Over the past six years, Nigeria has gone into recession twice, the most recent being the COVID-induced shock in 2020 when the economy shrank 6.1 per cent and 3.2 per cent in the second and third quarters of the year, respectively. Yes, the economy has recovered, growing 3.11per cent in the first quarter of this year, the fifth consecutive quarterly expansion since the recovery.
Well, let’s tell ourselves the truth, the recovery is far from being policy-induced. I guess some pundits may be right to fault my perspective because the Central Bank of Nigeria did pump money into the system. Not only did the apex bank lower interest rates to a level not seen in decades, it also disbursed cash through various COVID-19 palliative initiatives. The government, on the fiscal side of course, also made some attempts to support the economic recovery, even though constrained by revenue shortages.
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Nonetheless, most of the CBN palliatives had a very limited impact on the economy, and many, if not everyone, would agree that Nigeria’s economic recovery is very fragile. In fact, having peaked at 5.01 per cent growth in the second quarter of 2021, the pace of recovery has continued to falter.
Away from Nigeria, it’s certainly going to be a bumpy ride for the world’s economy over the next two years, and I dare to say that many countries, including developed economies, may once again be thrown into recession. In fact, the United Kingdom is already at the edge and may slip into recession in early 2023, especially as the rising interest rate further erodes disposable income and weakens purchasing power of the average household in the country.
The United States is shrugging off the risk, but it is not entirely immune, as aggregate demand wanes. The sad story is not just about the risk of recession, it is more of the fact that it may be a dreaded stagflation situation – a period which economists describe as having low economic activity and high prices, that is, a combination of stagnation in economic growth and high inflation rate.
It’s really a hard puzzle to solve because it challenges the traditional tools of both monetary and fiscal authorities. For instance, you cannot lower interest rates in stagflation, because that would increase the inflationary pressure, especially at this time when policy authorities are actually increasing interest rates to combat rising inflation which is caused by perhaps too cheap and free money that was doled out during the pandemic.
Similarly, the fiscal authorities cannot reduce taxes, unfortunately, because most fiscal positions are in bad shape, and the brewing recession can only worsen the revenue generation prospect of most countries. So, the only way out is tough and it is by increasing productivity through a harsh austere cycle. The question is, how many countries can afford such without destabilising the social environment
Back to Nigeria, the Monetary Policy Committee, headed by the governor of the Central Bank of Nigeria, recently hiked the benchmark interest rate by 150 basis points, a hawkish move last seen many years ago. It’s a clear signal that the CBN has admitted that we can no longer afford to keep interest rates low for a longer period and, incidentally, we have not made good use of the low-interest rate regime in building products in the real sector.
So, how can the economy survive if we are to slip into another recession, when the CBN may not have the ability to provide support as it did during COVID-19? And even if it does, how best can we utilise such to ignite productivity in the real sector? How do we say Nigeria’s production has fallen to as low as 1.2 million barrels per day, at a time when the oil price is at a decades-high? Why do we deny ourselves of all opportunities and impoverish ourselves with our greed? Even the security agencies expected to stem oil theft and vandalism cannot be trusted, as the bad habit is now so endemic that even the foetus in the womb is perhaps corrupt.
Sadly, the country had one of the fearful social unrests, #EndSARS, at a time of low-interest rates and indeed at a time when the government was throwing cash around in the name of different initiatives. Yes, you may argue many of the slush funds found their way into the pockets and bank accounts of their cronies. So, what would happen if the country was to slip into recession again next year, and neither the CBN nor the fiscal authority would have the funds to throw around?
Can we really afford the consequence? If we cannot, then we need to get to work and this is not just about the government. It’s a wake-up call for all economic agents, including business leaders and households, to start investing in the real sector and engaging the most essential resources of the country: human capital. We need to create jobs but the unemployed also need to be ready to work and be of good ethical values.
To the politicians, as you betray the people’s trust and enrich yourselves with the loot, always remember that all days are for the thief but there is certainly a day for the owner. We must all work to save the country from falling into anarchy. We cannot continue to destroy the country and think we can wish or pray our way out of this menace.
We caused it. We have to fix it!