OVERVIEW OF: Way Out Of Nigeria’s Economic Recession
Africa’s largest economy, Nigeria lost its footing as it officially slid into its second recession under five years. The oil production in the country fell to a four-year low under the regime of President Muhammadu Buhari. This has brought to light the failures in his administration. As a mono-economy that largely depends on the proceeds from the oil sector, the country contracted in the third quarter of the year, based on official data made available.
In 2016, the country suffered an economic downturn for the first time in over two decades and since then, it has been struggling to get back on its feet. There has been a rise in fuel prices as well as electricity tariffs due to the recession.
Earlier in the year, the World Bank had predicted that the collapse in oil prices combined with the COVID-19 pandemic was going to plummet the Nigerian economy into a severe economic recession, the worst since the 1980s. It didn’t come as a shock when the country eventually slumped into recession.
A recession is said to arise when the economy plunges significantly for at least six months. Simply put that a recession occurs when the Gross Domestic Product (GDP) growth rate is negative for two or more consecutive quarters.
According to the National Bureau of Statistics (NBS), the country’s gross domestic product shrank by 3.62 per cent in the third quarter of the year which ended in
September. In the quarter of 2020, it had contracted by 6.1 per cent, suggesting a slump in the country’s economy. The country has basically gone through contractions for two consecutive quarters.
“Cumulative GDP for the first 9 months of 2020, therefore, stood at -2.48 percent,” the NBS said.
The oil sector fell by 13.89% (year-on-year) in real term. The average daily oil production recorded in the third quarter of 2020 stood at 1.67 million barrels per day (mbpd), or 0.37mbpd lower than the average production recorded in the same quarter of 2019 and 0.14mbpd lower than the production volume recorded in the second quarter of 2020.
The slump in the country’s economy is mainly ascribed to the lock-down restrictions put in the place by the government during the period of March to August 2020 across the country with the intention of preventing the spread of the COVID-19 pandemic.
Mass employment is a huge problem plaguing the country. Due to the severity of the crisis, scores of families were made to dig into their purses just to survive because the daily commercial activities had been disrupted and they were forced to stay in their homes till the coast was clear. People were laid off from their jobs because some companies/ organizations could no longer afford to pay them while some others suffered salary cut.
Prices of goods and services also shot through the roof during this period. The service sector contributed to the economic downturn due to the fact that there were problems with domestic demand and supply, trade, and finance. The NBS had revealed in August that the economic decline in Q2 was largely caused by lower levels of both domestic and international economic activity resulting from nationwide shutdown efforts aimed at containing the COVID-19 pandemic. The sector contributed 8.73% to total real GDP in Q3 2020, down from 9.77% and 8.93% respectively recorded in the corresponding period of 2019 and the preceding quarter, Q2 2020. Also, the non-oil sector grew by –2.51% in real terms during the reference quarter, which is –4.36% points lower than the rate recorded in Q3 2019 but 3.54% points higher than in the second quarter of 2020. In real terms, the non-oil sector contributed 91.27% to the nation’s GDP in the third quarter of 2020, higher than its share in the third quarter of 2019 (90.23%) and the second quarter of 2020 (91.07%).
According to The Guardian, failure to save for the rainy day as well as poor monetary and fiscal policies, according to the central bank of Nigeria is one of the reasons Nigeria slumped into recession. People undermine the importance of saving, forgetting the fact that it comes in handy when faced with financial emergencies.
Similarly, the federal government keep on garnering more debt. According to the Nigeria public debt report released by the Debt Management office, the country’s Total Debt Stock (Foreign & Domestic), as at June 2020 stood at N31.01 trillion ($85.9 billion)- 8.31% increase when compared with N28.63 trillion ($79.3 billion) recorded in March 2020. Domestic debts stood at N19.65 trillion ($54.42 billion) as at June 2020. Foreign debt grew by 13.8%, compared to $27.7 billion (N9.9 trillion) recorded as at the first quarter of the year. Nigeria’s public debt grew by $22.09 billion in the last 5 years, indicating an increase of 34.6%. The recent increase in Debt Stock was attributed to the $3.36 billion Budget Support Loan from the International Monetary Fund (IMF), New Domestic Borrowing.
The high-interest rates have also scared investors away. During the November meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria, the monetary policy rate still maintained 11.50%, which is considerably high. The U.S. dollar exchange rates have increased and this has majorly affected those into importation business.
