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Averting economy’s relapse into recession

Averting economy’s relapse into recession

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The Economy Management Team (EMT) is worried by the economy’s poor showing on the first half of the year. It recorded a 1.95 per cent growth in the first quarter and 1.5 per cent in the second quarter. According to experts, these are indices that the economy may relapse into recession. But, real sector operators believe this is nothing to worry about once the right recovery policies are put in place and well managed. Assistant Editor CHIKODI OKEREOCHA reports.

The danger was foretold. Even before the Central Bank of Nigeria (CBN) warned that the economy was on the brink of relapsing into recession, not a few real sector operators and development experts doubted that the country was out of recession in the first instance. Some of them, including members of the Organised Private Sector (OPS), especially manufacturers, described the purported exit as technical and fragile.

For instance, before the CBN raised the alarm, about two weeks ago, that the economy may slip back into recession, citing weak economic fundamentals, the Chairman, Policy Committee of Manufacturers Association of Nigeria (MAN), Mr Reginald Odiah, faulted the National Bureau of Statistics (NBS) report, which suggested that the country had exited recession.

Odiah,  a former chairman of the Electrical Group of MAN, said the economy was not completely out of recession; that the saving grace was that more money was coming in from the oil sector.

“If you look closely, most businesses have closed down. I am not seeing clear policy direction and political will to bring the country completely out of recession, he said.

Pointing out that the government is simply focusing attention on the 2019 general election, Odiah added that: “The truth is that at the slightest mistake, the country would plunge back into deep recession.”

The former Director-General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dr. John Isemede, also wondered how NBS could suggest that Nigeria was out of recession with the first quarter growth at 1.95 per cent, while the second quarter recorded 1.5 per cent.

Isemede, a consultant with the United Nations Industrial Development Organisation (UNIDO), said consumers are still under pressure due to weak purchasing power, which has been compounded by inflation, high cost of goods and services, low disposable income, delays in payment of salaries in the public sector, the continued naira exchange rate effect and high import duties on many consumer items.

Some of these earlier doubts may have been why CBN’s warning that the country’s exit from recession was under threat may not have come as a surprise. To some experts and real sector operators, the fact that it came at a time oil prices are rebounding, hitting an all time high of $83 per barrel, as at Monday, October 8, meant that more hardnosed, strategic decisions and policies are required to sustainably exit the recession.

The CBN’s Monetary Policy Committee (MPC) had at the end of its two-day meeting held at the bank’s headquarters in Abuja said the economy has started showing signs of weakness. CBN Governor Godwin Emefiele said the committee was concerned that the exit from recession may be under threat as the economy recorded growth rate of 1.95 per cent and 1.5 per cent during the first and the second quarter of this year, respectively.

According to him, the slowdown emanated from the oil sector with strong linkages to employment and growth. He also listed some of the risks to output growth to include late implementation of the 2018 budget, weakening demand and consumer spending, rising contractor debt, and low minimum wage.

Others, according to Emefiele, are the impact of flooding on agricultural output, continued security challenges in the North-East and North-Central zones and growing level of debt.

The CBN boss said the MPC observed that despite the underperformance of key monetary aggregates, headline inflation inched up to 11.23 per cent in 2018, from 11.14 per cent in July 2018. “The near time upside risks to inflation remain the dissipation of the base effect expected from 2019 election-related spending,” he said.

Emefiele also lamented that continued herdsmen attacks on farmers and flooding, which destroyed farmlands, affected food supply ultimately. He, however, noted that: “Relative stability has returned to the foreign exchange market buoyed by the robust external reserves, with inflation trending downward for the 18th consecutive month.

Already, because of what the International Monetary Fund (IMF) described as “clouds on the horizon”, induced by the afore-mentioned factors, the Bretton Woods Institution has cut the growth projections made for Nigeria to 1.9 per cent, from 2.1 per cent, noting that the country’s economy was doing poorly.

The Deputy Director, Research, IMF, Gian Maria Milesi-Ferretti, announced the downward revision of Nigeria’s growth prospects in 2018 from 2.1 per cent to 1.9 per cent this week at the annual meetings of the IMF and World Bank Group in Bali, Indonesia.

He stated that the largest economies in Africa — Nigeria, South Africa and Angola — were holding down the continent’s economic development as a result of poor growth rates.

