Recession in Nigeria now inevitable – Economists

Renowned economist, Mr. Bismarck Rewane, at the weekend, said that a recession in Nigeria is now inevitable.

Rewane, who is a member of the Presidential Economic Advisory Council (PEAC), stated this in a report released by his firm.

Citing the Central Bank of Nigeria (CBN) manufacturing Purchasing Managers’ Index (PMI) report in March which fell to 51.1 points in March from 58.3 points in February, the economist said: “Plunge in PMI means a recession is now inevitable.”

Apart from the decline in the March PMI, other adverse effects of the coronavirus pandemic on the global as well as the Nigerian economy, listed by Rewane, include International Oil Companies (IOCs) cutting capital expenditure by $35 billion over low oil prices, Nigeria’s February Federation Account Allocation Committee (FAAC) disbursement plunging 10.15 per cent to N581.6 billion (in spite of exchange rate gain and VAT hike) and airlines suspending flight operations.

Although the CBN states that: “A composite PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding,” analysis of the apex bank’s recent PMI reports shows that the PMI has been on a downtrend since the beginning of this year.

For instance, the PMI dropped from 60.8 points in December 2019 to 59.2 points and 58.3 points in January and February 2020 respectively.

In fact, commenting on the manufacturing supplier delivery time index which stood at 49.4 points in March 2020, indicating contraction in supplier delivery time, the CBN said: “The index recorded declines for the first time after 33 consecutive months of recorded growth.”

Similarly, on activities in the non-manufacturing sector during the review period, the regulator stated: “The composite PMI for the non-manufacturing sector stood at 49.2 points in March 2020, indicating contraction in non-manufacturing PMI for the first time after 34 consecutive months of expansion.”

The devastating impact of the coronavirus on the global economy, especially its effects on crude oil prices, has triggered speculation that the world could face a financial crisis similar to, or even worse than that of 2008.

As analysts at the FDC pointed out in their latest report, the price of oil (the commodity that accounts for the bulk of Federal Government revenue and about 90 per cent of the country’s export earnings) has slumped in the last few weeks due to the lull in economic activity globally.

According to the analysts, “Nigeria’s monthly FAAC disbursement plunged 10.15% to N581.6 billion in March – the lowest amount shared since November 2017. This is in spite of the hike in Value Added Tax (VAT) from 5% to 7.5% from February 1st and the change in the intergovernmental exchange rate from $320/$ to $360/$.”

Noting that revenues are projected to fall even further as Brent has averaged $36pb in March – down from $55pb in February, the analysts stated that: “Rapidly dwindling oil demand amid rising output is expected to depress prices further.”

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had warned last Friday that the Nigerian economy could slide into recession if the coronavirus pandemic continues for the next six months.

The minister, who spoke on steps being taken by the government to cushion the impact of the pandemic on the nation’s economy, said: “We are hopeful that this pandemic will be limited in time. If it is an average of three months, we should be able to close the year with positive growth. But if it goes longer than that – six months, one year – we will go into recession.”

Following the slump in oil prices during that period, the Nigerian economy slid into recession in the second quarter of 2016, but exited it a year later.

Financial analysts suggested that it would take something of a miracle to prevent the country from again entering recession given that the nation has had weak growth since it exited recession in the second quarter of 2017.

Speaking on the issue, Dr. Boniface Chizea said: “The dilemma of Nigeria is that since we exited recession, our growth rate has been weak. We have not grown beyond 2.55 per cent which is below our population growth of about three per cent. You cannot really have prosperity if you are growing below the rate of your population growth.

“We have not seen the data, but the sentiment is that we must be in recession. There is contraction everywhere. We don’t know how long this crisis (coronavirus) will last; if it lasts till May, it would have serious consequences for the economy. It could take us sometime to fully recover because businesses would face challenges resuming full production.”

Also, in his reaction, a forensic accountant, Prof. Richard Mayungbe, said it was looking likely that the country is headed for recession, but added that this will depend on the kind of stimulus package that the government would be able to introduce to bolster the economy.

He said: “The economy is shutdown. What we have now is no income, no production, only consumption. If people stay at home, they will not earn income and without demand, the economy is in trouble. However, the government will be able to handle the challenge if it comes out with the right stimulus programme.”

In the same vein, a financial consultant, Mr. Henry Atenaga, said: “A recession is inevitable, that is why the CBN’s Monetary Policy Committee (MPC) did not cut interest rates at its meeting on Tuesday. If people stay at home, demand and supply of goods and services will drop. If this crisis continues into next month, firms will start cutting salaries.

“It is difficult to build up demand. We have another challenge because before this crisis, our growth rate was already weak unlike the Chinese economy that was growing at between 5 and 6 per cent.”

Atenaga said it was imperative that the government should introduce a stimulus package that will see people getting cash to spend on the purchase of goods and services in order to boost demand.

It would be recalled that the Managing Director, International Monetary Fund (IMF), Kristalina Georgieva, last Friday, announced that the global economy has entered recession over the devastating impact of the COVID-19 on different countries, stating that no fewer than 80 nations had approached the Fund for help.

She said: “We have reassessed the prospect for growth for 2020 and 2021. It is now clear that we have entered a recession – as bad as or worse than in 2009. We do project recovery in 2021 – in fact, there may be a sizeable rebound, but only if we succeed with containing the virus – everywhere – and prevent liquidity problems from becoming a solvency issue.

“A key concern about a long-lasting impact of the sudden stop of the world economy is the risk of a wave of bankruptcies and layoffs that not only can undermine the recovery, but can erode the fabric of our societies,” she added. – New Telegraph.

 

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