Examination and Forecast of the Nigerian Recession

It is no longer news that the Nigerian economy is in recession; what is news is that our economy is still in recession, and what will be good news is that the Nigerian economy is out recession. Even if it is no longer news, the ordinary Nigerian citizen may not fully comprehend what the Nigerian economic recession entails. Other than knowing that the prices of goods and services are on the rise, that the naira has depreciated, and rightfully lamenting about how his/her day by day living has been affected, not much may be known by an ordinary Nigerian citizen concerning the recession. If being an economist or a politician excludes one from the list of ordinary Nigerian citizens that may not fully understand the recession, then I am an ordinary Nigerian citizen. What I’ve done is called research, and I will lay bare what I have found out to be the causes, effects, and probable solutions to the Nigerian economic recession in a manner that the likes of me (and everyone else) will comprehend.

In times gone by, the Nigerian economy was characterized by the supremacy of exports and profit-making activities associated with agriculture. After independence in 1960, agriculture continued as the stronghold of the economy. Raw materials, consisting of agricultural produce and minerals, were exported to developed nations. Agriculture contributed about 65 percent to Gross Domestic Product (GDP) and represented almost 70 percent of total exports. Generally, the finished products of our industries were less cutthroat than their foreign counterparts, but that posed little or no problem because the local demand for them did not lessen. During this period, the rates of inflation, unemployment (which was around 1.5 percent), and productivity remained somewhat tolerable. The oil boom era, considered to be from 1971-77, afforded the government much needed proceeds; it also created severe structural problems in the economy. By this time, oil revenue represented almost 90 percent of foreign exchange earnings and about 85 percent of total exports. The agricultural sector was hit the most by the excessive attention the government paid to crude oil. In 1971, the share of agriculture to GDP stood at 48.23 percent. By 1977, it had reduced to almost 21 percent. Agricultural exports, as a percentage of total exports, which was 20.7 percent in 1971, reduced to 5.71 percent in 1977. Starting from 1974, the economy became an importer of basic food items. Too much dependence on crude oil made Nigeria a mono-product economic nation, and the amount of money in the reserve of the country unsighted the Nigerian government from properly investing in alternative sources of generating foreign exchange.

An economic recession is officially defined as two successive quarters of negative growth in Gross Domestic Product (the monetary value of all the finished goods and services produced within a country’s borders in a specific period of time). According to the National Bureau of Statistics (NBS), Nigeria’s real Gross Domestic Product growth rate was reported to be -0.36 percent in the first quarter of 2016 compared to 2.11 percent in the fourth quarter of 2015; in the second quarter, Gross Domestic Product was reported to be –2.06 percent. A recession is also characterized by high inflation (the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of the currency is falling) rates, an increase in unemployment, a drop in the housing and stock market, etc. On October 2016, Nigeria’s inflation rate stood at 18.10 percent; unemployment rate was at 13.3 percent as of the end of the second quarter of 2016.

