Strengthening Nigeria’s Fragile Economic Recovery


James Emejo aggregates analysts’ perspectives on Nigeria’s recent exit from recession and concludes that more efforts are required by the fiscal and monetary authorities to strengthen recovery in subsequent quarters

Perhaps, it was no music to the ears to many when the country’s economic managers projected last year that the country’s second consecutive economic recession which happened in the third quarter, would be short-lived.

This is understandably so because the slow progress in getting out vaccines that could put an end to the COVID-19 pandemic, which had ravaged the global economic landscape among other things.

The economy slipped into a recession in November last year when growth contracted for the second consecutive quarters by 3.62 per cent in Q3 and previously grew by-6.10 per cent in Q2.

But, the downturn in economic performance didn’t completely come to many as a surprise given the debilitating impact of the COVID-19 pandemic, which had crippled the global economic, as well as led to massive slump in oil demands, a development that that sent oil prices below $20 per barrel.

Furthermore, the country’s inability to trade with other countries, following the lockdown and restrictions of movement to curtail the spread of the pandemic, coupled with the fact that Nigeria’s economy remained largely diversified on paper- all made the recession inevitable.

However, soon after the recession was declared by the National Bureau of Statistics (NBS), the Minister of Finance, Budget and National Planning, Mrs. Zain Ahmed, was quick to assure Nigerians and investors that the downturn will be short-lived especially as the 3.62 per cent contraction was a major improvement over the performance in the preceding quarter of 2020.

While addressing an audience at the recent 26th Nigerian Economic Summit (#NES26), themed:” Building Partnerships for Resilience” in Abuja, Ahmed had assured that the country was likely exit the 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.

Also keeping the hope alive, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, had also expressed optimism that the country will exit the recession as early as first quarter of 2021.

Speaking during the Monetary Policy Committee (MPC) meeting in November, the CBN Governor had said: “Base 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”.

The recovery, apparently happened earlier than imagined.

By January, however, the NBS announced that the country’s Gross Domestic Product (GDP) grew by 0.11 per cent (year-on-year) in real terms in the fourth quarter of 2020 (Q4 2020), representing the first positive quarterly growth in the last three quarters, and effectively allowing the country to exit recession.

The early exit came as a huge surprise to both international and local actors who believed that given the country’s hitherto unimpressive macroeconomic parameters, including inflation, unemployment, among others, a recovery should have taken a longer period.

The federal government has however, attributed the rebound on several policy moves initiated to contain the situation amidst the challenges caused by the pandemic.

Ahmed, had among other things attributed the exit to the aggressive implementation of the N2.3 trillion National Economic Sustainability Plan (NESP) which among other things witnessed unprecedented funding interventions to key sectors of the economy especially the Micro Small and Medium Enterprises (MSMEs).

In addition, from the monetary side, the CBN’s funding interventions and forbearances to businesses to cushion the impact of the pandemic had in no small measure contributed to the recovery which is in record time.

But analysts, had while commending the recovery, also expressed concerns that the economic gains may be eroded in subsequent quarters unless the relevant authorities double efforts in stimulating the economy, and getting the priorities right in terms of policy decisions among others.

They believed that even with the positive growth recorded in Q4, the economy is still much vulnerable to shocks that may limit its growth trajectory in 2021 unless the right things are done.

They identified the need to intensify efforts to get vaccines for the population as well as tackle the increasing security challenges in the country- factors which could render current efforts to reflate the economy a waste.

Already, a recent report by Fitch Solutions Country Risk & Industry Research, revised the country’s growth forecast for 2021 to 1.6 per cent from the previous 2.3 per cent, citing the weaker base effects coming out of a shallower contraction in 2020.

The report noted that rising oil exports will be the main growth driver in 2021, while consumer spending and business investment are likely to be subdued because of persistently high inflation and the slow rollout of a COVID-19 vaccine.

Fitch, however, pointed out that growth is likely to quicken to 2.7 per cent in 2022.

The agency stated: “We expect Nigeria’s vaccination programme to gather pace, which will result in private consumption and fixed investment accelerating. “We at Fitch Solutions have revised our estimate for Nigeria’s real GDP to a contraction of 1.9 per cent in 2020 compared to our previous estimate of a 3.2 per cent fall.

“The revision follows the release of stronger than expected GDP data indicating that the economy exited recession in Q4 2020, growing by 0.1 per cent Year on year, after contracting by 3.6 per cent in Q3 2020 and by 6.1 per cent in Q220.”

