Dissecting Nigeria’s fast recovery from recession

Following the report by the National Bureau of Statistics (NBS) announcing that Nigeria’s Gross Domestic Product (GDP) contracted by -3.62 percent in the third quarter of 2020, the resultant effect means the country had slipped into another recession after four years as the country recorded two consecutive negative growths in the second and third quarter of 2020.

However, many factors were brought as to why the country slipped into recession. Majorly, fingers were pointing at the pandemic which affected the economy badly, especially oil which is the nation’s major foreign exchange earner.

For instance, in the Q3 2020 GDP report released by the NBS in November last year, the oil sector contracted by 13.89 percent against the 6.49 percent positive growth recorded in the previous year (2019), which underscores the huge blow the pandemic dealt the country’s major revenue earner.The adverse effect of the pandemic did not only take a big toll on Nigeria alone, top economies in Europe, America and Asia also felt the brunt of the global economic crisis caused by the pandemic. Germany, Italy, France, Canada, Japan, and Australia slipped into their first recession in 30 years.

Although, in spite of the uncertainties inherent in the World economy, the International Monetary Fund (IMF)  yesterday in its global outlook report says the global economy is waxing stronger.

IMF in the report notes that the Economic growth led by the United States and China is increasing,  posing the risks of uneven global recovery.”In January we projected global growth at 5.5 per cent in 2021,” said IMF chief Kristalina Georgieva in an address ahead of the body’s annual spring meeting co-hosted with the World Bank.
However, despite going into another recession in just four years, Nigeria’s Finance Minister, Budget and National Planning, Mrs Zainab Ahmed, has expressed optimism that the country’s recession will not last as expressed in some quarters.

Giving a keynote address at the 26th edition of the Nigerian Economic Summit held in November last year, Ahmed stated that the economy was not as bad as it was being portrayed.

Her words: “While the economy has entered into recession in the third quarter, the trend of the growth suggests that this will be a short-lived recession and indeed by the fourth or, at worst, the first quarter of 2021, the country will exit recession.

“Our expectations of a quick exit, which will be historically fast are anchored on the several complementary fiscal, real sector and monetary interventions that have been proactively introduced by the government to forestall a far worse the decline of the economy and alleviate the negative consequences of the pandemic,”

As such, Daily Times looks at three key areas of efforts by the federal government that aided economic growth.

Finance Act

The Finance Act 2020 was primarily designed to address some of Nigeria’s fiscal policies as well, as prioritise job creation and boost domestic growth and development.

 Notably, the Act provides some relief for taxpayers. For instance, the Act reduced minimum tax payable by companies from 0.5per cent to 0.25 per cent for the two years under review. It also exempted small companies from education tax as well as an exemption for the loss of office up to N10 million from tax, not forgetting exemption of low-income earners earning minimum wage or below from paying personal income tax.

These initiatives by the federal government, stakeholder believes, are primarily targeting at driving the SMEs growth which contributes almost half of the country’s GDP.

Economic Sustainability Plan

Nigeria Economic Sustainability Plan (NESP) approved by the federal government in June 2020 was a swift response to set the economy on the part of recovery, especially as the pandemic raged on. It was also to provide a buffer for the economy amid economic misfortunes and also support Small and Medium Enterprises.

As such, the fund comprised N2.3 trillion facility which was for the economy to experience a conducive environment through funding.

In a document obtained by Daily Times from the Office of the Vice President who spearheads the ESP, the plan is designed to provide N500 billion from special federal government accounts, N1.1 trillion from the Central Bank of Nigeria (CBN) in the form of structured lending, N334 billion from external bilateral/multinational sources and N302 billion funding from other sources.

The target of the plan ranges from various interventions through the Mass Agricultural Programme, extensive public works and construction programme which engaged 1,000 youths per local government for three months, a mass housing programme, and support to the informal sector.

Others include a guaranteed take-off scheme for MSMEs as well as the expansion of the National Social Investment Programmes (NSIP) which has recently turned many Nigerian youths into entrepreneurs.

Consequently, due to various interventions of the ESP to the economy, it was evident in key highlights of the Q4 GDP report announcing Nigeria’s exit. Out of 46 sectors of the economy, 17 recorded positive growth, higher than the number of sectors that had recorded positive growth in the third quarter.

Throwing more light on the development, the finance minister recently also stated: “The agricultural sector posted strong growth of 3.4 per cent during the last quarter and when you compare to the previous, it is much better, and the services sector also spread to the services sector.

“Another positive story for us is that the non-oil sector grew by 1.69 percent which says a lot about our diversification efforts. We have also seen overall economic activities reported strongly in quarry and mineral sector, in the ICT and telecommunications sector,” Mrs. Ahmed further stated while reacting to Nigeria’s exit from recession earlier this year.

Support to states

As the call for the need to drive growth at the subnational level thickened, the federal government had also been engaged in assisting States with funds, especially to aid recovery during the pandemic.

The federal government reported that it disbursed the sum of N66.5billion ($175 million) to eligible States based on the Amended COVID-19 Responsive 2020 Budget results achievement.

The finance minister had explained in a statement signed by Mr Hassan Dodo, the ministry’s Director of Press and Public Relation that the disbursement followed compliance with the Amended COVID-19 Responsive 2020 Budget by 35 eligible States in the country.

The programme is wholly-financed with a loan amount of $750 million from the International Development Association (IDA), a member of the World Bank Group. Each State received the total sum of N1.9bn, equivalent to $5million.

The disbursement is, according to her, under the performance-based grant component of the World Bank-Assisted States Fiscal Transparency, Accountability and Sustainability (SFTAS) Programme-for-Results.

The finance minister had also stated that the federal government is looking at how to involve the state and local governments in economic development so that they will not only depend on federal allocations from the federal government.

What experts are saying

A financial analyst and President of the Association of Capital Markets Academics, Prof. Uche Uwaleke corroborated the point of the minister saying that the diversification to other sectors under the ERGP has aided tremendously in setting the economy on the part of recovery.

He said “Due to lockdown effects and other challenges posed by the pandemic said sectors many key sectors like transportation which contracted with (42.9%) oil refining (- 68.2%) real estate (-13.4%) accommodation and food services (- 22.6%) education (-20.7%) crude petroleum and gas (-13.9%)  and insurance -18.7%).

“However, the good news is that sectors like agriculture and minerals sectors recorded positive growth which underscores the need for government to pay more attention to the non-oil sectors as it has huge potentials of completely changing Nigeria’s fortunes in revenue generation.”

Speaking further, Uwaleke said: “Unlike oil that is prone to price change and other factors, the government can concentrate more on agriculture. They have begun the process, but more needs to be done,” he advised.

On the other hand, the CEO of Need Professional Services Ltd, Thomas Ukoyor, concentrated his submission on the impact of various interventions of the federal government through the CBN.

According to him, those interventions have helped in setting the economy on the part of recovery.

 Reeling the statistics, he said: “The finance minister and the CBN governor have disclosed that N192.64 billion was disbursed to 426,016 beneficiaries under the COVID-19 TCF; agri-business small and medium enterprises investment scheme (AGSMEIS), also disbursed N10.96 billion to 27,956 beneficiaries; health care support intervention facility disbursed N72.96 billion to 73 projects that comprise 26 pharmaceutical projects and 47 hospitals and health care services project in the country.

“With these interventions, although not enough as expected, you expect that it will surely impact MSMEs and in every economy, it is the MSMEs that drive growth,” he added.