The present economic recession in Nigeria was only a subject of when, and not if, Nigerians will begin to hear the alarm of badly timed and ill moderated policies, coupled with our actions. In fact, I have had conversations with some economic analysts who said that Nigeria can be considered fortunate to have been free from a recession these past few years. Poor economic planning is a major cause of the current Nigerian economic recession. Yes, the Nigerian government, in times past, had stated publicly the normal overviews that every government indulges itself in about diversifying the economy, improving the manufacturing and agricultural sector, encouraging foreign investment, etc. Hitherto, no evidence based, deliberate plans for the growth existed or, at least, most were not put into action. Crude oil export which has been the stronghold of the Nigerian economy (since it accounts for around 70 percent of government’s revenues; 90 percent of foreign exchange) was sold, on average, at $100 per barrel with the country boasting of a production of about 2.2 million barrels per day. Last year, 2016, a barrel of crude oil averaged below $50, and it was reported that Nigeria’s crude oil production fell to 1.63 million barrels per day. The fall in the price of crude oil is reportedly attributed to Saudi Arabia’s decisions on oil production due to the fact that they pump oil at under $10 per barrel which still makes low prices advantageous to them. The fall in crude oil production is mainly due to increased attacks on oil installations by vandals in the Niger Delta region. Another reason for the economic recession in Nigeria is corruption. The inability of the government in times past to ensure clearness and responsibility has bred corruption. This has consistently broadened the gap between the rich and the poor. To make matters worse, stolen funds are hoarded in foreign countries or they are put in all sorts of high jinks that add little, or nothing, to the nation’s GDP. An additional reason for the current recession is the fact that the Nigerian economy is a consumption driven economy. From imported toothpicks, soaps, bags, rice, to education and superfluous medical attention out of the country, Nigerians have, over the last decade or more, derived gratification from embracing imported refined goods and services. It is understandable that we may be in want of some foreign goods and services due to the inefficiences of ours, but this has led to an increased demand for the dollar which has further led to the diminution of our foreign reserve in the quest to gratify unneeded cravings for goods and services that are foreign. This excessive demand for the dollar is also one of the causes of the depreciation of the naira, and I’ll explain. The naira, in the parallel market, keeps depreciating against the dollar because there is not enough supply of the dollar to keep up with the demand for it. The supply of the dollar in our foreign reserve is majorly dependent on the proceeds from crude oil, and it decreased as the price of crude oil fell. On the other hand, the demand for the dollar did not go down because we import a lot, and imports draw out from the reserve. The scarcity of the dollar coupled with a constant demand for it has led to a rise in its value against the naira. Debts and unbalanced budgets are also causes of the economic recession. A look at Nigerian budgets show a large margin between recurring and capital expenses, with recurring expenses, at times, standing at about a trillion naira more than capital expenses. It is only basic economics that for a sustainable economic growth, capital costs should be more than recurring costs. A huge fraction of these recurring expenses are used to pay salaries to persons whose services have no direct impact on the economy, or to settle debts. Charade employment is an additional cause of the present economic recession. A look at government ministries across the country will unveil a lot of unneeded workers who are underemployed. High taxation is also identified as a cause of the economic recession as these put investors off and stiffen the growth of small and medium scale enterprises. In a nutshell, the state of the Nigerian economy is as a result of the erroneous actions and policies of the past; some of the present government administration; some erroneous CBN policies and yes, we also have our fair share of blame.

The effects of the economic recession in Nigeria are no different from the usual effects seen in a recession such as a likely increase in inflation rate, unemployment, and a fall in Gross Domestic Product. Unemployment in a recession is often due to a fall in demand as spending goes down. To demonstrate, doubt often erodes consumer confidence during economic downturns, causing them to trim down their spending, especially on optional procurements. This reduction in spending by consumers can result in less investment spending by businesses, as firms act in response to weakened demands for their products. This will in turn lead to low profits, some workers being laid off, and an inability to employ more workers. The inflation now experienced in Nigeria can be likened to a cost-push inflation. In a cost-push inflation, there is an overall increase in the cost of production. An increase in production cost can be due to an increase in the prices of the machinery and raw materials needed for production, or an increase in tax rates. In Nigeria, most of the raw materials and machinery needed for production require the dollar because they are imported. The imbalance in the demand and the supply of the dollar which has led to a rise in the value of the dollar against the naira inadvertently translates to a hike in the prices of these machinery and raw materials. Producers/service providers will naturally respond by increasing the cost of their goods/services to keep making profits.  

