What do you know about Nigeria economic recession? Is Nigeria in the economic recession? Read the article to find out!
Nigerian economic is currently under the new recession. It was recently posted reports about key fundaments changes in the economy of Nigeria. It includes GDP or Gross Domestic Product, employment/unemployment rate, inflation, capital importation. All is seemed worth than expected. According to the National Bureau of Statistics, informed that Nigerians should expect contractions to the third quarter of 2016 by more than 2.06 %. Oil and non-oil sectors keep declining. Therefore, the weak currency of Nigeria keeps falling due to constant down of oil prices. Moreover, the Niger Delta Avengers attacks on the oil facilities also keep prices in tension.
The crude oil price on the international market killed the financial value of Naira. Therefore, it caused the foreign exchange shortages. The Crude oil production gives more than 70% of government revenues. Moreover, the President fear that sharp drop in GDP of Nigerians would also have a drastic influence on the overall economy of the region.
It should be mentioned low oil prices for the overall world, and they keep dropping. Niger Delta Avengers also made their impact to the crude oil industry in Nigeria. They caused a large decrease in oil production for the last years. The crude oil production dropped by 700 000 barrels per day in 2016, and the overall amount of barrels shrieked to the 1.56 million BPD, where the Government planned to produce more than 2.2 million BPD.
According to statistics, the inflation course keeps booming with 17.5 percent in August, 17.1 percent in July and 16.5 percent in June. The expected inflation rate for September is 17.8. Still, there are fears that it will keep moving much faster. It`s more than for a decade. The food inflation also keeps growing with 16 percent in September. According to the NBS data, Nigerian sovereign dollar should be expected the losing of value faster than ever.
According to the NBS, Nigeria can only show $647.1 million of attracted money capital in the second quarter. It means the 76 per cent fall in comparison to the previous year and nine percent fall as compared to the previous quarter.
NBS shows that Nigeria was in the state of recession for the period of one year in 1991. Nigeria also experienced prolonged recession for two years from 1982 till 1984. Nevertheless, the recession for today is not comparable to the scales with previous recessions in the twentieth century.
Naira has still remained in the low position and kicked the record with N423 per one dollar in the black market. Nevertheless, the interbank official can only offer N365 per dollar. Which is pretty weak compare to the black market of currency. Even Central bank intervention can`t stop the failing of Naira.
The oil sector also keeps declining with minus 18 percent from the year 2015 and minus two percent from the first quarter of 2016. The Non-oil sector does not show better results with contractions, like 0.4% compared to the previous year and 0.2% compared to the previous quarter.
The slower contractions in the economies are only provided with foreign exchange shortages. In overall statistics, Nigeria experiences power and manufacture shortages in the whole country. The peak for the shortage is expected in the third quarter of 2016. Therefore, Nigerians should expect more shortages and falls from the side of regulating economic conditions in the country. It should be also mentioned the influence to the Economic of terrorist organizations within the country, like Delta Niger Avengers and Boko Haram. Unfortunately, neither their actions nor influence of these actions to the Nigerian economy can be predicted. Therefore, it can`t be measured.
Reacts of experts
FBN reacted to this kind of data. According to their reports, there was nothing unexpected in the NBS data. The government expected major decline and contractions in the first and second quarters of the 2016. Due to the macro challenges, foreign exchange sourcing, production shortages, overall vandalism of property, oil prices decline, hike of inflation, it was expected. Nevertheless, negative reading for the economy is expected in this year. Macroeconomy challenges showed a lot tension to the weak Nigerian economy. Still, it`s too soon to make conclusions about the tendency of the economics of Nigeria for this year.
Technically speaking, Nigeria showed two quarters of decline in this year. Therefore, it can be stated the Nigeria is in recession now. Nevertheless, the Government expect to witness signs of recovery for the fourth quarter of the year. Still, there is too much to do for now and delaying of the capital vote is not helping. The government predict the GDP growth in 2016 on the -1.2 per cent. The Chief economist of Standard Chartered Bank expressed his worries about the overall state of Nigeria. If Nigeria desire to stay in balance, then it`s needed to show something to attract stabilizing inflows.
Analysts at CardinalStone Partners acknowledge that the exit from a recession is possible. The government should make a real output to the number of subsectors of manufacturing, like footwear, textile, tobacco, beverage, food production. It should be also stopped the rate of decline in financial sectors. It`s believed, that with changes in Q2`16 changes, it`s quite possible to leave the recession even in this year. Foreign exchange liberalization and removal of subsidy can work perfectly for the resurrection of economics. Nevertheless, nothing of this will happen without political influence and government rule.
These policies should be complemented by aggressive stimulation of fiscal policy. It includes swift budget implementation and liberalization of foreign exchange supply. Moreover, Nigeria has a problem with contractions in oil industry. It`s especially painful if to recall the overall risks for continuing decline of crude oil prices. Therefore, for the sake of Nigeria, it would be perfect if these prices would grow up high. The seventy percent reliable on oil economy can`t take too much pressure from the decline of the markets. It would be catastrophic if the prices keep declining. In this terms, it` needed to think about alternative options of increasing the economy.
