It is no longer news that the Nigerian economy slid into a recession in the third quarter of 2020 after a slowdown of -6.3% and -3.6% in the second and third quarters of the year respectively. The government can easily talk its way out of this because of the COVID-19 pandemic which has affected both production and consumption. Quite right, there are other countries that have also contracted at this time; so we can justify Nigeria’s and absolve the government of heavy blame.
The popular question, however, remains “how did we get here?”. We certainly did not get into a recession by being pushed into it; rather, it is a case of inept policies, institutions, and leadership. You will agree that the Nigerian economy is devoid of sustainable growth measures across all sectors of the economy, from agriculture to manufacturing and services.
A little walk down memory lane – the Nigerian economy was in a recession in late 2016 when oil prices plummeted so low that the CBN’s foreign exchange reserve became inadequate, a bolstered backlog of FX demand popped up, the exchange rate depreciated, and the entire economy was in a mess. What exactly did the government do? The government introduced the Economic Recovery and Growth Plan to pull out the Nigerian economy from that recession and keep the economy afloat in case there is a repeat of such external shocks. How well did the policy fare? Very little.
The ERGP was planned to span 2016 to 2020, as a medium-term economic strategy. It was anchored on industrialization, agriculture, SMEs, infrastructure, employment, and others. There were solid strategies enshrined in the policy document, but most of them were not initiated, and those initiated were subsequently abandoned. The reason is not far-fetched. Oil prices recovered and hovered around an average of $40 to $50 per barrel. In 2020, oil prices have touched as low as $7 per barrel, and oil futures trended negative prices at a time this year. This simply means the government is not paying enough attention to the economy.
The Nigerian economy is very fragile, but it holds numerous potentials, from vast arable lands, remittances contribution from abroad, big market size due to population, presence of solid minerals in certain parts of the country, and many others. Notwithstanding, the government remains committed to the ‘black’ gold called crude oil and that is why the economy remains where it is – a fragile and vulnerable one.
Quite right, the economy will recover from this recession, perhaps in the first quarter of 2021. However, it is a concern that whenever there is a global shock, the Nigerian economy is not resilient enough to weather the storm. Again, all the growth rates observed since the recovery from the last recession has been very low – always between 0% and 2%. Do not be deceived into thinking that it is because the Nigerian economy is a big one and so, it cannot grow by bigger values. That is clearly misleading. The economy is not growing because there are no stimulants for growth. What happens when the Nigerian economy loses the market value of its oil? Recently, it was in the news that Nigeria is begging foreign buyers to buy its oil at $7 – $9 per barrel. This depicts the ticking bomb for Nigeria
What should the government do? They already know what to do, all that is required is credibility and a genuine leadership committed to harnessing the potentials in Nigeria. But let us assume the government does not know what to do, here are my top five suggestions
– Infrastructure
– Manufacturing
– Education
– Security
– Technology
I would not suggest diversification from crude oil anymore because it would not be implemented anytime soon. Therefore, the government can continue to raise money from crude oil, but they must invest the funds in these five major areas to make the Nigerian economy stronger and better
Written by Michael Ogunremi
Economist at PricewaterhouseCoopers, Nigeria