How Soon Will Economy Exit Recession?

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The federal government has repeatedly assured that the current economic downturn will be transient, but experts remained cautious, especially as the threat posed by COVID-19 subsists, writes James Emejo

It was a crisis foretold. Several international organisations including The World Bank and International Monetary Fund (IMF) as well as global rating institutions had predicted that Nigeria would relapse into a second economic recession by the third quarter of the year.

Their pessimism had resulted largely from concerns over the country’s somewhat unimpressive macroeconomic credentials, which had failed empirical analysis.

With high rate of inflation, which stood at 14.23 per cent as at October, well over the Monetary Policy Rate (MPR) at 11.5 per cent, rising unemployment rate presently at over 27.1 per cent, as well as volatility in global crude oil prices and the resultant effects on foreign reserves and foreign exchange, and dearth of foreign investments and a largely undiversified economic base among other things, it was crystal clear that an economic downturn was imminent.

The entire scenario had been compounded by the spread of the COVID-19 pandemic, which continued to wreak havoc on world economies, reversing growth projections and distorting socioeconomic life.

Nigeria’s economic travail was also severally echoed by the current administration, which had already resorted to external borrowing to absorb the emerging shocks.

President Muhammadu Buhari, while laying the 2021 Appropriation before the joint session of the National Assembly, had warned that the country risked a second recession by December and urged the legislature to hasten the passage of the budget, which is expected to aid recovery.

However, confirming the obvious, the National Bureau of Statistics (NBS) last week published the Q3 growth estimates which showed that Nigeria’s real Gross Domestic Product (GDP) contracted for the second consecutive quarter by 3.62 per cent compared to a growth of -6.10 per cent in Q2- ushering the country into its second recession in five years since the first in 2016.

According to the Nigerian Gross Domestic Product Report (Q3 2020), cumulative GDP for the first nine months of the year (January- September), also indicated a growth of -2.48 per cent.

The NBS said the performance 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.

During the review quarter, aggregate GDP stood at N39.09 trillion in nominal terms compared to N34.34 trillion in Q2 while real GDP stood N17.82 trillion compared to N15.89 trillion in the preceding quarter.

Growth in Q3 was boosted by the non-oil sector, which contributed 91.27 per cent to growth in real terms in Q3, higher than the 91.07 per cent in Q2 and 90.23 per cent in Q3 2019.

On the other hand, the oil sector contributed 8.73 per cent to total real GDP in Q3, down from 8.93 per cent in Q2.

Real growth of the oil sector contracted to 13.89 per cent (year-on-year) in Q3, indicating a sharp contraction of 20.38 per cent relative to the rate recorded in Q3 2019.

The average daily oil production stood at 1.67 million barrels per day (mbpd), or 0.14mbpd lower than production volume in Q2 and 0.37mbpd lower than Q3 2019.

In real terms, agriculture contributed 30.77 per cent to overall GDP, higher

than the 24.65 per cent in the preceding quarter and 29.25 per cent in Q3 2019.

The manufacturing sector contribution to growth stood at 8.93 per cent, compared to 8.82 per cent in Q2 and 8.74 per cent in Q3 2019.

Trade also contributed 13.88 per cent to GDP, lower than the 14.28 per cent posted in the preceding quarter.

The NBS, however, noted that as the COVID-19 restrictions were lifted, “businesses re-opened and international travel and trading activities resumed, some economic activities have returned to positive growth.”

It added that a total of 18 economic activities recorded positive growth in Q3 compared to 13 activities in the preceding quarter.

However, the federal government has continued to allay fears that the downturn in the economy may last for a longer period thereby aggravating the sufferings of Nigerians.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said the economy remained on the path of recovery despite the 3.62 per cent contraction in the third quarter of the year, assuring that the technical recession induced by the COVID-19 pandemic, will be short-lived.

She hinged her optimism on the Q3 performance which bettered the preceding though a contraction was posted in both.

