Recently the Nigerian Bureau of Statistics announced that Nigeria is officially out of a recession after recording a positive growth rate of 0.55% after five consecutive quarters of negative growth rates. This is good news and should hopefully be a turning point in our economic fortunes. However before we get too carried away, I believe it is important that we reflect on the recession itself and try to decipher some lessons from the whole experience. I believe that it is only through doing so that we can guard against it in the future.
- Delayed economic decisions can be very costly
When the Buhari administration came into power in 2015, the economy was already tailspinning: oil prices had fallen significantly, inflation was rising, the foreign exchange crisis had begun and the Jonathan administration has already begun to experience certain fiscal challenges that they had to borrow funds to pay salaries. With this level of macroeconomic instability, one would have expected the Buhari administration to hit the ground running rather it was the exact opposite we witnessed – an unprecedented level of inertia. 6 months to appoint Ministers, a year to pass the budget and almost 2 years to develop a recovery plan. Even Though this is a counterfactual, I strongly believe that if the economic situation was treated with the urgency that it deserved, perhaps we might have had a different outcome. The lesson is dire economic conditions should be met with the urgency and alacrity that they deserve thus should this occur again in the future, it should be treated with the urgency it deserves.
2. Nigerian states are weak entities
If there was one important thing the recession revealed, it was just how weak Nigerian states are as both governing and economic units. Apart from the fact many of them had very low internally generated revenue, many could not even afford to pay basic salaries to their workers so much so that they had to be bailed out by the federal government. I admit that the current system where the federal government’s shares federal allocation amongst all states might be reducing the incentives for states to be productive but as I argue in this article, if we do not address issues of political and economic inclusiveness as well as democratic accountability, it is hard to see how devolving more powers to states will make them more effective. We need to begin to have more serious conversations on Nigerian state, it is really a matter of national urgency.
3. Nigeria needs to be more bullish about agriculture
Even as the economy as a whole and several sectors veered into negative growth territory, Agriculture was one industry that consistently had positive growth rates throughout 2016 up until now. In fact in 2016, not only was growth positive it was also rising in Q1 and Q2 in spite of the negative economic environment. But this got me thinking about the causes of the performance of the industry, is it because of the government or in spite of it? Whatever the case may be, I think one critical focus area should be how we can operate on the higher end of the agriculture value chain because it is only when we do so we can get good returns on our agricultural endowments. But I am encouraged that this is possible as there are many young Nigerians that are coming up with creative innovations in processing, packaging etc. They only require a more enabling environment for their businesses to thrive. Who knows agriculture maybe the next oil.
4. We truly need to reduce our dependence on oil and diversify our exports
At this point I think it is worth recalling how the economy entered a recession. As Oil accounts for over 80% of Nigeria’s exports and government revenue respectively, the economy was clearly hard hit by the over 67% fall in oil prices. Given that the country’s exports are highly undiversified, there was no other sector that could compensate for the loss of revenue in the oil industry. Thus the importance of exports diversification cannot be overemphasised. I cannot belabour this point enough, I have discussed it here, here and here.
So what are the lessons you have learnt from the recession in Nigeria? With the benefit of hindsight, what could we have done differently? I would be very happy to hear your thoughts.
Have a great week.