Nigeria’s severe economic recession: a wake-up call for the Government- Social Action
The recent announcement by the National Bureau of Statistics (NBS) that Nigeria has fallen into an economic recession portends that the nation’s economy contracted in the last two quarters of the year spanning April to September, 2020. The second quarter (April – June) witnessed a decline in gross domestic product (GDP) growth by -6.10%, while in the third consecutive quarter (July – September), the GDP further shrunk by -3.62%. The news of the country’s slide into economic recession has elicited reactions from stakeholders across the country. The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed in her response, stated that, “While the economy entered into recession in the third quarter (July – September, 2020), the trend of the growth suggests that this will be a short-lived recession and indeed by the fourth or, at worst, the first quarter of 2021, the country will exit recession”.
The optimism of the Honourable Minister in her projection of a quick exit from the economic quagmire was sadly not premised on nouvelle steps being taken by the government to cause a significant turn-around in the economic meltdown which has been the country’s lot in the last 5 years. Though the current recession is officially referred to as the second recession under the President Buhari – led administration since 2015 till date, it must be noted that the economy of the country has performed poorly year-in, year-out, within the last 5 years, even when there was no official recession. The economic growth rate in recent years has been alarmingly low and too insignificant to translate into positive improvements in the living conditions of the citizens. Between 2015 and 2020, Nigeria’s GDP growth rate oscillated at an average of 2.5%, compared to previous years – 2012, 2013 and 2014 – which saw the GDP growth rate exceeding 5% average. This is mainly because Nigeria has failed to diversify its mono-centric economy which is largely dependent on its crude oil earnings. Within the last decade, the global demand for crude oil has dropped, with many nations opting for alternative sources of energy. In 2020, with the advent of the COVID-19 pandemic, there was further reduction in the demand for unrefined and refined crude, owing to the restrictions on movement and the slowdown in many business operations. This led to a crash in oil production volume and global oil price, as a result of which, Nigeria experienced a Foreign Exchange (FOREX) market crisis. With an over-dependence on crude oil as the major source of the nation’s revenue and FOREX, the Nigerian economy remains susceptible to the volatility of the oil market. There is no gainsaying that until the economy is diversified, Nigeria will continue to experience economic recessions intermittently.
Though the current recession, reported to be the worst the country has experienced since 1987, is largely due to the dwindling oil market occasioned by the pandemic, it must be emphasised that Nigeria’s economy was already in a precarious condition, prior to the outbreak of the pandemic. With an over-reliance on the oil market, successive governments at all tiers have neglected Small and Medium-scale Enterprises (SMEs) which account for 96% of local businesses in the country and 84% of employment of the masses. Youth unemployment rate in Nigeria presently stands at 34.9%, amid a rising number of entrepreneurs shutting down their businesses as a result of the harsh economic realities and their inability to keep the business afloat.
The government cannot continue to play the ostrich amidst the growing hunger in a country witnessing a high inflation rate of 14.23% as of October, 2020. The combination of an economic recession and increase in food prices, is a recipé for an unprecedented level of hunger and suffering which will negatively impact the living standard of the majority of Nigerian citizens. The government must as a matter of urgency, begin to take very drastic steps towards addressing the current stagflation, in order to salvage the economy and stimulate GDP growth. When more people are able to engage in economically-viable ventures, as business owners or employees, there will be an increase in the production of goods and services. Such an increase in production, will lead to growth in the GDP which will not only translate into a better economy for the country, but also more taxes in the coffers of the government to enable the provision of basic amenities and public services. On the contrary, when there are no jobs and SMEs lack the enabling environment needed for their survival, more people will become unemployed or underemployed. This shrinks the GDP and collapses the economy, thereby plunging more citizens into deeper poverty and deprivation.
SOCIAL ACTION therefore urges the Nigerian government to go beyond mere rhetorics and embark on aggressive steps aimed at diversifying the economy. This is a wake-up call to the government to significantly increase the support given to SMEs, in order to ensure they remain in business. Rather than imposing multiple taxations on these SMEs, the government must encourage public and private sector support for SMEs, whilst ensuring the provision of adequate infrastructure, reliable power supply, security and favourable trade policies.
We also call on the government to reduce the cost of governance in Nigeria. It is high time the government mustered the political will to make deep cuts in the running cost of governance across all Ministries, Departments and Agencies, as well as in the topmost cadre of the three arms of government. This will enable massive saving of resources that could be channelled into the provision of infrastructure in various sectors of the economy. In addition, the government must continue to seek other sources of funding, other than debts. Against the backdrop of the nation’s rising debt profile, government must think outside the box, in order to initiate more sustainable ways through which revenue can be legitimately generated, in order to meet its obligations in the timely implementation of its budget.