“The aggregate growth rate for the continent is held down by the fact that the three largest economies are not performing up to their full potential,” he said.

The IMF research director stated that the continent could do much better once these economies are on a more solid footing, particularly South Africa and Nigeria, because they are really large and affect a number of countries in their neighbourhood.

The IMF had at the beginning of this year projected that Nigeria’s economy would grow by 2.1 per cent in 2018 and 2.3 per cent in 2019. On its part, the World Bank had a 2.5 per cent growth forecast for Nigeria.

However, after the GDP growth of 1.95 per cent in the first quarter, followed by a fall to 1.5 per cent in the second quarter of 2018, it became clear that the much- anticipated economic recovery was not forthcoming, as the earlier positive forecasts are now being hurriedly reviewed.

Worse still for Nigeria, fears are now rife that the economy may slip back into recession, a possibility, which experts and real sector operators say could be averted with right and properly managed recovery policies including re-assessing the nation’s fiscal and monetary policies to ensure that they support employment and productivity.

For instance, an Economist, Dr. Ayo Teriba, believes that bridging the gap between the parallel and the official Foreign Exchange (forex) market rates could be the wedge for an economy on the brink of plunging back into recession.

“As severe as Nigeria’s economic problems, it can reverse itself if the government can put the right policy in place. The truth is that even if oil is still hovering around $20 per barrel, there are things we can do to avoid inflationary shocks such as bridging the gap between the parallel and the official forex market rates,” he said.

For the Director-General of Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, reversing the declining trend in the GDP required sustaining the current momentum in the implementation of the government’s ease of doing business. This, he said, would help bring down the operational cost of investors.

He also called on the government at all levels to double their efforts to improve the state of infrastructure. According to him, the state of infrastructure has continued to take a toll on investment across all sectors, pointing out that the impact was more pronounced on manufacturing and the agric sector.

Yusuf in his reaction to the latest report of the NBS, which showed decline in the performance of the economy in the second quarter of this year, lamented the poor performance of the manufacturing and agric sectors, despite the attention given to them by both the monetary and fiscal authorities.

Yusuf said the decline in the performance of the agricultural sector from three per cent in Q1 2018 to 1.19 per cent in Q2 could be attributed to recent security challenges, which affected many farming communities across the country. He also said access to credit in the sector is low due largely to the nature of risk inherent in the sector.

With regards to manufacturing, Yusuf said the real sector is still grappling with serious productivity challenges arising from the constraint of infrastructure, particularly power and logistics. He said it is imperative, therefore, that there should be greater investment and policy focus on improving logistics and enhancing the power sector.

He said the manufacturing sector slowed from 3.39 per cent in Q1 to 0.68 per cent in Q2 because of infrastructure deficit, logistic challenges, including the Apapa gridlock, access and cost of credit, weak purchasing power and multiple taxation.

Prof. Ademola Oyejide of the Faculty of Social Science, University of Ibadan, noted that countries that have developed did so on the back of the productivity of the manufacturing sector.

He, however, said the manufacturing sector can only be productive and competitive with the appropriate mix of macroeconomic policies. According to him, having more than one exchange rate distorts the market and hurts the manufacturing sector.

Although, there have been efforts at addressing infrastructure deficit particularly in the area of improving the power sector and the business environment under the Economic Recovery and Growth Plan (EGRP), experts insist that macroeconomic and structural reforms remained urgent to contain vulnerability and support sustainable private sector-led growth.

For instance, the IMF has consistently called for measures to contain vulnerabilities and achieve growth rates that could make a significant impact in reducing poverty and unemployment, which required a comprehensive set of policy measures.

On the fiscal front, the Fund said fiscal consolidation should be accompanied by a monetary policy stance that remains tight to further reduce inflation and anchor inflation expectations.

It added that moving towards a unified and market-based exchange rate as soon as possible while continuing to strengthen external buffers would be necessary to increase confidence and reduce potential risks from capital flow reversals.

“Such a policy package – along with structural reform implementation, including by building on recent successes to improve the business environment, closing infrastructure gaps, and implementing the power sector reform plan – would lay the foundation for a diversified private-sector led economy,” the IMF said.

Experts have also identified the increased patronage of made-in-Nigeria products as a viable option to halt the economy’s plunge back into recession. According to them, this will boost the manufacturing sector, resulting to increased revenue to government through taxes and employment creation, among others.

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