The year 2020 has been fully eventful world over for governments, businesses, and livelihoods, particularly with the novel coronavirus (Covid-19), which has continued to ravage the global economy leading to shocks and recession. The Covid-19 recession is a major ongoing global economic crisis and many countries (advanced and emerging) have been impacted negatively.
According to reliable data, leading economies like the United Kingdom, France, Italy, Belgium, Canada, Germany, Denmark, Spain, Russia, the United States, and Japan, as well as emerging economies, have all suffered devastating economic decline as a direct result of the pandemic. However, the UK’s recession is by far the worst of any of the world’s major economies even though France and Germany are almost out of recession. In comparison, the UK had a 20 percent downturn in GDP throughout the first quarter, the worst since records began in 1955.
Significantly, so far, the COVID-19 pandemic has had far-reaching consequences more on the emerging economies, particularly African countries. The World Bank has predicted that, overall, sub-Saharan Africa’s economy would shrink by 2.1%–5.1% during 2020. In the same vein, Nigeria’s economy has officially nosedived into a recession for the second time in the last five (5) years. However, the impact has been visible even before the official pronouncement, with the increase in the inflationary levels and rise in food insecurity, including deficit in health care, education, among others. Unfortunately, these shortfalls are likely to surge concurrently with a spike in the prevalence rate of crimes and criminality; especially, if measures are not drastically taken to forestall a reversal of the trend. The recession might worsen the already alarming poverty and unemployment rates in the country and could lead to an economic depression if the attendant negative implications are not addressed with holistic government policies, spending, and economic stimulus packages.
Agreeably, a recessed economy comes with a contraction of the Gross Domestic Product (GDP) growth for at least two consecutive quarters and this was unavoidable because the Nigerian economy has been somewhat pressured from March 2020 as a result of the novel coronavirus and the attendant consequences particularly the lockdown and border closures. According to the Nigerian Bureau of Statistics (NBS) report, the first quarter of the year 2020 shows a slow-paced growth of -0.68 percent as GDP contracted by 1.87 percent when compared to the fourth quarter of 2019. However, the economy shrank in the second quarter of the year as the GDP fell by 6.10 percent, compared with the growth of 1.87 percent in Q1. The NBS released recent data showing gross domestic product (GDP) contracting by 3.62 percent in the third quarter of 2020. Despite the contraction witnessed so far in the year, commendation needs to go to the government for being able to close the contraction gap from -6.10 to -3.62 within just a quarter. It gives a glimmer of hope.
In my view, negative GDP growths and decline in economic activities have been a global issue due to the pandemic. However, as a nation, the over-reliance on importation and its value chain has grossly contributed to the current realities in the country. This portends a stiff climate for businesses, households, and livelihoods. However, the government can encourage consumer spending with policy responses and also stimulate investments particularly foreign direct investments and inflow of strategic funds for infrastructure investment and development to assist in the reversal of the trend. As a people, we must invest in capital expenditure and strategic infrastructure to reflate the economy.
More so, to cushion the effect of the impact of the recession, harmonization of both fiscal and monetary policy is essential. The economic stimulatory measures targeted at taxpayers to save their businesses from collapse should be strengthened by the government. Perhaps, the government might need to consider more pragmatic palliatives such as social and fiscal policy palliatives, concessions on import trades, duties, and port charges waiver to reduce the value chain disruption.
At this time cutting taxes to increase and improve disposable income needs to be considered. From observation, most SMEs run their businesses on loan facilities and the current situation will impede on their capacity to service these loans effectively, so government intervention is required to forestall massive business shut down. Key sectors like manufacturing, maritime, aviation, education, hospitality, financial services, and the creative industry, need target bail-outs, relief, and supports to stimulate the economy to avoid business closures and huge job losses.
Further to this, to assist and support these real sectors and businesses at this time, regulators and tax authorities can also come up with critical policy actions and economic palliatives to keep businesses in operation. Point of note is that if these efforts are not rightly channeled we might be heading for a long haul which might be depressing. In fact the headline inflation or (Consumer Price Index) is 13.71 percent year-on-year as at the month of September 2020, according to data from the National Bureau of Statistics (NBS), up from 12.20 percent in February 2020. Food prices remain a major driver of inflation in Nigeria especially with the rise in the composite food index. Consequently, priority attention and adequate policy response by the CBN monetary policy committee is required to address and stem the growing inflationary trend.
Nigeria derives close to 85percent of her foreign revenue from crude oil exports, according to data from the Federal Ministry of Finance. As a result of the price shocks occasioned by Covid-19, crude oil receipts have gone down and are no longer able to sustain the economy. Therefore, a thorough expansion of the revenue base is crucial at this time. As a nation, we can leverage and emulate the United Arab Emirates which diversified their economy by reducing dependence on oil receipts from 100% to only 35% by considering investments and expansion of their non-oil sector- particularly service, tourism, real estate, and smart industries. In Nigeria, some sectors can be considered to diversify our revenue base, they include – agriculture, transportation, information technology, and digital economy, If put in place it will reduce millions of dollars, if not billions, spent yearly on importing basic goods and food commodities that can grow locally.. Further attention should equally be given to our trade policy and SMEs which are the bloodline of most economies.
Trade policy refers largely to standards, goals, rules, and regulations that pertain to trade relations between countries. Basically, it governs international trade and encompasses imports, exports, tariffs, duties, etc. Having and strengthening a strong trade policy will help create millions of jobs, grow local industries, and expand the economy. In simple terms, it will help with the industrialization of the country and rejigging the economy in the long term. Though the ease of doing business initiative is essential, the rule of law and efficient legal and regulatory system is also required for simple contractual disputes to be resolved. Investors, both local and international, will not likely consider investing in a country where simple contractual disputes take between 2 to 15 years to resolve.
In conclusion, the anti-corruption drive of the government needs to be stiffened, so that all social intervention, strategic plans, policies, and economic stimulus packages can be managed judicially. Good luck!