Second quarter 2020 GDP in Nigeria contracted by 6.1%. Almost everyone was certain of a negative growth rate in Q2 2020. The awful performance was tied to COVID-19; but for an economy whose growth rate has ranged from 0.5% to 2.5% after the recession in 2016, there were insufficient growth buffers to moderate the rate of slowdown
The five big supports for growth in Nigeria have decelerated since the pandemic surfaced in Nigeria
1. Oil price
2. Remittances
3. Manufacturing PMI
4. Foreign investment
5. Public spending
Each of these variables has braked on growth
With a 6.1% slowdown, Nigeria has a higher chance of sliding into a recession by Q3 2020. A recovery may commence in Q1 2021, not in 2020, and this will be likely less than 1%.
The recovery in Q1 is not automatic without fiscal intervention.
My suggestions are
– Supply intervention funds in agriculture, SMEs and manufacturing
– Open the closed border momentarily but increase custom checks
– Introduce social security programmes for the unemployed and poor rural inhabitants
– Cut unnecessary allowances and governance costs
– Manage public expectations
– Issue high-yield bonds for foreign investor subscription only
– Adopt oil futures contracts to hedge oil price risk
– Cut CRR by 250 bps to 25% to grow real sector lending
Written by Michael Ogunremi