Reactions as Nigerian economy suffers another recession

As expected, National Bureau of Statistics (NBS) on Saturday confirmed that Nigeria entered recession in the third quarter of 2020, after two consecutive quarters of negative growth.

According to the NBS, economic performance during the quarter reflected residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 in response to the COVID-19 pandemic.

“As these restrictions were lifted, businesses re-opened and international travel and trading activities resumed, some economic activities have returned to positive growth,” NBS stated.

It added that the economy grew negatively by 3.62 per cent year-on-year in real term during the period. Recall that Nigeria entered its first recession in 29 years in 2016 but exited it in the second quarter of 2017.

Cumulatively, the economy has contracted by -2.48 per cent in the first nine months of 2020. NBS noted further that although the third quarter performance was an improvement of 2.48 percentage points over the –6.10 per cent growth of Q2 2020, it also indicated that two consecutive quarters of negative growth have been recorded in 2020.

Furthermore, growth in Q3 2020 was slower by 5.90 percentage points when compared to the third quarter of 2019 which recorded a real growth rate of 2.28 per cent year on year.

A total of 18 economic activities recorded positive growth in Q3 2020, compared to 13 activities in Q2 2020. During the quarter under review, aggregate GDP stood at N39,089,460.61 in nominal terms. This performance was 3.39 per cent higher when compared to the third quarter of 2019, which recorded an aggregate of N37,806,924.41 million.

This rate was, however, lower relative to growth recorded in the third quarter of 2019 by –9.91 percentage points but higher than the preceding quarter by 6.19 percentage points.

For clarity, the Nigerian economy has been broadly classified into the oil and non -oil sectors. The average daily oil production recorded in the third quarter of 2020 stood at 1.67 million barrels per day (mbpd), or 0.37mbpd lower than the average production recorded in the same quarter of 2019 and 0.14mbpd lower than production volume recorded in the second quarter of 2020.

Real growth for the oil sector was –13.89 per cent (year-on-year) in Q3 2020, indicating a sharp contraction of –20.38 per cent points relative to the rate recorded in the corresponding quarter of 2019. Non-oil sector grew by –2.51 per cent in real terms during the reference quarter, which is –4.36 per cent points lower than the rate recorded in Q3 2019 but 3.54 per cent points higher than in the second quarter of 2020.

Non-oil sector was driven mainly by information and communication (telecommunications), with other drivers being Agriculture (crop production), construction, financial and insurance (financial institutions), and public administration. In real terms, the non-oil sector contributed 91.27 per cent to the GDP in the third quarter of 2020, higher than its share in the third quarter of 2019 (90.23 per cent) and the second quarter of 2020 (91.07 per cent).

‘Recession ‘ll be short-lived’

Meanwhile, a professor of Finance, Uche Uwaleke has given an assurance that the current economic recession will be short-lived. In a reaction to the 3rd quarter GDP report released by the NBS on Saturday, Uwaleke, of the Nasarawa State University, Keffi, said “yes, the economy has officially entered a recession but I see a quick V-shaped recovery as the effect of COVID-19 recedes and the impact of the interventions by the government and CBN begin to manifest including the implementation of the Economic Sustainability Plan.”

According to him, NBS Q3 real GDP number is a confirmation of the fact that in terms of economic contraction occasioned by COVID-19, Q2 2020 represents the worst experience for Nigeria. “Compared to a contraction of 6.10 per cent in Q2 of this year, it is actually an improvement reflective of the ease in lockdowns and movement restrictions, the reduction in the cases of COVID-19 and the gradual return of investors’ confidence in the economy,” he said.

He stated that this improved confidence has also manifested in performing managers index (PMI) readings and stock market performance. He also called for early passage of the 2021 appropriation Bill, which he said will also go a long way in supporting economic recovery.

Also, a Senior Advocate of Nigeria (SAN), Dr Olisa Agbakoba, says he is not surprised at the GDP figures because he had recently said it in different forums that Nigeria has entered another recession and cannot even grow up to 3 per cent next year.

According to him, the operational aspect of the ERGP plan ought not be in the hands of the government but the private sector, because the private sector has the expertise to run businesses that will impact the economy.

“When you look at the 2021 budget, you find out that there is no way Nigeria is going to grow at three per cent next year.

“No country comes from minus eight per cent to three per cent, from the negative or minus to a positive of three,’’ he said.

Agbakoba said that Nigeria did not need to have a big budget as its economic resources in the states could determine each state’s capacity and not the money that it has. Acknowledging the challenges facing the Nigerian economy

Agbakoba advised that for the economy to work, the government should limit itself to policy formulation and to play the role of a regulator while the private sector run the enterprises. He urged the Federal Government to look within and sell off “unwanted assets’’ to the private sector in order to get new financial energy to stimulate growth.

He listed some of the assets to include the airports, refineries and the Federal Secretariat, pointing out that the government could collect taxes from their operators thereafter. Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, in his own response explained that the recent devastation caused by the #End SARS crisis has made the recession to persist and will even go further.

He explained that the news of the recession did not come as a surprise, adding that the economic contraction was 3.62 per cent in the third quarter as against 6.1 per cent in the second quarter. He, however, noted that with these numbers, Nigeria could possibly say that the worst was over as the contraction in the third quarter was much less than what was experienced in the second quarter.

“Regrettably, the #EnSARS crisis may perpetuate the recession into the fourth quarter. The protests and the destruction that followed was a major setback for our economic recovery prospects,” he stated. The LCCI boss added,

“From an economic perspective, 2020 has been a very bad year. The worst in recent history. We are faced with the double jeopardy of a stumbling economy and spiraling inflation.

“The October inflation numbers of 14.23 per cent was the highest in 10 months. In economic parlance, this condition is characterised as stagflation. The effects of these developments are evident in business and in households.”

To facilitate quick recovery, the LCCI DG said the country should restore normalcy to the foreign exchange market by broadening the scope of market expression in the allocation mechanism.

“We should show greater commitment to the fixing of the structural issues to reduce production and operating costs for investors in the economy. Following the #EndSARS experience, the state of internal security is beginning to impact negatively on investors’ confidence. Security presence is becoming less visible especially in the major cities,” he said.

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