Further providing reasons for a slower growth in 2021, the report pointed out that delays affecting Nigeria’s vaccine procurement would undermine supplies, meaning that mass inoculations would not start until closer to end-2021 or even 2022.

It said this would raise the risk of further waves of COVID-19 infections and the re-imposition of stricter lockdown measures, which would curtail growth.

It added: “Should insecurity worsen and spread beyond current hotspots in the North east and middle belt states, distribution of a vaccine would be significantly curtailed, and similarly hamper the economic recovery.”

Even though Emefiele, had recently promised to adopt accommodative monetary policy stance in 2021 in order to support economic growth in the country, analysts believed issues around insecurity and vaccines for the population remained crucial to achieving meaningful recovery.

Analysts particularly agreed that the NESP and oil price rebound were instrumental to the country exiting recession but called for a sustained policy intervention to stimulate growth going forward as well as tackle inflation.

Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said the massive spending by government had certainly gone a long way in driving up GDP figures.

He said: “The four components of GDP are personal consumption, business investment, government spending and net exports. It is fair to say that the other 3 parameters except for government spending probably declined in Q4, 2020” adding that “Oil prices have only recently starting rising so that cannot be attributed to the growth in GDP. Besides oil itself is not a major driver of GDP in Nigeria, contributing less than 10 per cent of our GDP figures.”

Shelleng, however, pointed out that the real questions bordered on how the exit from recession had affected the real economy.

“With increased inflation and ongoing security and structural challenges, GDP should not really be the main determinant of economic progress. Perhaps Gross National Income (GNI) would be more appropriate to measure income of people and businesses,” he said.

He also believed that if government can maintain its spending in key areas and with global businesses slowly recovering, Nigeria will likely see positive growth albeit very low.

“The structural issues that prevent us from achieving higher growth levels are still in existence and must be addressed for us to really thrive,” he noted.

Also, in separate interview with THISDAY, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, however, believed the exit from recession could largely be attributed to the recent rebound in oil price as well as the aggressive implementation of NESP.

He said: “This was simply because the price of crude oil, the main stay of our economy, increased within the last quarter and has sustained that increase till date. That increase has neutralised the negative impacts of COVID-19.”

He said: “It will be fair to say that a combination of ESP and the price of Crude oil led to Nigeria’s exit from recession. The government believed in the economic sustainability programme and committed a lot of resources to it.

Whether the programme was optimised to achieve the result or not is a different thing all together.

“The price of crude oil however, which has risen up to $65 per barrel, contributed a lot to our recovery and we are optimistic the rise will be sustained even at the risk of rise in local Petroleum products prices.”

On his part however, President, Capital Market Academics of Nigeria, Prof. Uche Uwaleke, said Nigeria’s recovery sends a positive message to the international community especially the multilateral institutions, rating services and investment banks, that the economy is resilient and has capacity to withstand shocks.

He said given the country’s record time exit from recession, it is high time the economic managers focused on achieving strong growth that is inclusive adding that more attention should be focused on jobs and reducing the high rate of unemployment and poverty.

Uwaleke said: “This will require, among others, an aggressive approach to increasing food output by facilitating access to credit by farmers and SMEs, collaborating with State governments to address rural infrastructure deficit as well as insecurity.

“Doing so will help bring down food inflation which is exerting the most pressure on the general price level.”

He said: “That the government heeded the advice of many including the CBN not to impose another lockdowns in the wake of the rising COVID-19 cases in Q4 2020 helped economic recovery.

“I must commend the National Bureau of Statistics for the timely release of key national statistics, such as inflation and GDP quarterly performance, which facilitates planning by the government and the private sector as well as reduces uncertainty.”

According to the former Imo State commissioner of finance, the traction in economic activities could be largely attributed to the CBN interventions and the NESP.

“The impact of the oil price recovery was not significant in Q4 2020 because oil sector contraction was severe at over 19 per cent worse than about 13 per contraction in Q3 2020 due largely to the drop in crude oil output from about 1.67 million barrels per day to 1.56 million barrels per day.

The game changer was the non-oil sector which grew by 1.69 per cent powered by ICT at over 14 per cent, agriculture 3.42 per cent, health at over 3 per cent among others.

“These were areas that enjoyed attention of the CBN and the fiscal authorities in Q4 2020,” he said.