Nigeria’s exit from recession in the fourth quarter of 2020 might have come as a surprise to many but can be easily explained. Firstly, the growth recorded was negligible at just 0.1 percent. A growth of such little magnitude will hardly be noticed by the average citizen who is still facing the same challenges and has not experienced an improvement in the standard of living.
–Ibukun Opeodu, ICIR, Investor Relations Supervisor Oando Plc.
In February 2021, the National Bureau of Statistics (NBS) announced that Nigeria’s economy suddenly came out of recession at the end of Q4’FY21. The government agency which verifies, approves, administers and publishes basic national statistical data cited the performances of a few non-oil sectors, notably the Agricultural and the telecommunication sectors as major causes
But since 2021 began, the Naira has displayed high volatility to several economic factors apart from the COVID-19 (coronavirus) pandemic. These include a drop in the global demand for crude oil, poor spending, rising inflation, etc.
On 22 February 2021, Nigeria lost over $1.1 billion as its external reserves dipped by 0.41 percent to stand at $35.28 billion. The country recorded a decline of $145.9 million in foreign reserve, the highest single-day loss since April 2020, a report said. But on the following day, Naira gained by N1.4 against the Dollar (0.34 percent).
The looming economic instability has led many to fault the announcement from the bureau as it did not reflect current realities given the rise in the prices of goods and services. In light of this, Ventures Africa interviewed an economic expert on the parameters for judging whether an economy is in or out of a recession, alongside factors that may determine positive economic trends post-recession. This article bears our conversation with Ibukun Opeodu, ICIR, Investor Relations Supervisor, Oando Plc.
Ventures Africa (VA): What are some of the metrics used in determining whether an economy is in or out of recession?
Ibukun Opeodu (IO): A recession is a period of temporary economic decline during which trade and industrial activity are reduced; it is characterised by a fall in a Country’s Gross Domestic Product (i.e. total spending) in two successive quarters. So effectively, a country enters a recession when its participants (consumers, companies, government, etc) are spending and receiving less money.
Due to the global pandemic, a recession in 2020 was largely inevitable for Nigeria. Global economic shutdowns significantly impacted crude oil prices, thus hitting Nigeria’s primary source of foreign exchange earnings – crude oil sales. Furthermore, lockdowns and restrictions to movement imposed from late March until early May in Nigeria’s economic hub (Lagos) and Capital (Abuja) inevitably resulted in reduced economic activity and trade.
Nigeria’s exit from recession in the fourth quarter of 2020 might have come as a surprise to many but can be easily explained. Firstly, the growth recorded was negligible at just 0.1 percent. A growth of such little magnitude will hardly be noticed by the average citizen who is still facing the same challenges and has not experienced an improvement in the standard of living. Secondly, the comparison is against the previous quarter, when economic activity was probably at its lowest due to economic shutdowns across the globe. Therefore, whilst the fourth quarter of the year was tough on Nigerians, it would have required a major feat for it to be any worse than the third quarter when most economic restrictions were in place.
VA: Can an economy be out of recession, and yet, living standards remain below the poverty line?
IO: Despite Nigeria’s economic growth rate averaging above 2 percent over the past decade, over 40 percent of Nigerians (83 million people) still live below the poverty line. It is quite clear that there exists a palpable discord between Nigeria’s economic growth performance and its poverty numbers. And until this is addressed, economic growth data will not be a true reflection of reality. The disparity between economic growth and poverty numbers, which has existed for decades, is largely dictated by three factors.
Firstly, Nigeria’s rapid population increase outstrips its economic growth. According to data from the World Bank, Nigeria’s compound annual growth rate in GDP between 2010 and 2019 was 2.2 percent. This data appears positive until you compare it to the equivalent growth in population during that same period (2.4 percent). What this means is that whilst the Country as a whole may be generating more money, that income has to be shared among an increasing number of people, thus resulting in no increase in income for the average man on the street. So effectively, growth in Nigeria’s GDP Per Capita (per person) is non-existent.
Secondly, the depth of poverty in Nigeria is quite significant compared to developed countries. In other words, poor Nigerians start further behind the poverty line. Over 82 million Nigerians live on less than $1 a day. So even if their income is growing, it is rarely enough to push them above the international poverty line of $1.90 per day.
The third factor is the unusually high levels of inequality in the country. Thus, the impact of economic growth is not equally split across all spheres of the economy. Since income earned by Nigerians vary so widely, only a fraction of Nigerians is likely to cross the poverty line over a given period. According to the International Monetary Fund, the informal sector accounts for approximately 65 percent of economic activities in Nigeria. The vast majority of people engaged in this sector are daily wage-earners whose activities cannot be accurately captured by published economic data, thus such data may not represent a true reflection of the state of the Nigerian economy.
VA: After a country like Nigeria is considered to have exited recession, how long could it take for its citizens to feel an impact alongside positive economic trends?
IO: Economic recessions are typically portrayed as short-term events. However, the consequences of reduced economic activity, falling incomes, and higher unemployment rates can have long-lasting effects on an economy even after the recession subsides. From our experience in Nigeria, it is quite clear that economic recovery does not instantly translate to an improvement in the standard of living for the average Nigerian. So whilst the country may be experiencing economic growth, the long term damage from the recession will delay the recovery from reaching its full potential. It is difficult to pinpoint exactly when citizens begin to feel the positive impact of economic growth.
Over 80 percent of working people in Nigeria are reportedly employed in the informal sector. These daily wage-earners rely on income generated from going to work at a physical location on a daily basis, be it as an employee, or as a micro-entrepreneur. That category of people was the most vulnerable to the negative impact of the economic shutdown and restriction of movement in Q2 2020. Subsequently, such people would also have witnessed a recovery, albeit partial, in their daily income when the economy re-opened in May 2020.
These positives have however failed to negate the longer-lasting consequences of the recession. One of such consequences came in the form of a devalued Naira. Our local currency has officially been devalued twice since March last year and has subsequently impacted the price of goods and services; Nigeria recorded an inflation rate of over 16 percent in January, a four-year high.
This, combined with a high unemployment rate (27 percent), means an economic recovery might not be so obvious to the average Nigerian despite what the data shows.