According to her, the improvement nevertheless showed that government’s responses to the pandemic have had positive outcomes when compared with the 6.10 per cent contraction in Q2. She noted that the economy had been on the path of recovery and growth before COVID-19 set in and eroded almost all its gains.

In her opening remarks at the ongoing 26th Nigerian Economic Summit (#NES26), themed:” Building Partnerships for Resilience” in Abuja, the minister, however, assured that the country will likely exit the current recession as soon as the first quarter of 2021, adding that the federal government will aggressively implement the Nigerian Economic Sustainability Plan (NESP) launched to boost economic recovery amidst the impact of the COVID-19 pandemic.

The minister was not alone in the upbeat for improved economic performance going forward.

Speaking at the end of the two-day Monetary Policy Committee (MPC) meeting last week, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, also expressed optimism that the country will exit the recession as early as first quarter of 2021 as well as begin to witness improved output by the fourth quarter of 2020.

He said: “Based on data available to the MPC from the CBN, we are somewhat cautiously optimistic that indeed, if we continue doing what we are doing, that there is a likelihood that we would see some little positive output numbers during the fourth quarter of 2020.

“But I can say with some level of certainty as well that during the first quarter of 2021, we would exit the recession” adding that the bank will continued to boost support for agriculture, industry and manufacturing to stimulate job creation as well as moderate inflationary pressures.”

Some analysts had further aligned their opinion with the government that the recession will indeed be short- lived.

However, there had been counter opinion on the timeline for recovery as some analysts believed that the resurging cases of COVID-19 could hamper prospects for rebound.

Apparently conscious about the threat of the pandemic to recovery, MPC had called on the federal government to make relentless effort to procure a substantial quantity of the COVID-19 vaccines to surmount the public health crisis and pave the way for a broader macroeconomic recovery.

On Thursday, Minister of Health, Dr. Osagie Ehanire, during the official opening of the Ultra-modern Cardiac Catheterisation Laboratory and Hospital complex, in Abuja, enjoined Nigerians “to continue adhering to the COVID-19 prevention protocols, especially in light of the fact that a second and even third wave of infections is being recorded in several parts of the world.”

He said: “As long as countries with which we have critical socioeconomic and traditional ties are with high burden, we are not free of danger. We have many passengers arriving daily from these high-risk countries, schools resuming and a general apathy and complacency, neglect of infection prevention and control advisories, which together put us all at risk. We must not rest on our oars.”

Others believed that the inherent variables which had caused cracks in the economy are yet to be surmounted to warrant optimism for recovery.

In an interview with THISDAY, Associate Professor of Agricultural Economics at University of Port Harcourt, Anthony Onoja, said, “To be sincere it is not certain whether this current recession will be short-lived.”

He said: “Nigeria will be better off planning with the worst-case scenario in mind rather than being optimistic.

“Economy does not respect wishes, but responds to planning. The reality is that the impact of COVID-19 pandemic remains uncertain too and since it largely explains the recession being witnessed, it will only be a day dream to imagine that the current recession it generates will be short-lived.”

Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, also believed that the country might not exit the recession as soon as possible, largely as a result of the existing threats posed by the pandemic as well as structural deficiencies in the economy.

He said: “The reality is that we may likely experience this economic downturn for some time. The economic shocks brought about by the COVID-19 has exposed the structural deficiencies that has long been existing in the country.

“We have weak fiscal buffers, poor infrastructure and conflicting policies that fail to address the realities of our country and an over-reliance on a single commodity whose price we have very little control over.”

Shelleng opined that: “The federal government does not have the capacity to spend its way out of this situation despite the extensive borrowing programme because majority of the spending has gone to paying our over bloated government and repaying debt obligations. That does not augur well for development.

“Drastic action is required and some key actions need to be taken. We must critically look at our cost of government. If we are spending almost 80 per cent of our budget on government overheads then that should be examined during these tough times.

