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In its latest report of economic activities for the second quarter (Q2, 2020), the National Bureau of Statistics (NBS) revealed that the Gross Domestic Product (GDP) contracted -6.10 per cent compared to growth of 1.87 per cent in the previous quarter. Since Nigeria’s exit from recession in 2017, the pace of recovery has been slow and painful, indicating that another recession is looming if urgent fiscal and monetary policies are not put in place to stimulate economic growth.
Unfortunately, only a few countries recover from two consecutive recessions. In the Q2 under review, the contraction ended the three-year trend of marginal but positive growth recorded in the economy after exiting recession the last time. The crash in oil prices and the global fallout from COVID-19 pandemic that hit output in key sectors of the economy did not help matters.
The non-oil sector was also not spared, as it recorded contraction, a development the NBS attributed to the pandemic. Specifically, in the period under review, the oil sector shrank by -6.63 per cent (year-on-year) in Q2,2020, indicating a decline of -13.80 percentage points relative to the rate recorded in the corresponding quarter of 2019, while growth decreased by -11.69 percentage points when compared to Q1,2020, which recorded 5.06 per cent.
An insight into the key factors showed that the oil sector contributed 8.93 per cent to total real GDP in Q2, 2020, down from figures recorded in the corresponding period of last year and the preceding quarter, where it contributed 8.98 per cent and 9.50 per cent, respectively. However, 13 activities reportedly recorded positive real growth compared to 30 in the preceding quarter. All the same, aggregate GDP stood at N34.02 million in nominal terms, or -2.8 percent lower than the Q2 of 2019, which recorded an aggregate of N35million. Altogether, the nominal growth rate was -16.81 per cent points lower than recorded in the Q2 of 2019 and -14.81 per cent points lower than recorded in the Q1, 2020.
Although the Federal Government did not see anything to worry about the two quarters contraction, experts think otherwise. Perhaps the government was comparing Nigeria’s situation to other economies where the economic contraction was much more in the negative, like South Africa already in recession after three consecutive quarters of negative growth of 22 per cent, or the USA with -50 per cent growth. The fact, however, is that Nigeria’s economy is more vulnerable to domestic and external shocks than some of the economies that government’s policymakers often referred to. The truth is that Nigeria’s economy is in dire straits and the steeped quarterly contraction calls for diversification of the economy. These include manufacturing, agriculture and agribusiness, real estate, small and medium sized enterprises, foreign exchange review, and the non-oil sector.
We agree with the experts that Nigeria is likely to slide into either outright or technical recession in the Q3’l 2020. However, to ensure that its impacts are moderated, it has become imperative to increase government’s interventions and that of the Central Bank of Nigeria. If these measures targeted at the key sectors of the economy and the numerous stimulus packages are effectively implemented, there would be improvement in the GDP numbers that could ward off recession and stimulate recovery by next year. This will depend on how fast the economy can beat the International Monetary Fund (IMF) negative growth forecast of -5.4 per cent for 2020. However, with the opening up of the economy and the gradual pick up in oil prices, the situation is likely to improve.
The best option is for the government to intensify economic diversification, reforms and provide enabling environment that will attract investments. It must fix infrastructure, tackle insecurity and increase local production that will generate substantial foreign exchange. Above all, let government strive to avert another recession.
