Now that we are out of recession

By Lakinbofa Goodluck

August 30^th 2016, the National Bureau of Statistics informed Nigerians that the country had slipped into recession with Gross Domestic Product (GDP) contracting by -2.06%. Exactly 12months later the National Bureau of Statistics declared that the country is now officially out of recession with 0.55%growth in the second quarter of 2017 after five consecutive quarters of economic decline. An economy is acknowledged to be in recession when GDP growth rate is in the negative for two consecutive quarters or more. To be out of recession simply connotes that production activities in the economy are picking up and the GDP growth rate is in the positive, which means there is more output in the economy. For some Nigerians, we are only out of recession on paper but as the Director-General of the NBS stated “the so called paper is an aggregation of the reality”, which istrue only to a considerable extent.

According to the data from the NBS the key drivers that nudged the economy out of recession are agriculture, crude oil, manufacturing and financial and insurance sectors, which grew at 3.01, 7.52%, 0.64 and 10.45 respectively. Conversely, the services sector which accounts for 54% of the GDP is still in contraction. The NBS report shows that 21 of the 46 sectoral activities captured are still in the deep. The major concern however is that the country’s economy is still heavily dependent on crude oil. The report from the NBS has now confirmed the statement by the Minister of State for Petroleum, Dr. IbeKachikwuat the inauguration of the council on hydrocarbon in November 2016, “that oil put us in recession and it will get us out of recession.” Just like a prophecy it has been fulfilled; and that should be a major concern for observers, especially policy makers. Oil production in the 2^nd quarter of the year is estimated to have averaged 1.84million barrels per day based on data supplied by the NNPC. This figure is higher than the daily average in the preceding quarter by 150, 000 bpd according to estimate by NBS and it is one of the major contributor to the economic growth experienced in the quarter under review.

In the meantime, it will be appropriate to examine some of the benefits of the announcement from the National Bureau of Statistics. First, in a country that has become enmeshed in all manners of negative news that weaken the mind, this will definitely serve as a relief and booster for the weakened mind. And for a government that is probably in a search for positive news no matter how trivial, this will be a good PR instrument for the information handlers, more so that it is coming just after the Super Eagles humbled the (In)domitable Lions of Cameroun. Beyond this, the announcement should also herald an upbeat in the stock market in the coming weeks.

Additionally, increase in business activities is a positive sign for the government’s effort at increasing tax revenue, and it isencouraging to see how crop production under the agriculture sector grew in the period under review. Another positive implication of the report is the gradual reduction in the feeling of economic anxiety that trailed the news of recession in the first place. Now people will be more likely to take investment risks unlike the caution that characterised investment decisions whilst the recession lasted. On the whole it is expected that there will be increase in foreign direct investment (FDI) and even local investments.

However, there is need for caution seeing that the diversification of the economy has not fully translated into increase in non-oil contribution to the GDP. As stated earlier, if the recession exit is triggered by the oil sector, then this is a somewhat fragile exit. It is fragile because it is driven by a fragile sector. Fundamentally,stability in oil production is relative to stability in the Niger Delta. At the moment we can point to relative peace in the region, which has obviously translated into increase in the production output. Nonetheless, until the issues underlying the agitations are completely addressed, it may be difficult to confidently allude to permanent peace in the region. No one is praying for another round of violence in the region, yet it is imperative for economic planners to prepare for the worst possible scenarios. Likewise, without downplaying the effect of OPEC’s decision on Nigeria, we are still producing less than the figures in the first quarter of 2015 when the average daily production was 2.15million.

At the moment, an unexpected disruption in oil production means we are likely to slip back into recession if things are left the way they are. The second oil related factor that poses a challenge is the fragile crude oil price. Events in the last few months have shown that despite efforts by OPEC to ensure stable and relatively high price,the market has failed to attain the $58 threshold since the start of the year. Notwithstanding, with the current exchange rate the dollar value of a barrel of crude oil produced in the country when converted into the domestic currency will probably give us the same value when crude oil sold at $70.And since GDP is measured in domestic currency, we can infer that the current GDP figures have also been buoyed by the prevailing exchange rate. Consequently, any significant drop in the crude oil price is likely to affect our GDP considerably. This shows that we have not really made any progress.

The manufacturing sector which comprises of 13 activities grew by 0.64% in the quarter under review. However, oil refining is again the major driver of that growth. The oil refining sector experienced the highest growth of 11.28% in the period, which suggests that the growth in manufacturing is still largely propelled by oil related activity. How do we expect other activities in the manufacturing sector to grow when they are bedevilled by a comatose infrastructure, and an exchange rate regime that has no predilectionfor their activities?

Furthermore, the report also shows that the services sector which accounts for 54% of the GDP is still in the deep. The Central Bank Governor at the MPC meeting warned that if policy makers do not put in place strong economic policies the current economic growth may be short-lived. That being the case, it is important for the government to ensure that concerted efforts toward the economy are reinvigorated to sustain this minimal growth. It is only natural and expected that government officials will bask in this latest news seeing that it is the long-awaited positive news that seems to have eluded this administration, but we must reckon that we are still far from Uhuru. The Economic Growth and Recovery Plan of the government will be a major driver in this regard. We expect the drivers of different aspects of the plan tolive up to the responsibility that has been reposed on them.

In the same vein, we need to pay attention to our budgeting process. Budget approval and implementation in Nigeria has been a major hindrance to economic forecasts and investment in the country. It is commendable that the Minister of Budget and National Planning has indicated the commencement of the budget process. The Minister also promised that the bill will be presented to the National Assembly by October this year in order to ensure early passage and subsequent implementation. These are truly positive signs. Nevertheless, early presentation, passage and implementation of a budget will not have any significant effect on the citizenry if the elements in the document do not cater to the need of the people. The budget needs to be reflective of the needs of the people and the vision of the government. The current infrastructural reality of the country does not support growth. It is appalling that the major roads to our Ports are all in bad shape; the roads to Apapa and Onne Ports are the worst in this regard. It is difficult to consistently grow an economy in this kind of environment.

On the whole the report from the National Bureau of Statistics only shows that we are moving in the right direction. It does not presuppose that our economic challenges are over; neither does it suggest that unemployment and poverty rates have reduced. These challenges still exist. To that extent, many watchers, especially the average Nigerian in the local suburb will swiftly discard the news of Nigeria exiting recession even if it is spoken in his dialect, so long as food prices have not dropped and there are still many jobless youths in his community. Until economic growth in the country is driven largely by the non-oil sectors and the average Nigerian has access to basic amenities, growth will remain only a word. It is therefore imperative for our policy makerstoembrace cautious excitement and work harder to put the country on a path of sustainable growth. We are only out of recession but we have still not recovered.