From the causes outlined above, it is obvious that in a way or another, the Nigerian government and masses are responsible for the recession. What the Nigerian economy needs now are solutions, and I am willing to proffer as many as I can. Better still, I will want to state the measures that can be put in place that will indicate that the Nigerian economy stands a better chance of getting out of this recession. To begin with, when the people are strong, the naira will get strong. The reasoning for this is that the real strength of an economy, and currency, is determined by the strength of the people. This brings me to a possible way out of the recession. The Nigerian government, if needed, should pull funds to fortify the people. Talk about strengthening the people, and we have to talk about lowering tax rates so as to attract investments and promote small and medium scale enterprises. Mass unemployment, low purchasing power, and an economic recession will likely last longer if small businesses are being killed by these high rates; facts indicate that small businesses in Nigeria employ over and above 70 percent of labour. Besides, small business entrepreneurs in Nigeria have limited access to loans. The federal government must create substitute sources of capital for small businesses. Talk about strengthening the Nigerian people, and we will also have to talk about strengthening security. Insecurity has cost Nigeria billions in economic losses from the activities of terrorists in the northeast to militants and crude oil pipeline vandals in the Niger Delta. The fastest and paramount solution to the breakdown of law and order is stronger and local police. In brief, there is no economy without security, and there is no security without a police command that has ability and understanding of the region. The Nigerian economy also stands a chance of getting out of recession if corruption is dealt with. To say that Nigeria has lost, and is losing, a lot of money to corruption is an incomplete statement. Nigeria has lost so much more to corruption than money. I’ll just want to say that every dishonest, illegal, or immoral behavior especially from someone in power (or anyone at all) that is unfair and has a negative impact on the Gross Domestic Product of any country should be dealt with by everyone that knows what corruption entails backwards. I will also want to say that the issue of infrastructure in Nigeria must also be looked into to deal with the recession. Power, good transport systems, adequate water supply, affordable housing schemes, refineries, etc, will aid the growth of different sectors of the economy. Instead of giving underemployment a pat on the back with a lot of money, imagine how many jobs can spring from an enabling environment! Asides from the fact that a dual exchange rate favors a certain group of persons in Nigeria, it also maintains a competition for dollars which hikes the price at the parallel market with spring back effects on the interbank rate. I do know that an ordinary Nigerian citizen is concerned that he/she may be negatively affected, but the fact is that the presence of a black market is highly profitable to a few persons in the society and the Nigerian government, without knowing, is losing so much money to them. Furthermore, I wonder if there are other countries with double (or more) exchange rates! ‘Proper’ measures must be kept in place to help appreciate the naira, and I do not think holding on to double exchange rates is part of them (if you know better, you are welcome to disagree). Also, the Nigerian government must refrain from spending, even wasting, money on recurring expenses that in no way add to the Gross Domestic Product of the country. Security votes, which run into trillions, should be downsized. I must also say that the cost of governance in Nigeria must be reduced, and institutions must be strengthened to haul inefficiencies (education and health readily come to mind) and excesses in the public service. In summary, the Nigerian government, if possible, must ensure that capital expenses exceed recurring ones in its budgets. Nigeria also stands a chance of getting out of recession if the Nigerian market is kept open to promote healthy rivalry. The reasoning for this is that it is poor economics to compel reliance on a monopoly. Investors cannot be requested to help improve trade relations while goods are locked out to endorse the businesses of a few persons. Markets should be made to breed on open competition. So how can the Nigerian government help promote Nigerian made finished products? The issue of how reliable Nigerian goods are must be addressed. The Nigerian government must make sure that all manufactured goods have guarantees that are obligatory, with customers being fully protected by the government. Nigerians should be able to see the guarantee label and know that it is backed by law. Legal actions must be taken against companies that fall short of fulfilling this guarantee; in turn, the customers must be remunerated. Proper product documentation can also help enhance the manufacturing sector as goods will be better considered in the local and global markets.

One of the most suggested ways to help Nigeria get out of her recession is to fully become a diversified economy. A diversified economy is an economy that has a number of different revenue streams that provide the nation with the ability to sustainably grow. Diversification provides nations with the security and dependability needed so that if one economic revenue stream should fail, there will be other options for revenue generation. This is where the history of the Nigerian economy comes into play. I have stated that the Nigerian economy grew sustainably when we concentrated more on the agricultural and manufacturing sectors with exports to show for it.  Well, it is time to go back to business as in times past; the government should review the economic restructuring package of 1986. The Nigerian economy experienced a recession in 1982 which was majorly caused by an increased government deficit. As a result, an all-inclusive economic restructuring package was introduced in 1986. The package was aimed at altering and realigning total household expenses and production outlines so as to lessen reliance on imports, boost the non-oil export base, and bring the economy back on the path of sturdy and evenhanded growth. The then and now reasons for the recession may be different, but the Nigerian government may likely learn a few things, perhaps a lot, on how to deal with a bad economy and apply some of the measures to help deal with the present economic situation. The Nigerian government, as a matter of urgency, must invest in and actively promote, by partnering with private and public organizations, and other revenue generating sectors of the economy such as tourism, agriculture, mining, food processing, information technology, all forms of manufacturing, etc. The advantages of a Nigerian economy that is diversified will include: An appreciation of the naira, freedom from worry when crude oil prices fluctuate since Nigerians won’t be overly dependent on it, a rise in employment, lack of disdain for an agriculture made attractive, etc.