“Unlike developed countries that are expecting a “V” shaped recovery post COVID-19, we are more likely to experience a “U” shaped recovery with figures such as GDP, unemployment and industrial output likely to remain depressed for an extended length of time.”

In his intervention, former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, said though the recession will eventually be reversed, this will not happen in the short run as currently anticipated by government.

Speaking with THISDAY, he said: “It is important that we interrogate the causes of the recession in the first place. The sharp drop in the crude oil price that heralded the year 2020 in January, arising from price war between Saudi and Russia and America’s supply that led to negative oil price.

“Secondly, the COVID-19 that shut down world economies and some other ancillary factors. Have these reasons been obliterated? Yes, partially and no, because, the world economics are still on lockdown or partial lockdown.”

Also, an economist, Dr. Muhammad Rislanudeen said there were currently no sufficient reasons to expect a V-shaped recovery adding that increased spending on agriculture and affective policy coordination will aid quick recovery.

He said: “Recall that the GDP growth even prior to COVID-19 pandemic was slow and at best crawling arising from the slow recovery from the 2016 recession.

Level of contraction is not big enough for optimistic projection of a V-shaped recovery. However this can only be done through massive support for small and medium enterprises, agriculture and agribusiness.

“This will ramp up improved employment generation, reduced unemployment rate and also reduced inflation given potential improved productivity.

“This will also be made possible through effective synchronisation of monetary, fiscal and trade policies to align with sustainable projection of economic growth and development.”

Nonetheless, Professor of Capital Market and President, Capital Market Academics of Nigeria, Prof. Uche Uwaleke, believed the economy had witnessed its worst growth trajectory and is on the path of recovery.

He, however, based his optimism in the premise that a second wave of knockdown will not be affected to contain the spread of the pandemic.

Uwaleke said, “The economy is on the path of gradual recovery. A contraction of 3.62 per cent in Q3 2020 compared to 6.10 per cent Q2 2020 points to an upward direction. So, the recession may have already bottomed out.

“Primarily, unlike the country’s 2016 experience, this recession has been caused by the COVID-19 pandemic which led governments to impose lockdowns and movement restrictions. The fall in crude oil prices, owing in part to the impact of COVID-19, also contributed.

“Given vaccine progress on the global scene, the relatively low cases of infections and associated deaths in Nigeria and the likelihood that the country may not go through another nationwide lockdowns, the recession will most likely be short-lived.”

He said: “Other factors supporting a V-shaped economic recovery include the gradual increase in manufacturing activity as indicated by the Purchasing Managers Index, which has now crossed the 50 point threshold.

“The stability in crude oil price and in the official windows of the forex market, the bullish stock market, the growing increase of credit to the private sector on account of CBN’s interventions and policies such as the Loan-to-Deposit Ratio, the implementation of the Economic Sustainability Plan by the federal government and the soon-to-be opened borders as recently disclosed by the minister of finance.”

Also, commenting on the recession, President, Abuja Chamber of Commerce and Industry (ACCI), Prince Adetokunbo Kayode, said Nigeria only paid a price for failing to diversify its economy, however, adding that, recovery was certain by next year.

He said: “I don’t think it should be a surprise to government that we are in negative territory, it is not a surprise to me and to many who are watching the economy, but the message I need to push out is that there is no big deal about it.

“Nigeria will come out of this recession. By this time next year, I don’t see why not, even the oil situation maintained may slightly go up a little bit. Then if we have good rains, then agricultural output will assist Nigeria to stabilise the economy.”

He warned that the country is like to slide into yet another recession when it exits the current, unless diversification is taken seriously.

The ACCI president said: “But the most critical thing is not whether we come out of the recession, it is that we don’t slide back to it. Going in and out of recession is a typical, normal economic experience, so we will come out of it, but we will go back again unless we learn lessons from the underlying reasons for going into recession.”

“We have failed to diversify the economy that is given and the government has been singing for the past 10 to 15 years that we have to diversify our economy. We have not yet done it.”