If the government desire to increase and complement monetary policy, then it would be needed immediate fiscal actions toward foreign exchange supply. If they ease interest rates, then it would be counterproductive in the connection to the real sector growth. The specialists are real optimistic about the third quarter of the 2016. If it would be showed some kind of stability, then it`s expected to have a growth in the fourth quarter of 2016. It would give a positive GDP rates for the whole economy of Nigerians. Still, it`s still far from happening right now.
Cobus de Hart, an analyst from NKC African Economics In Paarl, stated another solution that according to NBC, the economy expanded in whole for 0.8%. Therefore, Nigeria skipped the technical recession for this year.
Nevertheless, an economist at London-based Capital Economics Ltd expressed totally another opinion about the overall economy. He provided the information that overall performance across all country is negative. It might not be the economic recession, but it looks like it. Therefore, it would need to use double powers to get the economy back on the rails. Therefore, the government still has much more to do with the question of economics.
The government is going to stimulate the economy with N6.1 trillion budget for this year. Still, they delaying approving the plan, when Mr. President discussed about lawmakers over allocations. The government collected taxes about N1.16 trillion of revenue, where they were able to collect about N1.27 trillion revenues in previous months. According to the economist from Exotix Partners LLP, Nigeria with these limited supplies in tax collection can expect a little to do to increase their power and financial sectors. Therefore, they would need to choose which one would be in priority for the next year.
International Monetary Fund expects that Nigeria economy would shrink this year for the 1.8 percent. They explain this case as the inability of the state to renew the oil sector of an economy, which is the most influential for today. Still, there is hope, according to Barclays PLc`s unit. They expect the growth of Nigeria economy in the third and fourth quarters of the year. Nevertheless, they would still decline in the finance sector, but the major money flows should be put in restoring power supplies for the year. And also securing these supplies against various terrorist groups.
Federal government response
The vice president of the country, who oversees the economic, expect that in the second half of the year, the overall state of economy would be better. He states that the second half of the 2016 may provide economy growth due to the problems that Nigeria have successfully overcome in the beginning of the year. Half of the challenges faced in 2016 do exist now or was eased. The presidential economic advisor, Adeyemi Dipeolu also admitted that the sharp issues in the power economic sector were majorly provoked by terrorist attacks on the oil facilities.
The government saw the statistics provided by NBS for the two quarters of 2016. They also confirm temporary decline in Nigeria economy and also provided hopeful expectations for the third and fourth quarters of the 2016. The policy of the president Buhari is well responded in the agricultural sector of economy together with solid minerals. According to government hopes, these two sectors of economy would provide greater chances for the positive tendency of economy in the second half of 2016. Therefore, Nigerian citizens should expect much more positive results from the second half of this year. It was a promise of Adeyemi Dipeolu, the presidential economic advisor.
The realized data provided by NBS, which shows the economic growth of minus 2.06 percent in the second quarter of the year can be explained by sharp shortages in oil production. As it was informed, the shortages in oil production were not provoked by the technical issues, but by terrorist attacks on the oil facilities. Therefore, oil is the main product of export for Nigeria and sharp decrease provided by vandalism and sabotage could surely influence the GDP of the whole country. Still, everything done by terrorists can be repaired. The national military is trying to gun down the NDA for destroying the facilities.
The second quarter of the year showed the growth in the agricultural sector of the economy and also solid minerals production. Those were the priority sectors for the presidency of Buhari. The agricultural sector showed growth by 4.53 percent, compared to the 3.09 percent in the first quarter of the year. The metal ores sector also showed growth for the second quarter of the year. The positive growth can be estimated for 2.5%. The share of investments in GDP also increased from 17%. Therefore, agricultural and minerals can be a ticket from the economy recession.
The manufacturing sector is still on the edge of recovery, especially in woods. The service sector is needed to be constantly watched. The data provided the information about reduction in import sections and increased in local goods production. The increasing of the products in this sector may be a little bit slowly, but it still shows positive raise. With time and investments from the government together with foreign investments, it can also be a breakthrough for the economy. It might be a problem for now, but initial stages of business do not show many revenues at the very beginning.
Nevertheless, the inflation rate remains high, but the good news is that it becomes slower. The unemployment rate is very high for today and will remain in this position for the long time. Nevertheless, the government tries to change this situation by funding programs for training young specialists in many spheres of work, but it does not work as it supposed to be. There are too many problems connected with unemployment rate and in terms of subsidy. Still, the presidency of Buhari tries to implement new ways of forming the government for young and decrease unemployment rate in the country.
Still, the picture of overall economy really shocks with the Federal Government beginning to understand that some programs do not work for today. They also show some drawbacks and obstacles connected with the negative GDP growth. Nevertheless, the number of investments increased for the last year. Therefore, Nigerian economy is likely to be improved in the next few years. Still the negative growth will continue in the economy up to the end of the year with predictions from IMF of -1.8% connected with whole year 2016.
