Is Nigeria truly out of recession?
One challenge that I have had as the Statistician General is the literal way in which people take statistical terms. When we reported that the country has exited recession, somebody said that his own pocket has not reflected it. Statistical terms are very technical and you have to understand what each term means. On a radio station this morning, somebody said “how can we be out of recession when the health sector is still bad”.
You go into recession when our Gross Domestic Product (GDP) is negative for two consecutive quarters. It is a GDP issue and not the value price of your goods; not whether unemployment is rising or falling or anything like that. It is purely your GDP- your production, your output of goods and services. GDP is an accumulation of 46 different economic activities in Nigeria. And the overall number, whether positive or negative, will determine whether you are in or out of recession. Within those 46 activities, some sectors will do very well and be positive, while some will do badly; some will grow worse or stay the same way they are.
Depending on who you are in society, what is published as economic growth of 0.55 per cent in the second quarter of 2017 is the aggregate total of those that did well and those that did not do well. So even in that same report, you will see that 21 sectors still remained negative. Anybody operating in those sectors will still be in recession because all their economic activities are still negative.
But there are other sectors that are positive and those ones will not say the same thing. So, I can understand people saying that recession is still here. When you look at trade, in which most Nigerians fall into, the woman on the street is involved in trade; she buys and sells. That is where she feels the impact. That same report suggests that the man on the street is still struggling because trading activities were still negative.
Can you be more precise on which sectors were mostly affected?
We have to look at the report and see where things are going positively and otherwise. When you take the overall figure, which is an average of everything, it tends to mislead individuals. You have to look at your own particular situation. Publishing, for instance, is part of what is calculated as economic activity. It grew over two per cent, but in the first quarter it was negative. If many people are losing jobs in publishing, you are likely to also say that recession is still biting. The reality is that if you are a trader, you are still in recession because your growth was negative. That overall figure does not apply to your own particular activity. If you are in agriculture and you can go and talk to farmers, they will tell you how happy they are.
There two main economic activities that threw Nigeria out of recession and they are agriculture and crude production. Does crude production stop flowing because anyone lost his job? No! That crude is an economic activity and it is part of GDP. Niger Delta militants have not been destroying pipelines and oil wells recently. When you are comparing a period in 2016 when vandals were destroying oil wells and oil output collapsed and another period this year when nothing like that happened, of course, it is going to be an improvement. In agriculture, there is improvement. Agriculture is largely subsistence farming, even corporate agriculture is rising. The subsistence farmer does not do demand or supply studies in deciding how much of his land to be used-he maximises his land every year. Because of that, agriculture is likely going to continue to grow. A farmer will go to his farm and plant; he is not going to base his activities on the fact that state government workers have not been paid salaries and that is part of the reason agriculture will continue to grow, even in a recession.
How did Nigeria slip into recession in the first place?
In my opinion, Nigeria’s economy has always been structurally dysfunctional. The oil sector directly contributes only about nine per cent of the GDP, but it indirectly contributes almost 60 per cent to the GDP. For instance, a large proportion of manufacturers’ input is imported and so they need dollars. Their ability to get dollars is dependent on the Central Bank’s foreign reserve earnings, which in turn depends on selling of crude. So, when crude collapses, even though manufacturing is not part of oil GDP, their indirect linkages led to a crash. The real estate is Abuja money. Abuja money is tied to oil production and when the oil money is not flowing, people’s ability to buy and rent property is affected and so the real estate sector also collapsed. And so the oil sector affects many other sectors in a similar way. That is the problem with depending on oil.
Nigeria is on three legs: one is oil sector; one is the non-oil sector that we know, but that non-oil sector that we know is divided into two parts-the non-oil sector that is not dependent on oil, like agriculture and the non-oil sector that is heavily dependent on what happens to oil. At the end of the day, when oil breaks down, those two parts-the full oil GDP and the non-oil part that depends on oil-will have problem. So, we went into negative growth in 2016.
