Nigeria In Worst Recession In 29 Years | Independent Newspapers Limited
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Nigeria In Worst Recession In 29 Years

recession, buhari, FG, budget
Posted: Sep 1, 2016 at 5:57 am   /   by   /   comments (0)

* FDI Declines 23.75%, Inflation Hits 17.1%

* GDP Shrinks By 2.06% In Q2

* 4.6m Nigerians Lose Jobs Since May 2015

* Experts Ask Govt To Boost Production

* Govt Expects Quick Turnaround



Bamidele Ogunwusi, Isuma Mark and Krik Leigh


Nigeria has officially entered into its worst recession in 29 years as gross domestic product (GDP) contracted by 2.06 percent in the second quarter of 2016.

But the Federal Government has given Nigerians four reasons to cheer up, saying the second quarter of 2016 will be promising.

This development confirms what the International Monetary Fund (IMF) had initially predicted when it said that the Nigerian economy will shrink by 1.8 percent in 2016.

A recession is a significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP), although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.

The country was last in a recession, for less than a year, in 1991, and experienced a prolonged one that started in 1982 and lasted until 1984, National Bureau of Statistics (NBS) data showed.

According to World Bank data, the last time Nigeria had this magnitude of economic decline was under the regime of Ibrahim Babangida when the economy recorded consecutive decline of 0.51 percent and 0.82 percent in first and second quarters of 1987.

“In the second quarter of 2016, the nation’s gross domestic product (GDP) declined by -2.06 percent (year-on–year) in real terms,” the NBS revealed.

“This was lower by 1.70 percentage points from the growth rate of -0.36 percent recorded in the preceding quarter, and also lower by 4.41 percent points from the growth rate of 2.35 percent recorded in the corresponding quarter of 2015.

“Quarter on quarter, real GDP increased by 0.82%, nominal GDP was N23,483,954.78 (in nominal terms) at basic prices. This was 2.73% higher than the second quarter 2015 value of N22,859,153.01. This growth was lower than the rate recorded in the second quarter of 2015 by 2.44% points.”

In the report, President Muhammadu Buhari’s first quarter as president (Nigeria’s third quarter of 2015) accounted for a 1.46 million loss of jobs while another set of 518,102 were thrown out of jobs in the fourth quarter of 2015.

A total number of persons in Nigeria who suffered job losses as recorded by NBS since President Muhammadu Buhari took office in May 2015 stand as high as 4,580,602. This was apart from graduates who are either underemployed or unemployed.

The NBS report said Nigeria’s unemployment rate grew from 12.1 percent in the first quarter of 2016 to a record high of 13.3 percent in the second.

“During the reference period, the number of unemployed in the labour force increased by 1,158,700 persons, resulting in an increase in the national unemployment rate to 13.3% in Q2 2016 from 12.1 in Q1 2016, 10.4% in Q4 2015 from 9.9% in Q3 2015 and from 8.2% in Q2 2015,” NBS said.

“In view of this, there were a total of 26.06 million persons in the Nigerian labour force in Q2 2016 that were either unemployed or underemployed compared to 24.5 million in Q1 2016 and 22.6 million in Q4 2015,” the report said.

The NBS said the economy shrank by 0.36 percent to hit its lowest point in 25 years.

The oil sector experienced a decline of 17.48 percent while the agricultural sector grew by 13.24 percent within the quarter.

With the mining sector shrinking by 47.9 percent and manufacturing falling by 1.02 percent, the general non-oil sector declined by 0.38 percent.

However, on the bright side, the “public administration sector grew by 8.21% in the second quarter of 2016, higher by 10.86% points from the corresponding quarter of 2015 and higher by 1.83% points relative to the first quarter of 2016”.

With the current results from the NBS, Nigeria is beating the IMF set bar at an aggregate GDP of 1.21 percent.

At the same time, prices of food and other goods are soaring, with annual inflation rising to 17.1 percent in July from 16.5 percent in June.

Accounting for how poorly the economy has performed since President Buhari took over, NBS said, “Foreign direct investment (FDI) recorded the largest decline of 23.75%, compared with a decline of 9.49% for portfolio investment and an increase of 1.24% for other investment.”

