector to be made part of the solution.
If there is any single lesson that successive cycles of recession has taught, it is the destructive power of the black market segment in the foreign exchange market. It is certainly not sufficient as Central Bank of Nigeria (CBN) Governor Godwin Emefiele is wont to do, to deny that the segment, which he puts at five per cent of the forex market, is anything but thriving. Or that it now constitutes a marker of sorts to the official market. If only for the health of the naira, the challenge at this time is for monetary authorities to find a way to root it out of existence.