Looming recession in Nigeria: Averting the danger of a collapsed economy

Posted by News Express | 2 May 2020 | 515 times

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•Foster Obi


The global economy is at the risk of an economic downturn worse than the Great Depression and this could be followed by another “possibly much worse downturn,” according to the Economist Intelligence Unit (EIU).

From reports, counties are giving trillions of dollars in stimulus packages to help support their economies but sovereign debts that they are racking up may push the global economy into a second recession.

Recently, the International Monetary Fund (IMF) said the world economy would shrink at its fastest pace in decades, raising fears it will be the worst recession since the 1930s Great Depression. The EIU now says there is a risk of a subsequent recession, driven by a debt crisis from governments with weak balance sheets.

The nagging question begging for answer is: where does Nigeria economy stand in all these forecasts? In the IMF estimation, Nigeria’s economy is expected to shrink by 3.4 percent this year and the nation of 200 million people could face a recession lasting until the year 2021.

“Nigeria’s economy is being threatened by the twin shocks of the COVID-19 pandemic and the associated sharp fall in international oil prices,” Kristalina Georgieva, Managing Director of the IMF, said in a statement.

McKinsey, a credit rating agency recently reported that a “contained outbreak” would lead to a 2.5% contraction in an economy struggling to rally since the recession of 2015, while an “uncontained” outbreak could see Nigeria’s economy shrinking 8.8%.

Fitch Ratings also lowered Nigeria’s long-term foreign-currency Issuer Default Rating (IDR) down to ‘B’ from ‘B+’. It also assigned the West African country a negative outlook.

Fitch explained that the downgrade and negative outlook reflected the aggravation of ongoing pressures on Nigeria’s external finances following the recent slump in oil prices and the pandemic shock.

Nigeria, the report indicates, is obviously in bad shape. President Muhammadu Buhari, who now faces the possibility of the second recession of his tenure, has admitted the situation is challenging.

“The economy is the most delicate and sensitive of all aspects of national life. A little change in the matrix can lead to major disruptions in the national economy.

“The administration has taken measures to contain the spread of the virus and its impact by releasing contingency funds to Nigeria’s Center for Disease Control (NCDC) and providing an economic stimulus package to alleviate the impact for households and businesses hit by the downturn. But these measures are not enough to prevent Nigeria from going into a recession that could last until 2021, if COVID-19 continues for six more months,” according to the country’s Finance Minister, Zainab Ahmed.

“We are hopeful that this pandemic will be limited in time. If it is an average of three months, we should be able to close the year with positive growth. But if it goes longer than that – six months, one year – we will go into recession,” said the Finance Minister.

One feature of the economy under this government is that the pace of economic recovery remains slow, as declining real incomes and weak investments continue to weigh on economic activity. Inflation is rising, driven by higher food prices resulting from border closures, while external vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals as pointed out recently by experts.

The government itself has not done enough to boost growth in Africa’s largest economy. From checks, the rank of unemployed Nigerians rose as over 3,500 bank workers have been shown the way out within the first quarter of this year. According to the various bank managements, the recent personnel cut is aimed at cutting costs, shoring up performance, opening opportunities for new hands and enhancing service delivery.

Since the completion of business combination between Access Bank and Intercontinental Bank; Ecobank and Oceanic Bank International; First City Monument Bank (FCMB) and Finbank; with the emergence of Access Bank, Ecobank and FCMB as core investors having consumed the three others, thousands of workers in the sector have been laid off.

Last week the Group Managing Director of Access Bank, Herbert Wigwe, hinted of an impending sack of no less than 75 percent of the workforce while also talking about pay slash of about 40 percent.

These are early signs of what to expect.

Having realised that they can operate with at least 40 percent of the staff and achieve results, most organisations will likely draft sack letters and may even send them to staff asking them not to bother showing up again after the lockdown.

For those in private businesses, the future looks equally very bleak. Since Nigeria is a capitalist economy, the forces of demand and supply will decide market trend. If the purchasing power is weak, there will be initial glut precipitating a downward supply curve that may not support growth. This may lead to crisis in the economy.

The Nigerian economy started experiencing economic recession from 1981 which was characterised by low incomes, dwindling capacity utilisation, and shrinking consumption patterns. Public enterprises were operating at the lowest ebb. Government discovered that, without any exception, such enterprises were infested with problems of confused and conflicting missions; political interference in operating decisions; abuse of monopoly powers; defective capital structures; bureaucratic red-tapism in their relations with supervisory agencies; mismanagement; nepotism and corruption according to a survey.

Consequently, reform failures and entrenched bureaucratic corruption have created systemic poverty amidst robust economic growth in Nigeria; a situation that supports the phenomenon of poor people in a rich country. Nigeria at present is ranked among the poorest nations in the world and also has one of the highest unemployment rates, says an IJM& P report.

Hope dims when one remembers that not much has changed since this government came into power. Even with so much that was recovered from Abacha loot, more than 80 percent of the population are experiencing poverty. Corruption is on the rise daily and this government more concerned about empowering a certain part of the country while the rest are impoverished.

One of the greatest threats is that although the government is receiving financial assistance, it does not translate to the welfare of citizens.

On Tuesday the IMF approved $3.4 billion in emergency fund which is the single biggest disbursement for any country yet with the Coronavirus pandemic.

Before that, the Nigerian Private Sector Coalition Against (CACOVID-19), the umbrella body under which industrialists and corporate organisations, donated funds to fight the pandemic, recently grossed over $20 billion from almost 40 donors.

How the funds will be mismanaged is not in doubt.

While economic experts believe that with restrictions lifted, most economies will bounce back, for Nigeria we need divine intervention because the country parades the set of leaders that are selfish, unfeeling and hardly prudent.



•Foster Obi is Deputy Editor of News Express Media Group.


Source: News Express

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