Recession confirmed. Now what?
The National Bureau of Statistics just confirmed what most Nigerians already knew. The economy shrunk by 2% year on year to the end of June confirming that we are officially in a recession. The first recession maybe since the 1990s and certainly since the 1980s. We did not report quarterly GDP numbers back then so we might have missed a few.
The headline figure hides what was a really bad quarter for Nigeria. Every major sector, with agriculture as an exception, showed a continued contraction or a slow down in growth. Services contracted by 1.3% compared to the 0.4% growth in the first quarter of this year. The first time the sector has shown a real contraction for more than a decade. The services sector has accounted for more than 50% of economic activity since 2012 and so a contraction in services is a big deal. The construction sector, a large employer of labour, also saw a bigger contraction at 6.3%, compared with 5.4% in the first quarter. The result is that the unemployment problem has continued, with the official unemployment rate rising to 13.3% and youth unemployment rising to 49.5%. Let’s not forget about inflation. Whichever way you spin it the numbers are bad.
The broad slowdown across almost all sectors points to causes that are macroeconomic. Not pointing fingers but you cannot look past the effects of the currency and fuel problems. Ironically, the manufacturing sector, which has been the target of the forex policies and many intervention funds, has shown the worst performance of any major non-oil sector. The sector contracted by 3.4% in the second quarter, the sixth consecutive contraction.
The strategy of government remains the same. The plan is to spend our way out of the recession and double down on policies that are allegedly working. According to the office of the Vice President, the worst has passed. The spending plans continue although limited by the shortfall in revenues generated by the FIRS and a Eurobond plan that looks increasingly unlikely to happen.
I am not here to sadden you all with the bad economic numbers. The point of this article is to think about what to do next. Sometimes it is useful to think about how people respond when they hit rock-bottom. Most of us have reached points in our lives where things were not going so well. At that point of reflection we probably thought to ourselves: what can I do to improve my life? However, it did not end there. We probably also asked ourselves: what do I need to stop doing to improve my life? Should I stop drinking so much? Should I stop spending so much on parties? And so on. Similarly, as the economy hits the rocks, policy makers need to ask themselves:
What should we stop doing?
The first thing is to stop messing with the exchange rate. If you are looking for a culprit to blame for this recession, you can’t look much further than the foreign exchange restrictions that lasted for 18 months. Although the CBN officially floated the naira in June, it seems they can’t stop fiddling with it. There has been a circular every other week adding or change rules or participants in the foreign exchange market. The CBN needs to stop and let the markets work.
The federal government needs to stop its hostility to markets and the private sector in general. There have been statements made by ministers and other government officials every other week threatening fire and brimstone on banks or fertilizer companies or others. You have to wonder who will get the economy back on track if the private sector is treated like the unwelcome guest at the dinner table.
The federal government needs to stop the crazy rules it imposes on many sectors of the economy. I find it amazing that in a country with serious power shortages, you can’t build a power plant with greater than 1MW capacity without being forced to jump through hoops at Abuja. In a country with very low refining capacity you can’t build a refinery with having to dobaale to government officials. In a country with only one major port in a congested Lagos, you can’t build a port unless the federal government says so. In a country with transport infrastructure crumbling, you can’ build a rail line unless the federal government gives the go ahead. These things need to stop.
Finally, the government needs to stop its war on imports. There is the tacit assumption by government officials that imports are to blame for our current woes. The reality is a bit different. Up until this year we were the largest economy in Africa. Of course, we will import things. Our currency problems are not there because we import too much but because we export too little besides oil. It is not clear how stopping imports translates to promoting exports.
This list is not exhaustive. There are many other things which the government can stop doing. As we ponder how to get out of the recession I have just one question for government officials and other policy makers: What can you stop doing today?
Nonso Obikili is director of applied economics at the African Heritage Institution and tweets @nonso2. The opinions expressed in this article are the author’s and do not reflect the views of his employers.