By Peter Adebiyi Adeniran.
“Economic history shows that no economy grows in a smooth and even pattern.”
This is also true in the life of individual. We refer to it as ‘cycles’ because there are two positions to put pedals of a bicycle. The pedal is either up or down. It is called “recession” while the pedal of the economy is down. When the pedal is down for too long a period, we call it “depression”, i.e. pressing the pedal down.
Ordinarily, no matter how long the pedal is down, except the bicycle is permanently parked, we expect upswing of the pedal. The movement of the pedal upward is called “expansion” or “boom”. It is ‘like the year having its season’. In other words recovery starts when the bottom is reached.
In the case of Nigeria, the bottom was reached in the third quarter of year 2016 with GDP growth rate at -2.34%. The recovery started in the fourth quarter of the year 2016 while the GDP growth stood at -1.73%. We went to town, believing that the recovery seemed real while the GDP growth rate stood at 0.55% in the second quarter of year 2017. Nigerian economy then left the trough.
Why did the ‘cautious group’, i.e. those who believe that Nigerian economy had recovered but it is not yet time to dance, qualify its report on the recovery? It is because recovery may be incomplete and it may be so strong as to lead to a new boom. Thus, there are two questions to be answered.
The first one is: Was the recovery of Nigerian economy from recession complete? The answer is in the affirmative. The recovery was complete while GDP growth rate swung from -2.34% in the third quarter of year 2016 to 0.55% in the second quarter of year 2017.
The second question will be: Was the recovery so strong as to lead to a new boom? The answer to the latter question is “No”. Nigerian economy slipped into recession from GDP growth rate of 2.11% in the fourth quarter of year 2015. The economic activities were at low ebb, even as at that time. The economy was characterised by downward movement in output and upward movement in inflation, interest rates and unemployment.
Therefore, GDP growth rate of 0.55% recovery cannot be considered to be strong enough to bring about “brisk demand, plentiful jobs, and rising living standards”. We will be able to conclude on how strong the recovery is in the next three quarters after watching the trend of the recovery.
Let us attempt to answer the real question: Will Nigerian economy enter the expansion phase?
Permit me to quote William Shakespeare in Julius Ceaser as quoted by Paul Samuelson and William Nordhaus in ‘Economics’ “The fault, dear Brutus, is not in our stars – but in ourselves.” What are the faults in ‘ourselves’? In other words what caused Nigerian economic recession of year 2016/2017?
“Keynesian economics emphasizes that changes in aggregate demand can have powerful impacts on the overall level of output, employment, and prices in the short run.”
It is believed that Nigerian economic recession was caused by monetary fluctuations and productivity shocks. The “speculative boom” that accompanied foreign exchange policy of the period contributed to the recession. We need not expatiate on this. It is still fresh in our memory. It is the period when manufacturing sector could not access foreign exchange but currency speculators were making billions of Naira on daily basis. I refer you to Emir Sanusi’s piece if you need details on this. May ‘our husband never go mad again’.
The monetary policy which made interest rate to be as high as 26% and tightened credit condition led Nigerian economy into recession.
The greatest cause of Nigerian economy entering into recession was productivity shocks; Nigeria was at war with herself. There were blows up of crude oil pipelines. It was the period of ceasure of crude oil flows.
Nigeria could not produce for export the only product from which she derived her substantial revenue. Meanwhile, the marginal propensity to import and consume imports (of course there were no local substitutes) remained high.
In addition to fall in production of crude oil was the decline in international price of same commodity. It is double jeopardies indeed.
Government purchase of goods and services declined. Government, the largest employer of labour could not pay salaries for months. Recurrent expenditure in terms of legislators’ salaries and allowances became a burden. Thus, little fund available could not be freed for investment, particularly in dilapidated or non-existent infrastructures.
It is noteworthy to state that election of year 2015 with its attendant reckless spending contributed in no small measure to Nigerian economy entering into recession. All these brought Nigerian economy into recession.
We agreed that Nigerian economy was out of recession, but can this recovery lead us into boom? Let us examine the quality of the recovery. The quality of GDP growth rate in second quarter of the year 2017 showed that Nigerian economy will go into expansion if current policies are sustained and improved upon.
Contribution of non-oil sector to GDP in the second quarter of 2017 was 91.11% as against 8.89% contribution of oil sector. This can be interpreted to mean that diversification effort of the government is yielding.
When we considered sectoral contribution to GDP in the fourth quarter of the year 2015 before recession and that of second quarter of year 2017 at emergence from recession, the pattern was identical. The contribution of services to GDP in the fourth quarter of year 2015 was 54.30% while it was 53.73% in the second quarter of year 2017.
Agriculture contributed 24.18% to GDP in the fourth quarter of year 2015 and 22.97% in the second quarter of the year 2017. Industries contributed 21.52% to GDP in the fourth quarter of year 2015 and 23.31% in the second quarter of year 2017. We draw readers’ attention to industries contribution while we hope that the trend will be sustained.
It is our belief that Nigerian economy is going in the path of expansion. We expect that the contraction experienced will breed revival and expansion. The proviso is that all the factors that pushed the economy into recession must still be tackled headlong to achieve and sustain economic boom.
Adeniran, B. Sc. Econs)M. Sc.(Econs) ACA, ACS, ACII (London) ACTI writes from Lagos. e-mail: email@example.com, firstname.lastname@example.org