What about us? What should we be doing to help the economy stand a chance of getting out of recession? How can we deal with the present economic situation? One of the reasons given for the present economic recession is our preference for foreign goods and services; so, we can help the Nigerian economy by demanding more for made in Nigeria goods and services of good quality. The media, non-governmental organizations, and individuals are needed to help sensitize the general public on what the recession entails, and how it can be dealt with. Business owners should try to cut back on the cost of production of their goods and/or services. This can be done by sourcing, when needed, for funds from institutions (non-governmental organizations, co-operative societies, etc) or persons (family members, friends, colleagues, etc) with little or no interest rates (or rates that they are comfortable with). If it is possible, the raw materials and machinery needed for production should be sourced locally (and of good quality) as they will likely be cheaper than their foreign counterparts. This cost-cutting technique will also make the naira depreciate less rapidly, or not at all, against the dollar because there will be less demand for the dollar to match with its reduced supply. I may not have touched on all the ways a business owner can cut cost, but the idea is to produce enough at less cost. Excesses and/or wastages should be seen as intolerable by business owners. Also, it will be wise for aspiring entrepreneurs to think more of going into businesses that deal in the basics of the basic needs of a man — food, shelter, clothing, and some level of formal education in this 21^st century — as these will be very profitable at this time. Whether you are a business owner, a paid employee, or a job seeking graduate (or undergraduate), this is the time we all learn to spend on our needs solely. As well, we must begin to think of ‘financial diversification’ (which will help increase our purchasing power). As we will love to see the government invest in — and actively promote — different revenue generating sectors of the economy, we must also invest in — and actively promote — multiple (and ethical) streams of income generation. Investments in financial diversification may not necessarily be money, but time to seek knowledge via an outlet or attend seminars on various ethical ways to make extra earnings. Unemployment and lack of adequate money are known negative stressors, so we need to look after our health as cases of negative stress will likely be on the rise. This is also the time to truly be the keepers of our brothers/sisters so as to prevent them from committing crimes, or be victims of crimes that stem from economic frustration. I believe in prayers, and I do believe the heavens will readily help us if we truly help ourselves. To end with, if we keep an optimistic and positive attitude towards the recession, our economy will come out better and stronger.

Using colors to express myself, I will describe what I have done as an exposition of how Africa’s giant transitioned from a predominantly green to a primarily golden black economy, the effects, and ways Nigerians can deal with the nasty shocks of one of the country’s major current affairs: An economic recession. To as many persons who are not Nigerians that may come across this exposition, I hope not, but my question is: What’s the plan if your economy goes bad or gets worse?  

NOTABLE MENTIONS [WebPages as spelt in terms of upper and lower cases] 

1)  Ekpo A.H. & Umoh O.J.   PRE-OIL BOOM ERA (1960-1970)—OnlineNigeria.com

2)  Ekpo A.H. & Umoh O.J.   OIL BOOM ERA (1971-77)—OnlineNigeria.com

3)  Ekpo A.H. & Umoh O.J.   STABILISATION AND STRUCTURAL ADJUSTMENT (1978-1993)—OnlineNigeria.com

4)  Dr. Peregrino Brimah.   Recession 10 Steps To Fix Nigeria’s Economic Crisis—The Paradigm

5)  Talk Business on the Live Drive with Ore on Lagos Talks 91.3fm.