05 Sep

Analysis: Now that the recession is over

Data released by the Nigerian Bureau of Statistics today shows that Nigeria’s economy is finally out of a recession. GDP growth for Q2 of 2017 grew by 0.55%, halting five quarters of negative growth. As expected, there have been mixed reactions to this. Some have celebrated what they consider a praiseworthy feat which indicates that the government has finally turned the corner on revamping the economy.

Others are however less excited by the developments, and there are two reasons for this thinking: First, the turnaround to positive growth was predicted by many parties – it was expected, given how the negative growth had already caused the economy to contract, providing a low base for growth to start from. Seeing this, a growth of 0.55% not only does not compensate for the lost ground, it also is below expectations considering the low base the growth is starting from. Below is a chart showing the quarterly GDP growth trend:

Nigeria’s two year GDP growth Q2 2015 to Q2 2017. Source: NBS

The least negative growth in any quarter was -0.67% in Q1 of 2016. Subsequent contractions were higher, peaking at -2.34% in Q3 of 2016. The single quarter growth that now has the country out of recession is 0.55% and is less than the lowest period of contraction, from a much higher base.

The second and more crucial issue comes from a closer look at the issues that led to the recession. A contraction in government revenue due to persistent overdependence on the single revenue source that is oil was significant. This cascaded into currency controls that saw foreign capital leave, the ability of producers to import raw materials, and that of traders to import produce, severely hampered. A stubborn refusal to allow the naira float causing multiple exchange rates was the result, with arbitrage opportunities increasing to almost 100% at some point within the period.

Unfortunately, the Nigerian government has not taken advantage of the crisis to make tough decisions that will forestall such a recession in the short and long term. The moment oil prices take a big enough hit again, Nigeria will be headed back to a recession.

Finally, coming out a recession is not the same as the economy making a recovery. Nigeria is very far from recovering from the loss of the last eighteen months. It will be more beneficial if the government and its agents shelve the unnecessary celebration and backslapping. The recovery plans documented in the ERGP have been unfavourably reviewed by all informed observers of the Nigerian economy. We have wasted a crisis. We will do well not waste the aftermath of the crisis. It is time to get to serious work.