Recession: fear of job losses heightens
The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, didn’t mince words after last month’s monetary policy meeting (MPC) that the country’s economy may recede in 2016, if no additional proactive fiscal measures are introduced by the yet-to-be constituted Economic Management Team of the President Muhammadu Buhari administration.
Governor Emefiele said the warning had become necessary because of the fragility of the Nigerian economy as a result of the slow growth in the first two quarters of this year.
Emefiele and the Bankers Committee explained that growth had come under severe strains arising from declining private and public expenditures in the country.
Economists have described recession as a period of temporary economic decline during which trade and industrial activities are reduced, generally identified by a fall in gross domestic product (GDP) in two successive quarters. Nigerian economic analysts agreed with the CBN governor saying, given the recent trend of the country’s GDP performance, the worry about possible recession is justifiable.
The GDP rate declined from 6.23 per cent in the third quarter of 2014 to 5.94 per cent in the fourth. The growth rate further declined to 3.95 per cent in the first quarter of 2015 and 2.35 per cent in the second.
It is in the view of this frightening free fall of figures, compounded by no hope in the short to medium term in rise of crude oil price on the international market, that there is virtual panic among the CBN governor, the Bankers Committee and economic analysts that the economy appears headed to a recession unless there is a drastic review in economic policies, and more importantly, sincerity of purpose by administrators in their implementation.
The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Mr Muda Yussuf, identified a number of factors as responsible for the negative trend.
Yussuf said some degree of uncertainty characterized the economy in 2015, an election year, and affected the tempo of economic activities. The consequences, he stated, have been adversely impacting on the general economic performance.
He, of course, mentioned the price crash of crude, which, over the years, the country’s administrators have made Nigeria’s main cash cow. The crash, the LCCI chief maintained, cannot but affect fiscal planning in the absence of viable alternatives.
He further pointed at the uncertainty of the policy direction of the current administration which, he said, has dampened the enthusiasm of some investors. He added that many of such investors are waiting to have a clear understanding of the direction.
To him, the CBN has, with its current foreign exchange controls and administrative allocation of foreign exchange, significantly disrupted many economic activities and created major confidence crises for many domestic and foreign investors. This, he argued, has negatively impacted on the tempo of economic activities in the last two months.
Dr Ikechukwu Kelekume, a development economist with the Pan Atlantic University, told our correspondent that the speculation over expected recession in the country was borne out of the fact that the current government has not appointed ministers who will help steer the nation’s economic direction.
Said Dr Kekelume, “This speculation is causing further volatility in the stock market because most investors are wondering how they can invest in the Nigerian economy when they are unsure of government’s policy direction. We cannot forget that government is the biggest spender, but now government is not spending.”
The economist was emphatic that private sector performance in the first and second quarters of 2015 has been negative.
“I have looked at 16 fast moving consumer goods (FCMG) companies and they are all recording negative profit-after-tax results for the first and second quarters. What that tells you is that the economy is in a crisis,” he added
Another point the MPC noted was that the Treasury Single Account (TSA) implementation and other recent fiscal policies the new administration introduced like the loans reconstruction for states and credit to the energy sector - may endanger the Nigerian economy to the extent of pushing it to a recession in 2016.
Economic watchers fear that the TSA could trigger huge job losses among banks and shrink their capacity to lend to the real sector.
Dr Dan Okehi, a financial analyst, argued that the government does not have to mop up all government funds into the CBN to be able to fight corruption.
The CBN, in its tight measures to check inflation, had retained most of the key rates like the Monetary Policy Rate (MPR) at 13 per cent and the liquidity ratio at 30 per cent, in addition to reducing the Cash Reserve Requirement (CRR) to 25 per cent from its former level of 31 per cent, following its mopping-up of public sector deposits in commercial banks. The apex bank has, however, early in the week pumped N740 billion back into the banks to ease their liquidity problem as the TSA effects bite hard.
But Dr Okehi argued the CRR reduction falls below industry watchers’ expectation as some felt the apex bank would move the cash requirement to a single digit level of 9 per cent
Bismack Rilwane, an economic analyst posited, in support of the TSA, that it should not be an issue because the funds mopped up would be used to pay contractors and the funds would, in turn, find its way back to the commercial banks.
Dr Kelekume didn’t really find comfort in arguments like Rewane’s on the recession outlook. “The drop in the second quarter GDP from 3.94 to 2.6 showed that our output is contrasting and this is a problem because towards the end of 2015, there would be massive job loss, so the time to act is now,” he warned.
An economist, Mr. Olawale Johnson advised that the government should pay serious attention to CBN’s alert on likely economic recession in 2016.
Johnson was, however, positive that the nation’s economy may regain its strength when President Buhari’s ministers fully swing into action.
He told our correspondent, “By the time ministers, advisers and all the necessary people that will work with the president resume we might have a better policy that would drive the economy.”
He believed that though the introduction of the TSA may not be an attraction to some government officials and, even may not be a plus to the economy currently, it would reduce corruption and ultimately, there would be enough funds for government to develop the economy.
Johnson explained that, “By the time government stabilizes, the introduction of the TSA will block all the leakages in ministries, parastatals and agencies and money will flow when government begins to employ more people, and pays contractors for capital projects.”
He added that CBN can be of help to government in creating policies that will drive investment in Nigeria. “One of the CBN objectives is to act as financial adviser to the government and if it advises government on necessary steps to take and when to take them the recession we are talking about can be averted,” he maintained.
A Lagos-based stockbroker, Mr Tunji Wasiu, said the TSA policy is already having its “predictable effects.”
He said liquidity is low in the banking sector and interest rates are escalating and portending lower investments.
Saying foreign investors are divesting from the Nigerian Stock Exchange (NSE) and crude oil prices are likely to remain low for the whole of 2016, Wasiu suggested a solution government should constitute an economic team comprising the CBN, Securities and Exchange Commission, Minister of Finance, Minister of Industry, financial experts and professional bodies “to work assiduously and nip in the bud the impending recession.”
Also, Mr. Emmanuel Benjamin, a banker, believed the CBN can reverse the likely recession. “What it needs to do is to work with government and create an enabling investment environment for both foreign and local investors.
“If our manufacturers can access easy and low rate funds from banks, there will be employment opportunities and the economy will grow. The CBN doesn’t need to keep TSA money deposited with it. What it needs to do is give it out to people to finance and propel businesses that will grow our economy,” Benjamin said. Amid the growing concerns, the International Monetary Fund (IMF) while not dismissing the warning, yesterday predicted ‘a less deep recession’ in 2016 for the Nigeria.
The IMF, its ‘World Economic Outlook (WEO) report released yesterday, expects a partial normalization of conditions in developing countries resulting from the stronger pickup in activity in advanced economies, and the easing of sanctions on the Islamic Republic of Iran.
Lower oil and other commodity prices, which although benefiting commodity importers complicate the outlook for commodity exporters, some of whom already face strained initial conditions, including Russia, Venezuela and Nigeria, the report said.
IMF chief economist Maurice Obstfeld said in a statement accompanying the WEO “The ‘holy grail’ of robust and synchronized global expansion remains elusive.”