Yesterday, Godwin Emefiele, Governor of the Central Bank of Nigeria Governor, said the nation’s economic crisis would soon come to an end. Stating that by December, the economy would be fully out of recession and be on the path to growth. Finance Minister Kemi Adeosun echoed this sentiment to Vanguard in a separate interview. This sort of rhetoric is expected by policy makers as they try to allay the fear of investors, but how plausible is the CBN’s governor’s’ assertion?

Q2 figures released last month showed that Nigeria was officially in recession as it marked a second consecutive quarter of negative growth. The recession was a result of the crash in global oil price, which contributes 70 percent of Nigeria’s revenue. The oil price fell drastically from over $100 per barrel in May 2014 to below $30 by the end of 2015. The country’s recession, characterized by persistent inflation and foreign currency shortage, has been compounded by the insurgency in the Niger Delta, which reduced its oil producing capacity to record low numbers.

The headline figures in the Q2 provided little hope as unemployment continued to rise steadily and overall growth was lower than expected. GDP growth fell from negative 0.3 to negative 2.03. However a deeper look reveals signs for recovery. In contrast to the sharp fall in GDP growth, National Bureau of Statistics (NBS) stated that the county’s trade deficit narrowed in Q2 as the value of exports surged by 63 percent after the devaluation of the Naira. Similarly, the manufacturing and agricultural sectors produced remarkable growth rates. The manufacturing sector saw a 60 percent growth over the quarter, while the agricultural sector grew 4.53 percent, an astonishing 246 percent increase from the previous quarter.

Most encouraging is that foreign investment into the country is returning after the exchange peg was abandoned in June this year. Updated NBS data adjusted for June figures, reveals a total capital importation of about $1 billion for the second quarter of 2016, representing a 46.5% increase from the first quarter of 2016 but 61% lower than the same period in 2015. These investments should increase liquidity in the system and relax the excess demand for the hard back, thus, strengthening the naira and reducing the cost of business for so many Nigerians as a lot of producers depend on imported inputs in one way or the other.

As well as the growth in non-oil sources, several vandalized pipelines have been repaired and the crisis in the Niger Delta has eased to a near stand still. This is creating conducive conditions for the production capacity to revert to its pre recession levels. This should also make available much-needed funds for the country to undergo its planned spending in order to boost the economy.

Despite the positives that may suggest a turn around, a recovery in the last quarter is far from a forgone conclusion. Recessions are normally overcome through the stimulation of local demand by embarking on expansionary monetary and fiscal policies. The United Kingdom and the United States opted for this approach during the financial crisis of 2008, even resorting to quantitative easing (printing of money). Nigeria’s reaction to its worst recession in decades has been timid in comparison. CBN raised interest rate to attract foreign investments but this will have adverse impacts on consumer demand as cost of funding projects increase. The federal government has embarked on a number of capital projects but there will inevitably be time lags between the implementation of these policies and the manifestation of their economic benefits. Moreover, the implementation of these policies can take up to a year because of the tedious procurement process in the country. The process of advertisements in opening will take a minimum of three months, and after that, the negotiations and approval by the federal government can take up to six months.

“Recession is not something you come out of easily. It is going to be a long haul thing. We must take counter-cyclical measures to reflate the economy and get us out of recession. Nigerians need to be patient with the government. Countries that went into recession and came out did not come out so quickly,” said Mr. Sewa Wusu, Head of Research and Investment Advisory, SCM Capital.

The pace of progress and implementation of economic policies  make it unlikely that the nation would recover by the end of the year. In any case, recession often lasts a long time, with the average length being 11 months in the United States (excluding the great depression). Just as important as recovery is that the focus on a sustainable growth model is not lost in order to mitigate against such an oil shock in the future.

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