The IMF expected the growth of economy for the -1.8% this year, but it showed that the results are quite better. Now, the expected rate is 1.23%, therefore it can guarantee that economy is on the stage of recovery. As it was mentioned previously, the second half of the year is expected to be more productive. Nigeria has already faced with numerous problems in the first half of the year. Now, they are eased and illuminated. The recession would be short-lived, and the global situation on the economy may be improved. Moreover, military forces have pinned down Niger Delta Avengers, so it should be expected an increase in a crude oil production.
According to the Consumer Price Index, the inflation in this year showed the highest results from the 2005. In June it showed the results for 16.5 percent and in August it represented over 17 per cent. The overall consumption statistics was recorded according to Classification of Individual Consumption by Purpose. This kind of statistics can provide a complete information about overall situation. In the sphere of consumption. Therefore, you might desire to see the research done by the economists in the sphere of COICOP. It might give you some more information about the domestic consumption rates and its influence for the economic.
Therefore, according to COICOP researches, it has been showed a decrease in the spheres of consumption of health services, culture, recreation, and transport. Moreover, the price for the crops even on the onset of harvest season did not show much influence for the overall economy. The food price index increased by fifteen more percent and for 0.5% for August. The price change for the food did not change much due to the increased fuel price which can significantly help with increasing the cost of products. Therefore, the products price increase is still on the hand distance. Therefore, Nigerians should be prepared.
Nevertheless, the price rate was increased in a few groups of products, like fruits, fats, oils, eggs and milk. It also should be mentioned that the part of import products declined. Therefore, the local products come to play at this moment. The local farmers may get some percentage of help from the increasing love of local products. This tendency may help to develop local farm business. This tendency can also decrease the overall prices for milk and cheese as there would be no need to import it. Therefore, the government may work in this direction, supporting local farmers.
The core sub-index keeps increases. The major problem for overall production for today is gasoline. In other words - fuel. There are two main problems with fuel industry for today. The first one is connected to the world price situation. The tensions between Russia and EU together with the USA, created this oil crisis. These countries do not desire to step back from their positions. The second problem is the inner terrorist groups, who vandalized and destroyed oil facilities within the country. This provided a decries in the crude oil output for more than sixty percent. Therefore, it resulted in high prices for food.
According to the NBS reports, Nigeria is having one of the lowest import capital. In the second quarter of 2016, it was estimated for six hundred and fifty millions of dollars. If you compare this data with previous numbers from the first quarter of 2016, then you would see the decrease of import for nine percent. If you compare the date from the second quarter of 2015, you would see the decrease of import for 76 percent.
According to the data, you may expect the lowest level of capital decrease in the history. It can be also described as the highest year on year decrease. In other words, it shows the massive decrease record. The continuance decrease of the economy was a reaction for the two years of total problems faced by Nigerians. The second quarter also showed that economy is decreasing. Therefore, by technical standards. It can be called a technical recession. It would be a real recession if Nigerian economy will not show any stability in the third quarter of the year. According to the financial reports provided by the government and independent financial institutes may show this kind of increase.
NBS also showed that the policy towards exchange rates provided a major decrease for the foreign investors to Nigeria. Therefore, Naira keeps failing. NBS may recommend the president to change some policy toward the increasing rate of foreign investors taking money from their accounts in Nigeria. Mr. President may need to oversee the policy conducted in the exchange market. That could increase the flow of capital and import toward the Nigerians. Nevertheless, it also has another side of coin. It may decrease the sells rate of the local markets. Therefore, some kind of balance is more than needed in case of import.
The key problem for the overall Nigeria economy is unemployment rate. In the second quarter of 2016, more citizens became unemployed. The data shows that more than one million people lost their jobs in the second quarter of 2016. The unemployment rate is growing faster than predicted, at least 1% for every quarter starting from the first quarter of 2015. The total view shows that there are more than twenty-six million people unemployed in Nigeria. If you compare the date for this quarter of 2016 and the third quarter of 2015, you may see that more than two million people lost their jobs in one year.
Nevertheless, the labor force population also keeps increasing for today. Starting from the 78.5 million in the first quarter of 2016. Therefore, Nigeria now has more than 79 million people of labor power for today. It can be the results of program conduct by the Government of Mr. President. His programs seem to work for the vast majority of young Nigerians. Nevertheless, it still keeps them from waging wars against each other and becoming soldiers of Boko Haram or Niger Delta Avengers. Therefore, the overall rate of labor force keeps growing.
Naira keeps crumbling in the face of new recession. Therefore, it seems that due to increasing oil decrease, you may expect more problems with national currency of Nigeria. The total currency rate of Naira for days on the market and today`s on the black market is a totally different value.
The overall situation in Nigeria may be called a technical recession from the point of view that for two constant months, Nigeria showed negative growth in terms of GDP. It was called by foreign and domestic factors. For foreign factors it might be named the war in Syria and Ukraine together with continuance tensions between the great powers in the world, like the USA and Russia. For the domestic problems it can be called tension with Boko Haram and Niger Delta Avengers, increased unemployment rate and high prices for the products. Still, government expect the stabilization in the third quarter and growth in the third quarter of the year.