It said comparable with the same quarter of last year, “portfolio investment accounted for 81.88% of total investment, which highlights the fact that portfolio investment has been the hardest hit by recent economic events.”

The report said there were five different investment types (across all three categories) not to record any capital importation, “this is the first quarter that the number has been that high on record.”

“The total value of capital imported into Nigeria in the second quarter of 2016 was estimated to be $647.1 million,” NBS said, “which represents a fall of 8.98% relative to the first quarter, and a fall of 75.73% relative to the second quarter of 2015.”

This figure “would be the lowest level of capital imported into the economy on record,” the bureau said, adding that, it “would also represent the largest year on year decrease. This would be the second consecutive quarter in which these records have been set.”

The continuing decline in the value of capital imported into the economy is symptomatic of the difficult period that the Nigerian economy is going through. The second quarter saw the economy enter into the first recession during the rebased period, the report said.

Therefore, the report said the current economic template suggests less profitable opportunities for investment.

In addition, “in the second quarter there was considerable uncertainty surrounding future exchange rate policy which may have deterred investors. The naira was allowed to depreciate towards the end of the quarter,” it further averred.

“These factors were likely to have contributed to the record decline in capital importation.

“Year on year, the importation of capital declined for each broad type (foreign direct investment, portfolio investment and other investment), but portfolio investment recorded by far the largest decline of 88.76% year on year, compared with declines of 37.00% and 1.22% for foreign direct investment”.

Dr. Ogho Okiti, CEO, Times Economics, said there are short and long term issues involved that government explore. In the short term, “we have to boost production, whether it’s agriculture, mining, banking and ensure they get the best possible support.

“The long-term issues are structural ones. First, we need to delink oil prices from government revenue. This is because the problem of instability is always due to drop in government revenues which are also linked to oil prices.

“Second, we need to consciously and deliberately identify the space that we want to play in the international market place. The UK, for example, plays big in the pharmaceutical, education and tourism.

“We have not identified where we want to play in: is it manufacturing? Within manufacturing there is clothing, automobile, processing etc. So we need to identify one and play big on it”.

John Ashbourne, Africa Economist at London-based Capital Economics, said in a note that: “More important than the headline number is the fact that almost all key sectors of the economy are now struggling.”

Many of the declines, apart from the oil sector, according to him, were due to Nigerian government policy.

He also cited import restrictions that have harmed manufacturing and foreign exchange policies that have discouraged investment. He said while the economic retraction will ease in the third quarter, it likely will continue to shrink over the duration of this year.

Cyril Ampka, a Calabar-based economist, said, “the time to brace up and rescue our economy is now. There is no more time for politicking. I am of the opinion that we can get a homegrown solution to this problem. We have to implement a programme to make Nigerians produce what we eat and what we need. The era of hiding behind a finger is gone.

“We must first and foremost try to be self-sufficient in food production. Look out for our main staple food in the country. Rice and bread, you will agree with me that we are far away from sufficient in this regard. Bread is still 90 percent foreign while the bulk of rice we eat is still imported.”

Matthew Ogagavworia, a financial analyst, said the report is already known by Nigerians more than five months ago but the Buhari’s administration refused to take drastic actions.

“I don’t think it is too late for us as a country, the Buhari’s administration should shed the toga of autocracy, take the bull by the horn and kick-start the economy afresh. The economy needs to be refloated.

“The idea of using an old analog template to solve this problem is gone. We have to, as a nation, brace up to the reality that all of us have to address this problem together. Sacrifices need to be made and nothing should be left undone.

“Let us, as a nation, concentrate our attention on food production and manufacturing. If we are food sufficient, then all other problems diminish. Looking at the numbers provided by NBS, the solution to our problem is homegrown.”

Reacting to the development, Adeyemi Dipeolu, special adviser to the president on economic matters, outlined the “sunny side” based on the latest NBS report.

“The just recently released data from the National Bureau of Statistics showed that gross domestic product declined by -2.06% in the second quarter of 2016 on a year-on-year basis,” he said.

“A close look at the data shows that this outcome was mostly due to a sharp contraction in the oil sector following losses in crude oil production as a result of vandalism and sabotage.”

Dipeolu, however, said the rest of the Q2 data is beginning to tell a different story. There was growth in the agricultural and solid minerals sectors which are the areas in which the Federal Government has placed particular priority.