20 May

The week ahead – Nigeria is heading to recession

Nigeria’s GDP fell by 0.36% in the first quarter of 2016 from Q4, 2015 levels according to data released by the National Bureau of Statistics. 2015 was a largely disappointing year for the Nigerian economy with the GDP numbers slowing in every quarter but Q3. Now as the GDP growth numbers have been positive all through, economists largely restrained themselves from declaring that the economy receded in Q2, 2015 after a second consecutive quarter of decline. Now with Q1, 2016 data also showing a second quarter of growth decline in a mist of positive growth numbers, the verdict appears to be the same.

Whether Nigeria is technically in a recession or not at moment, what is most important is the reason behind the growth decline and what the implications will likely be going forward. Both the oil and non-oil sectors of the economy experienced negative growth during the quarter, whereas in 2015 the non-oil sector recorded positive growth rates all through. Most worrying is the fact that Agriculture which accounts for about a quarter of Nigeria’s GDP has finally stopped growing as well.

Despite oil production peaking at 2.2 million barrels per day during the quarter (according to the NNPC), the average price of Nigeria’s Bonny Light crude was a meagre $38.91/b in March 2016 (an increase of 17.80 per cent from the average price of $33.03/b recorded in February 2016). Now oil production has declined by about 0.8 milion barrels per day in May following repeated attacks on oil infrastructure by Niger Delta militants.

The Central Bank of Nigeria had issued clear warnings back in September that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors of the economy. With the delay experienced in passing the 2016 Budget, those proactive steps never saw the light of day. All these culminated in the Honourable Minister of Information declaring after the Federal Executive Council meeting of 10th May, 2016 that the country is now financially “broke”.

Other news

According to the results of a stress test conducted by the CBN on the status of the banking system, the Capital Adequacy Ratios of two banks have fallen below regulatory capital requirement of 10 percent. The CBN governor, Godwin Emefiele, classified lenders into three groups: large banks, those with assets greater than or equal to N1 trillion; medium banks with assets greater than or equal to N500 billion but less than N1 trillion, and small banks with assets of less than N500 billion. The stress test captured the peculiar nature of individual bank’s balance sheet and macro-prudential concerns, using the bottom-up and top-down approaches. The exercise covered the 23 commercial and merchant banks, using the credit, liquidity, interest, foreign exchange rates and foreign exchange trading risks elements. The report, which measured the lenders’ positions as at December last year, showed that overall, there was high risk through unsecured interbank exposure.

Federal civil servants and the organized private sector have defied the call by the Nigerian Labour Congress to go on strike to protest the increase in the price of petrol by the Federal Government. While the Ayuba Wabba-led NLC meeting with the government broke down, the Joe Ajaero faction and the Trade Union Congress struck a deal with the government and refused to join the strike. Workers at the Federal Secretariat, the Head of Service and the Federal Civil Service Commission in Abuja reported to work, and did not participate in the rally by the Wabba-led NLC later Wednesday morning.

In Lagos, thugs hijacked the NLC protest, and attacked the protesters. This came despite the security measures put in place by the police to protect public and government facilities. The mayhem started around early at the Fadeyi area of Lagos, when the hoodlums from Mushin, Bariga and Somolu struck. The miscreants blocked the entire stretch of Fadeyi, forcing motorists heading towards Ojuelegba to turn back and people to run helter-skelter. While no life was lost, some pedestrians and motorists sustained injuries, while several cars parked on the road were vandalised.

A few days ago, one of the Chibok girls kidnapped over two years ago was seen and brought to the village for identification. Amina Ali was rescued on Tuesday night in Bale village at the edge of the Sambisa forest by a Chibok vigilante group which handed her over to the military. Residents poured on to the streets as news spread that troops had brought one of the abducted girls to the village. She was 17 when she was abducted, and is now mother to a four-month old child, fathered by a Boko Haram fighter. Her father died of trauma while she was in captivity. Amina Ali said that the Chibok girls are well secured and protected to stop the Nigerian Army from rescuing them, while six of them have died in the two years since. A second girl was rescued, but there are doubts about whether she is one of the Chibok girls.

A new militant group, Red Egbesu Water Lions, has surfaced in the Niger Delta region, just as suspected militants, Tuesday night, blew up the Sagbama-Tuomo gas line, belonging to Nigerian Agip Oil Company, NAOC, at Egbembiri, Southern Ijaw local government area of Bayelsa State. The explosion destroyed the Ayama section of the Ogboinbiri-Tuomo gas pipeline. That line is said to have been repaired last week and again vandalized. The new militant group in a statement by its ‘Creek Network Coordinator’, General Torunanawei Latei, said it was teaming up with the Niger Delta Avengers and Indigenous People of Biafra, and issued the Federal Government a seven-day ultimatum to release Nnamdi Kanu, former National Security Adviser, Sambo Dasuki and direct the EFCC to de-freeze the bank accounts of ex-militant leader, Government ‘Tompolo’ Ekpemupolo.

Another petrol crisis is brewing as some vessels are stuck off Nigeria’s coast, unable to unload their cargoes of petrol and diesel. At least 75 ships with two and a half million tonnes of fuel are waiting for importers to find the dollars they need to pay for the cargoes. Some of the vessels arrived a month ago, and the owners are said to have almost given up hope and started to offer their stock to buyers outside Nigeria. It was gathered that a number of marketers who were given petrol import allocations for the second quarter of the year have not been able to source foreign exchange for importation due to the dollar scarcity.

Suggestions

  • There is no positive way to spin the GDP results, Nigeria is headed towards recession, and this is bad for the country in every way. Businesses, already in panic mode, may get even more frightened, and accelerate worker lay-offs, thus aggravating the already dire unemployment situation. Banks, already facing rising non-performing loan numbers, and with many of them feeling insecure after the CBN’s stress testing, may altogether shut down lending to the real sector. In addition, consumers could altogether cut non-essential spending, thus crippling the retail sector in the process.
  • The NLC has shown itself to be behind the times, and has as a result lost its relevance. They have failed to realise that the work environment is changing. With increasing globalization and increased access to better qualitative education, the work place has witnessed a revolution, which means that the NLC’s traditional recruitment grounds have not been as fertile as before. Added to that, the public mistrust of the motives of the NLC’s leadership, and you have a toxic mix for unions in the country. This may work in the interest of Nigerian businessmen as a lack of unions could lead them to a more relentless drive for profits. But the Nigerian worker may see his conditions deteriorate sharply over the coming few years.
  • It is disheartening that the security agencies allowed miscreants to hijack the peaceful protests especially in the Fadeyi area noted for chaos and criminality by all manner of gangs. We advise the Police in Lagos to always strive to protect the people and the property from outlaws in the state.
  • We are pleased with the ray of hope provided by the discovery of one of the Chibok girls. We find it very sad that she has an infant, and is also with child, ostensibly repeatedly raped by the abductor-turned husband. We urge the military intelligence to carry out proper and detailed debrief of the youngster and her captor, with the possibility of using any information gathered from them, to mount an operation to rescue the remaining Chibok girls.
  • It is becoming clear the Niger Delta is now in a severe situation, and under the tightening grip of new emerging militant groups. Based on their demands, we do not, at this time consider the Red Egbesu Water Lions a genuine threat. However, these developments suggest long-term bad signs for the economy, environment and the people of the region. We once again call on the President to initiate a comprehensive peace plan to end the region’s woes.