- Nigerian economy slumped by 6.1 per cent in the second quarter of 2020, a feat of the COVID-19 pandemic.
- For the first time since 2017, the non-oil sector GDP declined by 6.05 per cent with a negative drop from some sub-sectors such as Transport and Storage, Accommodation and Food Services, Construction, Education, Real estate, and Trade.
- Recession is inevitable
- But could the Federal Government’s (FG) ₦2.3 trillion stimulus package ease economic downturn pressure?
- Experts weigh in.
Divergent views greeted the Statistical Agency of Nigeria’s new GDP figure as the economy entered the first contraction since its last recorded recession. In 2016. Nigeria witnessed an economic recession at a time oil price dropped below $50. Since then, the economy grew in a snail-like scenario under the Muhammadu Buhari-led government.
However, on Monday, August 24, official statistics released by the National Bureau of Statistics showed that the Nigerian economy slumped by 6.1 per cent in the second quarter of 2020. The impact of COVID-19 pandemic on economic activities, including a downturn in the price of oil, was unsurprisingly a factor.
While some analysts believed the contraction was bearable considering the huge impact coronavirus had on global economies, other experts noted that Nigeria could have done better in agriculture and the service sector.
Even oil dependent Nigeria (which because of the oil price plunge should be hit worse than many in Africa) has outperformed most developed market economies in 2Q20 – (relative) positive signal for other SSA economies https://t.co/FYs5mD1qEk
— Charlie Robertson (@CharlieTTEcon) August 24, 2020
Charlie Robertson, Chief Economist, Renaissance Capital, in a tweet, said the country outperformed most developed market economies in the second quarter of 2020 – posting relatively positive signals for other Sub-Saharan Africa economies.
He based his argument on agriculture, a sector ‘less affected’ by lockdown than retail/service economies.
Another Twitter user played to this tune, supporting Robertsons’s assertions.
🇳🇬 Nigeria GDP contracts 6.1% YoY in 2Q20 – not too bad given the double trouble from oil (both price & production) and virus. Non-oil econ (90% of GDP) contracted by 6.0%.
Nigeria has been going slow since 2015: No meaningful growth, high & persistent inflation and FX troubles. pic.twitter.com/DQNmONysL3
— Emre Akcakmak (@akcakmak) August 24, 2020
What caused the economic downturn?
The NBS report attributes the decline to extremely low levels of both domestic and international economic activity during the quarter; undoubtedly an aftermath of the lockdown the government enforced to contain the coronavirus.
“When compared with Q2 2019, which recorded a growth of 2.12 per cent, the Q2 2020 growth rate indicates a drop of 8.22 per cent points, and a fall of 7.97 per cent points when compared to the first quarter of 2020 (1.87 per cent). “Consequently, for the first half of 2020, real GDP declined by –2.18% year on year, compared with 2.11 per cent recorded in the first half of 2019. Quarter on quarter, real GDP decreased by –5.04 per cent. Furthermore, only 13 activities recorded positive real growth compared to 30 in the preceding quarter,” the report read.
Apart from the oil sector that dropped by 10.82 per cent in Q2 2020, non-oil sub-sectors such as Transport and Storage, Accommodation and Food Services, Construction, Education, Real estate, and Trade, also contributed to the negative decline.
Overall, the non-oil sector GDP declined for the first time after the last recession by 6.05 per cent in real terms, per the NBS report.
Can the $5 billion economic stimulus package deliver?
In its Economic Sustainability Committee (ESC) released in June 2020, the Federal Government settled for a ₦2.3 trillion (more than $5 billion) stimulus package to ease significant economic downturn and ensure decline was only at a minus 0.59%.
Recession is inevitable
The country expects the fund from multiple sources with N1.11 trillion coming from CBN’s structured lending. But this remains unclear. Would Nigeria record less than 1% contraction by the end of the year? The signal and economic pointer are saying otherwise.
For the Nigerian Economic Summit Group (NESG), they predicted that the Nigerian economy would contract by 7.3 per cent in 2020. The think-tank group placed the projection on an average crude oil price at $15 per barrel and crude oil output at 1.3 million barrels per day (mbpd).
Similarly, the World Bank Nigeria Development Update (NDU) suggests Nigeria will fall into a severe economic recession with an estimation of a 3.2% drop in 2020.
Expert recommendations
And as for the policies that could avert this, Mr Mansir Nasir directed Dataphyte to a recent report. The Senior External Affairs Officer at the World Bank claims that the organisation issued policy options that could lay the foundation for a strong recovery. Part of the suggested policy measures includes tight fiscal coordination across tiers of government, ensuring efficient utilisation of scarce fiscal resources.
Gloomy days ahead according to Economist, Mr Tope Fasua who believes we are already in recession, citing rising inflation and unemployment as warning signs. The 2019 Nigeria Presidential candidate for Abundant Nigeria Renewal Party (ANRP) added that the informal sector contributed to the drop in GDP.
He further explained recession as consecutive GDP decline per quarter, around the ranges of 2% to 5%. And according to him, a growth of 1 per cent in the next quarter is insufficient to alleviate the 6.1 per cent fall in GDP.
“Essentially, we will have to spend. I am supporting government borrowing and spending plans for the first time. We just have to look for the money anywhere and everywhere. Of course, we also have to ensure they are well spent,” Mr Fasua retorted when Dataphyte asked for solutions.
The former presidential candidate also suggested that the government cut expenditure at various levels, address revenue, and debt problems.
“Rather than borrow, look at the internal revenue sources. The government is desperate for funds, trying to raise money in an environment where many people are complaining. For debt, we have no choice than to borrow more. It is still going to be very tough. The expenditure aspect is also an enormous problem that no one is talking about. Cutting expenditure at government levels, especially at Ministries, Departments, and Agencies (MDAs) will go a long way.”
Does this prospect affect the everyday Nigerian?
One thing is certain in 2020, the economy will hit another recession. Hence, the discussion should now centre on the best strategy and approach to exit the economic downturn and significantly reduce the pressure on citizens.
While commenting on the GDP figure in a Twitter post, Madam Oby Ezekwesili, an economic policy expert and Nigeria’s former Education Minister, advised citizens to take a second look at their personal and family spending priorities during the period. She added that it will influence real personal income and unemployment rates. So, if personal income dropped, the unemployment figure may skyrocket.
This is certainly a deep GDP contraction. Beyond being a country headline News, this does have real impact on individuals & households. At least 2:
Real personal income ⬇️
Unemployment rate ⬆️
Advice?
Take a 2nd look at your personal and family spending priorities. Now. pic.twitter.com/TFMdv5ueTW— Oby Ezekwesili (@obyezeks) August 24, 2020
Mrs Ezekwesili also advised Nigerian leaders to reform sectors like Power and Aviation.
Still, there’s hope that we could ride this wave provided the FG kick starts an effective and strong economic recovery process. Nigeria needs to align policies and ensure better coordination between the monetary authorities and respective economic components. Save fiscal stimulus, there is a need to prioritise public spending on critical development activities. Last, but not least, is an emphasis on catering for the poor and vulnerable.