The Nigerian economy is experiencing its second recession in four years under the administration of President Muhammadu Buhari, as the country records negative growth in its Gross Domestic Product (GDP) for the second consecutive quarter.
In a recent report by the National Bureau of Statistics (NBS) which was announced on Saturday, November 21, it was revealed that Nigeria recorded a negative GDP growth of 3.62 per cent in the third quarter of 2020. The country had earlier recorded a 6.10 per cent contraction in the second quarter.
Before the COVID-19 pandemic and its attendant disruption, the Nigerian economy was expected to grow by 2.1% in 2020. The pandemic caused a significant decline in oil revenue as global economic activities stalled for months.
What is recession?
Recession is a simple business cycle when money is not circulating and people are not making profit as required in their business following a drastic fall in the country economic activity.
Recession is a period of temporary economic decline during which trade and industrial activity are reduced. It is generally identified by a fall in GDP in two successive quarters. GDP is the market value of all goods and services produced within a country in a given period of time.
A recession is a significant decline in economic activities spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.
Chronicles of Nigeria’s recession (1980 till date)
1981: Nigeria’s economy slid into recession under the regime of late Shehu Shagari with a negative growth of 13.13 per cent.
1983: During the military rule led by General Muhammadu Buhari, the countru experienced another recession with the gross domestic product growing at 10.92 per cent in the negative.
1993: During this period under General Ibrahim Babaginda, the country also battled with recession with a GDP negative growth of 2.04 percent.
2016: In 2016, Nigeria’s economy experienced yet another phase of recession, following a drop in economic activities. Reports said this was caused by President Muahmmadu Buhari’s delay in the appointment of ministers and other key appointees who are to oversee the affairs of some crucial agencies in the country.
2020: According to the recent report published by NBS, the economy is experiencing a second recession under the Buhari-led administration. The report stated that the economy slipped into recession at the end of the third quarter (Q3) which ended in September.
The GDP in real terms declined by -3.62% (year-on-year) in the third quarter of 2020, driven by the long closure of Nigeria’s land borders which restricted economic movements across the borders and the coronavirus pandemic, which caused a significant decline in oil revenues as global economic activities stalled for months.
Determinant of Nigeria’s recent economy recession
The economic downturn in Nigeria was triggered by a combination of declining oil price and spillovers from the COVID-19 outbreak, which not only led to a fall in the demand for oil products but also stopped economic activities from taking place when social distancing and lockdown policies were enforced.
Crude oil accounts for nearly 90 per cent of Nigeria’s foreign exchange earnings although it contributes less than 10 per cent to the GDP. It contributed just 8.73 per cent to the economy in the latest report.
Oil production fell to 1.67 million barrels a day from 1.81 million barrels in the previous quarter, according to Bloomberg figures, the lowest since the third quarter in 2016 when the economy last experienced a recession.
Also, production got tanked due to lockdown activities as farmers could not go to farm, neither could manufacturers produce, leading to an increase in prices of food produce, essential commodities and services since April, as reported by the NBS. Foreign trade also reduced in the first two quarters of the year.
According to the World Bank forecast, Nigeria’s economy will contract by 3.2 per cent in 2020, assuming the spread of COVID-19 is contained by the third quarter while the International Monetary Fund (IMF) predicts a contraction of 4.3 per cent. Before the pandemic and its attendant disruption, the economy was expected to grow by 2.1% in 2020.
Effects of recession on the citizen
There have been uproar on social media over the report published by the NBS. The recession comes at a time when the economy is already mired in a slowdown occasioned by the global coronavirus situation. The following is bound to happen to citizen during this period of recession.
Unemployment – When the economy of a country is in recession, firms are likely to produce less of their product, and will be needing few workers to execute their goals within that period of economy crisis.
Fall in interest rate – While struggling with recession, interest rates tends to fall. This is as a result of low rate in inflation and pumping of cash by the CBN in other to put the economy in order.
Stock market fall – At this period, the stock market will witness a drop due to low profit by firms.
Increase in price of commodity – This is evident in the current food inflation rate in the country at 14.23 in October, which is influenced by rise in food prices, other commodities and services.
How government can curb the recession
The priority at this state is to help the economy achieve the goals of growth, full employment, and price stability.
Government can influence economic activities through two approaches: monetary policy and fiscal policy. Through monetary policy, the government should exert its power to regulate the money supply and level of interest rates. Through fiscal policy, it should adopt using its power to tax and to spend.
The federal government needs to protect low-income earners and businesses as seen with the exemption of minimum wage earners from tax payment in the 2020 Finance Bill and SMES from several tax obligations in the Companies and Allied Matters Act of 2020.