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Is Nigeria Out of Recession?

The ‘National Bureau of Statistics’ latest overview of National Productivity between April-June 2017, has revealed that, the steady decline in output of goods and services, which began in March 2016, has now been thankfully reversed by June 2017.

Indeed, total output of goods and services, in the preceding decade before 2016, recorded positive annual growth rates which fluctuated between 3-6%.

Unfortunately, however, the crash in crude oil prices, in recent years, significantly reduced revenue and therefore impacted negatively on consumer demand and Nigeria’s capacity to produce. Consequently, by March 2016, for the first time in 25 years, gross production and output, invariably began to actually contract rather than grow.

Ultimately, the negative growth recorded, between January-June 2016, technically shoved Nigeria’s economy into recessionary growth mode, which unfortunately stubbornly prevailed until 2017 with the 0.55% positive productivity growth rate recorded, by June ending 2017.

Although, it is reassuring that the hemorrhaging has reportedly stopped, nonetheless, President Buhari rightly remains, reportedly unimpressed with the recorded positive turnaround, until such bland, but positive statistical rates, translate to food on the table and more jobs with steadily improving social welfare for more Nigerians.

Equally, the news, of Nigeria’s economy exit from recession has been taken with a pinch of salt, by public respondents, in street and marketplace interviews on several media. The question, on the lips of the man on the street, is often that, “why does cost of living still remain so oppressive, if truly, Nigeria’s economy is out of recession?”

In reality, apart from the soft assurance that the economy may have turned the corner and began a slow climb towards recovery, with the reported marginal growth rates, it would however, be simplistic to immediately expect a leap in positive impact on cost of living or social welfare, especially when, it required well over 12 months to erase just about 2% negative growth in output. Consequently, the reported exit from negative growth, will not immediately return the economy from the adjusted, presently below $250bn GDP to the more robust annual output level of over $400bn before recession set in.

Instructively, nonetheless, even a rapid climb back to the premium earlier growth rates of 5-6%, may regrettably, still not add much value to the welfare of Nigerians. Curiously, in retrospect, the prime growth rates of 5-6%, sadly, did not even put a dent on the rising level of unemployment in the country, at that time; furthermore, the critically destabilizing impact of double digit inflation rates which had severely constrained consumer demand and deepened poverty simultaneously, also remained unresolved; worse still, cost of borrowing to the otherwise still resilient productive investors, inexplicably also remained sticky around 20%, and clearly increased the level of risk, while also reducing the survival level for local businesses.

The obvious dilemma, therefore, must be why Nigerians did not benefit significantly from the earlier robust growth rates, and why this objective still remains an unqualified utopia in the expectations of both government and its acclaimed experts.

Arguably, the higher earlier growth rates of 5-6% were significantly boosted by bountiful foreign exchange from exceptionally favourable crude oil prices. Conversely also, the slide into negative growth, from 2016, is also largely attributed to collapse in oil prices and output and the related dwindling export revenue.

The latest NBS overview, suggests that the turnaround of growth in economic activity witnessed in Q2-2017 was driven by, marginal sectoral growth in other sectors, such as Agriculture, Manufacturing, Construction, Finance and Insurance and Real Estate. Nonetheless, the contribution from relatively stable oil prices around $50/barrel, still clearly remains the major fuel that has once again driven the economy, round the bend, on to the road to positive growth rates, but uncertain inclusive economic growth!

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Why do I say uncertain economic growth? Well, the higher growth rates reported pre-2015, notably, sadly failed, inexplicably, to deliver on inclusive economic growth. However, the reason for this failure has always been evident and predictable. Instructively, increasingly bountiful export revenue from crude oil has not produced any significant extensive value chain that includes and enriches the lives of more Nigerians.

In practice, the multi faceted sectors of every economy, even in those with modest natural resource endowment, are generally galvanized to create wealth, with increasing jobs opportunities, with the application of monetary instruments, by the respective Central Banks with the complementary support of fiscal policies captured in annual budgets of each country.

In the absence of best practice management of these monetary instruments, even stupendously resource rich nations, such as Nigeria, will invariably endlessly battle to make sense of the serious economic contradictions of the impact of inchoate government policies, which still precipitate poverty, rising unemployment and deep social anguish.

For example, INFLATION is not often recognized for what it is, but spiraling inflation is, invariably, not only clearly anti growth, but, infact, represents financial and economic terrorism, that is surely more oppressive and personal to every family and is certainly more dangerous and pervasive (with no household spared) than the clearly relatively ‘modest’ and largely localized, destructive impact, of either Boko Haram or Niger Delta militancy.

Inflation, at large, ultimately, destroys the value of all incomes, while its vicious impact also erodes and upturns basic social values. Consequently, increasing productivity and output will also become a challenge, when everyone’s income commands less and less value, and inflation contracts consumer demand, to compel massive reduction in the output of goods and services.

Furthermore, since it is unrealistic for anyone to lend out money at a rate below inflation rate, spiraling inflation will inevitably also propel higher cost of borrowing in every economy, to make local production gradually uncompetitive. In other words, inflation will reduce consumer demand and output and also make it much more expensive for anyone who wishes to invest and produce to borrow with interest rates, which oppressively exceed 20%.

Similarly, since spiraling inflation is invariably traceable to persisting excess liquidity of the domestic currency, the exchange rate of the Naira, will also continue to suffer steady depreciation, if the same constitutional Custodian of the Naira, ceaselessly AUCTIONS rations of dollars, in a market that is admittedly, embarrassingly flush with excess Naira.

This reality was clearly amplified by the prevailing, relatively weak and almost static Naira exchange rate, even when GDP growth rates of 5-6% were fueled by over $140/barrel crude price and 2 million barrels daily production, were recorded in previous years.

In conclusion, therefore, the return to negative output growth rates will remain very likely, so long as critical inclusive growth instigators, such as inflation remains in double digits, while borrowing to produce carries over 20% interest rate.

SAVE THE NAIRA! SAVE NIGERIANS!!

By Henry Boyo

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