AS a result of the current harsh economic situation in the country, economists and experts have opined that Nigerians should brace up for harder times and not expect the nation’s economic fortunes to change overnight, noting that such a change takes time.
This, they said, is in spite of the current effort by the Federal Government to reflate the economy through an expansionary budget.
According to Dr Austin Nweze, a lecturer at the Lagos Business School, “We did not get into economic recession overnight and we can’t get out of it overnight. Thinking of a shortcut out of the recession is a pipe dream that cannot materialise.”
The Central Bank of Nigeria (CBN) had warned of the imminence of recession in May after its Monetary Policy Committee meeting in Abuja. According to the CBN Governor, Godwin Emefiele, “the conditions that led to the contractions in the first quarter of 2016 were still largely unresolved. The recession, which was signalled in July 2015, now appears imminent.”
But the International Monetary Fund (IMF), in its forecast on Nigeria released in July entitled “Uncertainty in the Aftermath of the UK Referendum,” was more definitive. IMF had warned that the economy would contract by 1.8 per cent in the current year from the 2.3 per cent growth it had predicted in April. The global body also forecast a 1.1 per cent growth for Nigeria in 2017, down from the 3.5 per cent it made in April.
Although Finance Minister, Kemi Adeosun, agreed: that the economy had slid into recession, she opted to qualify it as ‘technical’. The minister who said this in July when she appeared before the Senate, added, “Technically, Nigeria is in recession but we should not go into definition; but what we are doing.”
Recession was foisted on the economy following a dip in the price of crude oil, Nigeria’s economic mainstay, from $114 per barrel in 2014 to as low as $28 per barrel in 2015. It currently sells for about $48 per barrel after rallying to almost $51 per barrel last week. The plummeting of crude oil price affected monthly allocations to state governments from FAAC, which led to many states owing their workers up to six months salaries. This also impacted negatively on availability of foreign currencies, especially dollars, with the effect that the exchange rate of the greenback to the naira hit the roof. The effect of this is that prices of imported items, including petroleum products, went up while local manufacturing activities went south.
Speaking on what the government is doing to stimulate the economy, Mrs Adeosun, during a chat with journalists in Abuja last Thursday, noted that, “we said from the beginning that the economy would need a spending stimulus. So far, we have spent on capital projects over N400bn between May, when the budget was signed, and today.
“And even as we leave here now, we are going to have a capital allocation meeting where we are going to allocate another N60 billion. So, we are pumping money into the economy at a very rapid rate.”
The government has also embarked on borrowing locally and internationally to bridge the N2.2trillion gap in the 2016 budget.
While lauding the government’s determination to pump money into the economy, Nweze said it would have had more profound effects had it come on time.
“There is a time element to economic management. If you delay in taking a necessary step at the appropriate time, you end up paying dearly for that delay. The step being taken by the government in trying to stimulate the economy is good but this is August. The money should have been released earlier than now. We will pay for all the delay that we had in passing the budget. Inflation has caught up with us; suffering in the land has been escalated just because we had a delay.
“Now, it is good that the government has swung into action. But what will be the result? The economy is in recession and it is far more difficult to get out of recession than to get into it. Production has gone down, unemployment has risen, inflation is very high; all these are consequences of recession. To get out of recession, we have to correct all of these and it is not something that would happen suddenly.”
Speaking in a similar vein, Professor Adeola Adenikinju, Director, Centre for Petroleum Economics, Energy and Law, said getting out of the recession required serious commitment to economic principles over a period of time.
According to him, “getting the infrastructure right would lift the economy out of recession. We just have to improve our infrastructure. The most critical element in manufacturing in the country is electricity. Once we get that right, the cost of doing business will go down, then companies can increase their production capacity and also be in a position to employ more. That is the trend. When that is done, the economy would experience a rebound.
“Then the government needs to do something about unpaid workers’ salaries. One of the factors that brought about the contraction of the economy is the reduction in people’s disposable income. When workers are not paid for many months, how will they be able to patronise the manufacturing sector? If manufacturing companies are not patronised, will they not automatically produce less?”
While speaking on borrowing by the Federal Government, he said it was not a bad idea, as long as the government spends the loan on developmental projects and not consumption. According to him, so long the foreign borrowing would be from multilateral agencies and not through the markets, it is a good idea.
Adenikinju also called on the government to find a solution to the restiveness in the Niger Delta, adding that unless that was done, the country would not be able to maximally benefit from oil price rebound.
Professor John Adeoti of the Nigerian Institute of Social and Economic Research (NISER) was optimistic that the economy might exit recession sooner than most people expect, provided the government keeps injecting funds into the economy.
On borrowing by the government, Adeoti said, “Borrowing is necessary to finance the expansionary budget. What the government plans to do with this budget is to stimulate growth in the economy. That is quite commendable. Borrowing is not bad if it is used for the right thing. Borrowing to finance infrastructure is good. If we borrow now and invest in infrastructure, by the time oil rebounds, we will pay back conveniently. If we don’t do this expansionary expenditure, the economy will not get out of recession. If we don’t do this it will be tough for the country. We are fortunate that the people in charge now will use the money well to stimulate economic growth and not divert into other things.”