Economists postulate that once an economy exhibits two consecutive quarters of negative growth, such an economy is technically in a recession. The negative growth of the economy implies output loss, hence jobs are lost with adverse implications. However, an economy can register positive growth rates and yet perform below potential.
The Nigerian economy, from 1999 to 2015, grew positively at almost 6 per cent. Yet unemployment and underdevelopment averaged 30 per cent while the rate of inflation stood at about 12 percent. It is clear that growth may not result in development. Growth must be positive and sustained at double digit for almost 15 years to have a dent on poverty. Growth is only a necessary condition for development. Once an economy deviates from a steady positive growth trajectory, it is often difficult to return to a steady state.
Nigeria is in a recession technically because GDP growth in two consecutive quarters (the first and second of 2016) is negative — that is -0.36 per cent and -2.3 per cent respectively. The recession is a special type, affecting both the demand and supply side of the economy. The recession has opened a pandora box with pundits and other stakeholders discussing what led to it and how to attain economic recovery.
Economic recessions are part and parcel of a capitalist market development. If the recession is well managed, then the adverse implications would be minimized. The global recession of 2008 on account of the upheavals in the housing sector in the United States is a case in point. Its management by the USA government, through fiscal stimulus, resulted in sluggish growth in the global economy. If the recession was left to sort out itself, it would have led to a depression with grave consequences for humanity as were the experiences of the Great Depression of the 1930s.
The Nigerian economy grew because of rising oil prices. The sharp fall in oil prices sent a warning signal that the economy was in a declining mode. The Nigerian economy depends very largely on the export of crude oil for the provision of foreign exchange for importing capital goods, consumption goods, and services. Value is not added to crude petroleum before it is exported. In addition, the crude oil sub-sector is not linked to relevant industries like those of the chemical and pharmaceutical sub-sectors. It is also not linked to the agricultural sector.
The value of the local currency (Naira) has depended on the quantity of foreign exchange reserve. Hence, based on the import-dependent nature of the economy, inadequate foreign reserves to back the Naira leads to the depreciation of the latter. Currently, the demand for foreign exchange exceeds the supply as reflected by the large misalignment between the inter-bank rate and that of the parallel market.
If the 3rd or 4th quarter of the GDP in 2016 registers a marginal positive growth, then the recession is technically over. But that would not solve the socio-economic problems of the country. The challenge the economy is facing is beyond a quarterly analysis of growth figures. This is not to argue that to put the economy on the path of positive growth is not desirable. It is, but that would not solve the major challenges of the economy. What then is to be done?
There is need to plan the economy. At the present stage of Nigeria’s economy, comprehensive planning is crucial. The opportunity was missed by not implementing the Vision 20:2020 with five-year development plans. A comprehensive plan would involve all sectors and sub-sectors of the economy with projected targets and how to meet them. Countries that have moved millions of their people out of poverty and are on the path of building a modern knowledge economy have relied heavily on comprehensive economic planning. This is important — recession or no recession.
In fact, a properly articulated and implemented plan would minimize the consequences of future recessions. For example, such a plan would address the road to industrialization and appropriate strategies for diversifying the economy. If the government is committed to building a modern knowledge-based economy then it would anchor its economic blueprint on development-driven state economic philosophy.
In the short and medium terms, to reverse the recession and be on the path of growth reliance require fiscal policy and structural reforms. The government must spend on capital projects to restore growth. Workers should be paid arrears of salaries and allowances to stimulate consumption. Investment in hard infrastructures such as power, roads, railways, and housing would help recovery. It is crucial to reduce the high cost of governance by cutting down on frivolous allowances enjoyed by political office holders.
The residential housing sub-sector in Nigeria is a source of growth. The last rebasing exercise suggests that policies should be directed at housing construction and real estate at all levels of government. Spending on the housing sub-sector would generate employment with inherent positive multiplier effects such as tax payments to government by new employees.
The security situation in the country demands massive recruitment into the Police, Army, Navy and the Air Force. In addition, there should also be recruitment in the Customs, Prison and Immigration Services, Federal Roads Safety Corps and the Civil Defense Corps among others. This done, the economy enters a recovery phase, monetary policy should be directed at reducing the lending rate in order to revamp the real sector so that the economy can continue on the part of growth.
The ad-hoc economic management of the economy does not portray any seriousness and commitment towards satisfactory economic performance and drastic poverty reduction. The government needs a council of economic advisers. The council should consist of well qualified, experienced and tested economists. It would undertake a continuous and policy-oriented research to guide the President and government. Surely, today’s global economic complexities need competent and qualified technocrats to proffer possible solutions. Managing an economy is not a tea party!
There is need to plan the economy. At the present stage of Nigeria’s economy, comprehensive planning is crucial … Countries that have moved millions of their people out of poverty and are on the path of building a modern knowledge economy have relied heavily on comprehensive economic planning