Why Nigeria’s Recession is Turning Out to be a Blessing
Last week, the National Bureau of statistics announced to the surprise of very few observers, Nigeria’s negative second quarter growth figures. It was the second consecutive quarter of negative growth and it meant that Africa’s most populous nation was officially in recession. The growth rate of -2.08 percent was more than most analysts predicted.
While there are a lot of reasons to be worried, a closer look at the Q2 figures will tell an optimistic story. Although the increased inflation rate and negative GDP growth promptly made news headlines, there are less popular indices that show Nigeria is walking a more inclusive path to development. In contrast to the sharp fall in GDP growth, non-oil GDP grew by 56 percentage points to 0.38 percent from the previous quarter. Yesterday, NBS stated that the county’s trade deficit narrowed in Q2 as the value of exports surged by 63 percent after the devaluation of the Naira.
Similarly, the manufacturing and agricultural sectors produced remarkable growth rates. The manufacturing sector saw a 60 percent growth over the quarter, while the agricultural sector grew 4.53 percent, an astonishing 246 percent increase from the previous quarter.
These figures, if sustained over the next few years, will mark the start of a concerted shift away from oil to non-oil sectors of the economy. So, for the first time in over three decades, the growth of the Nigerian economy would result in improved standards of living. Unlike the oil sector where the proceeds are concentrated in the hands of an elite few, the agricultural and manufacturing sector provide larger employment and empowerment opportunities for broader sections of the population. To an extent, the fall in oil prices that foreshadowed the recession was the shock the country needed to begin on a path of self-rediscovery.
As the recession exposed oil dependence as an unsustainable strategy, the Buhari-led government, to its credit, has taken bold steps with a long-term focus to reviving the economy.
For the first time in history, Nigeria is instituting an economic diversification agenda meant to end over-dependence on oil resources. The Q2 figures provide encouragement for Nigeria with the government’s diversification agenda. With continued efforts, the agriculture sector will propel Nigeria to attain food security within two years.
Investment in capital expenditure is at a record 30 percent of GDP compared to 10 percent or less in previous years. The government realizes the importance of infrastructure to the success of its diversification efforts and has dedicated resources to build them.
The government says it will complete the on-going Lagos-Kano rail line within two years. It also expects to complete the Calabar-Port Harcourt railway project within the same period. With the inauguration of the Abuja-Kaduna rail line, the rail network is growing.
A week ago, the Federal Executive Council reaffirmed its urgency in manifesting its diversification agenda as it unveiled a 3-year external borrowing plan. The loans are to be a catalyst for growth in sectors including agriculture, mining, power and infrastructure.
Nigeria’s oil sector is not done and dusted. Some damaged oil facilities have already been repaired. The vandalisation of oil pipelines has reduced significantly as the aggrieved Niger Delta militants continue to dialogue with the federal government. If the dialogue proves satisfactory to both parties, it may encourage the resumption of full oil production by the companies in the zone. While diversification efforts are necessary for balanced and inclusive growth, oil revenue is still vital to the country’s economic recovery.
As much as they show signs of promise and growth in certain important sectors, the Q2 figures also reveal the aftermath of the government’s inconsistent policies. Although the agricultural and manufacturing sector grew, the unemployment rate increased for the seventh consecutive month. Foreign investment reduced and lending rates increased.
The Central Bank of Nigeria (CBN) raised its monetary policy rate (MPR), making it more difficult for business to access credit and tightening money supply in the economy. This is in direct contradiction to the fiscal push in other sectors of the economy.
There is a need for greater congruence and consistency in the government’s economic policies to allow investors to better forecast their expected returns