By the way, we know that the economy has been slowing down since 2014. If you look at the numbers, it was six per cent and later it went down to three, but nobody was paying attention and then it went down to two before it slid to two and so on. There was no magic that happened in the economy. Once you enter negative growth for two consecutive quarters, you are in recession.
Again, I must reiterate that these are aggregated figures because even in that recession, agriculture was still reporting positive. The miners that extract mangaline, iron ore and all that are not selling to the Nigerian public. They are exporting it and so are not bothered whether civil servants’ salaries are paid or not because they sell to the international market. Therefore, their economic activities will continue to grow.
If you look at that same report, you will see that services were still negative. The reason is because the activities of the ordinary man on the street are more related to the services sector because services include trading, health, education, insurance, telecommunications and all those things are tied to your pocket. And because your pocket is not yet buoyant due to high double digit inflation, services still remain negative. But, luckily for the economy, the other two that do not really depend on oil, like agriculture, crude and mining in general, are the ones that grew the economy positively despite the fact that the ones that affect the common man, which is services, were negative. What we are involved in is art, entertainment, hotels and restaurants. They are the ones that affect our pockets and they are still negative if you look at the report. This suggests that the common man is still feeling the impact of negative growth.
But the overall economy, driven by agriculture, mining and industry, was what made the overall picture to turn positive. The data puts it clearly that the man on the street has not started feeling the impact of the positive growth. 21 activities mostly in the services sector were still growing negatively because people have less money to spend and the reason you have less money to spend is because inflation is very high. You can imagine that your wages have either stayed the same or coming down, as people are losing their jobs and their ability to spend on the services sector has come down. It will stay negative until money is put back into the hands of the common man so he can now start spending.
By the way, GDP does not put money in anybody’s pocket. That is not the objective. It is a technical term that focuses only on GDP movements-not for unemployment, prices and goods and services. We have different reports for different things. If you want to talk about living standards, we have the Living Standards Report. You should not add different things that have different meanings together. When you want to talk about prices in the market, it is the same NBS which, a few days ago, said food prices were the highest in the last nine years but nobody complained then. Recession is defined only in terms of GDP, which is output of goods and services.
The funny thing about GDP is that it takes out data for prices so, in getting GDP numbers, high prices are removed. GDP computation does not take prices into consideration. Real GDP is supposed to remove the impact of prices from its computation. It looks at what happens in terms of actual goods in a way that prices would not distort information and give wrong impression. We are not checking profit of companies or prices of their goods but their output. These are international issues; it is not something that we sit down and determine on our own.
Is 0.55 per cent growth sufficient for the economy?
As a statistics office, we don’t give value judgement. Our own is to publish data and leave it for the policy makers to decide whether it is enough or not. But as an economist, I will say that common sense and logic will suggest that if your population is growing by three per cent and your income, which is what GDP means, is growing by 0.55 per cent, it means you are still growing by -5.5 per cent. I have said this in many different places that there are different stages before the man on the street will start feeling things. NBS did not publish a report saying recession is over and Nigerians are now happy. We only said recession as defined by getting back to positive growth that has been achieved.
I believe there are three stages. One is you get out of recession when you are not slumping any longer, no matter how small. The second stage is economic recovery. This means going back to where you were before you started sinking. You look at your trajectory since you started declining and get back to that stage. After that, you can then sustain your growth and improve. So the first stage is transforming negative growth to positive, which is good news because, at least, things are not getting worse. Is it good enough? Absolutely not. The next stage is now to take you back to where you were, restore you to the same level you were before you started sinking. From that point, you can now start moving ahead; so, there are still two other steps.
Even while we were growing at six per cent, unemployment was still rising, poverty was still rising. And, by the way, we can go back into recession next quarter, depending on what happens in the economy. That is why some are describing the growth as fragile. It is not the right time to relax and think that everything is okay. For instance, services, which account for 50 per cent of GDP and is felt more by the people, is still negative. In other words, until the services sector turns positive, majority of the citizens will not feel it.
and then