Effects of recession on individuals and families
An entrepreneur, identified as Kelechi, who deals with buying and selling of human hair, raised an alarm over how the dollar exchange rate had affected her business. She revealed she said that she was unable to import goods because the dollar agent informed her to add more money to the money she had already paid. The hair seller said that the dollar agent had previously complained about dollar shortages.
Jumoke Williams, a female banker, disclosed how the recession has affected her saying;
“There has a lot of pressure at work to meet up with the budget assigned. In my personal business, I have noticed a reduction in rate of orders from customers. The increase in the Foreign change rate has also affected me due to the fact I import the goods I sell from outside the country.”
A restaurant owner, Jide Bankole, said that he had to let go of some of his staff during the coronavirus period.
“Due to the impact of coronavirus, I was made to lay off some employees in my organization just to stay afloat and now I have limited number of hands so there is pressure on each staff to meet up. My restaurant was closed during the lock-down period and the #EndSARS period so we didn’t make sales. Money keeps coming little by little. I am happy my shop was not looted or destroyed by those hooligans.”
Mr Babatope Openiyi, librarian, 36, finds it hard to sustain his family consisting of a five-year-old son and a three-year-old daughter. He tells Information Nigeria that the COVID-19 pandemic and the #EndSARS protests took a heavy toll on the citizens.
“You can imagine the level of hardship we have gone through in this country. Although I work as a librarian, I also own a bookstore. It has been hard for me to pay all the bills – light, water, waste, name it. I also have to provide for my children. My take-home used to be about N75,000 monthly. Now, what can N75,000 do for two adults and two children in a month? My store was almost looted during the #EndSARS period. But I guess people don’t read anymore or want to. Looting a bookstore in a pandemic? Now, it’s recession. People wouldn’t even remember my store exists anymore, except students.”
Mr Nduka Eze, pharmacist, 39, says the recession is not helping his retail pharmacy.
“I am a man of principle. The country is being flooded with adulterated drugs than ever before due to the pandemic and the aftermath of the protests. It’s becoming even more difficult now that there is a recession. People are complaining that the prices of drugs are becoming very expensive and costly. But I still have to get authentic drugs at affordable prices on my shelves. The recession is definitely making my business slower and depressing.”
Survival being the primary instinct of humans, there is a need for Nigerians to stay afloat during the current recession. Considering that the end of the recession is not predicted to be soon, delay in finding ways to handle the situation may become disastrous.
While moderation appears to be the commonest solution to the economic recession, there are some concrete steps that can be taken in order to cushion the effects on individuals and families.
Although these steps are not long-term plans, it becomes necessary at a time like this. It is believed that if these steps are followed, Nigerians would not be adversely affected during this period. It is also to prevent a worsening of the situation.
A good solution to consider is a daily source of income. This will help parents who have mouths to feed and monthly utility bills to pay not fall into debts. A daily source of income in addition to the monthly salary will take care of the rough edges associated with staying afloat during the recession.
Also, this is not the time to ‘keep up with the Joneses.’ This is the time to live within one’s means. While it is good to desire luxurious items, an economic recession does not present the opportunity for such frivolities. Necessities such as food, clothing, and shelter should take precedence over status symbols such as fine dining, frequent cinema-going, expensive skincare and gadgets – all which aid the standard of living but can be done without for this period. In other words, except it is absolutely necessary, it should not be purchased.
Unemployment being one of the contributing factors to the recession, those out of employment should consider taking on jobs that can yield a stable income even if it is not as high as they desire. Job security should not be taken for granted during this period. A stable job will go a long way in helping individuals and families weather through the storms of the recession, especially for individuals who have to cater to the needs of a loved one or the other.
Still on status symbols, it becomes necessary at a time like this for parents/guardians to weigh the academic needs of their children/wards vis-à-vis the desire for social climbing and hobnobbing. Taking advantage of government-owned schools that provide quality education is another way of easing the burdens of the recession. If at all private education is considered, affordable ones should be the top choices.
The importance of savings cannot be overemphasized at this point. Citizens are advised to cultivate the habit of savings no matter how little it may be. After the needs of children and the elderly who fall within the dependent category of the workforce are met, a portion of the earnings should be saved in such a way that the temptation to go back and take out of it is reduced to the barest minimum.
These steps, if duly followed, will help alleviate the effects of the recession. With a downsized family and individual budget, surviving the hard times should not be a herculean task.