What does it mean for Nigeria to exit recession?
Nigeria is finally out of recession. The National Bureau of Statistics announced on 5 September that the country’s economy grew by 0.55 percent in the second quarter of 2017. This compares to a contraction of -0.91 percent in the first quarter of 2017 and it is the first quarter since the last quarter of 2015 that the country is experiencing a positive economic growth rate.
So what is recession in the first place?
Recession technically happens when the economy experiences two consecutive quarters of negative growth. In the case of Nigeria, the country experienced five quarters of consecutive negative growth. Simply speaking, it is like having the curious case of a man that instead of growing taller, suddenly starts growing shorter.
So imagine Nigeria as a man who was six feet tall at the end of 2015. Then every quarter since 2016, instead of growing taller, he started getting shorter, so that by the first quarter of 2017, Nigeria as a man was just about 5.5 feet tall, instead of the six feet he was at the end of 2015.
Then Magic happens
Imagine further, that it is June 2017 and you are the doctor that has been watching Nigeria grow shorter every quarter since the beginning of 2016. You have been pumping a lot of medicine into Nigeria to reverse this curious case of him growing shorter. You take Nigeria’s measurement every quarter to find out if your medicine is working. This time you go and take your measurement again and hurray, you find out that Nigeria is measuring 5.6 feet instead of the 5.5 feet he measured in the first quarter of 2017.
You are happy. For the first time in five quarters, instead of Nigeria growing shorter, he has grown taller by an inch. You have a right to be happy that Nigeria is no longer growing shorter. This means that whatever medicine you are applying is having some impact. So basically it is a signal that you should apply more of those drugs that has enabled Nigeria reverse the trend of getting shorter every quarter.
However, you will be wrong if you get too excited. Remember, that Nigeria was six feet tall before the reversal in growth rate. Now, he is just 5.6 feet tall. This means that there is still four inches of ground to be covered to get Nigeria to its former height. So basically, Nigeria has stopped growing shorter, but he is yet to recover lost grounds.
So, here is what Nigeria exiting recession does not mean
Nigeria exiting recession does not mean that food prices in the market will suddenly fall, or that everyone can suddenly eat three square meals a day. The latest inflation figures from the NBS showed that inflation is still in double digits, even though not rising as fast as it was in previous years, but with food inflation even rising. This is not going to change suddenly because Nigeria is out of recession. So basically, the price of rice is not going to suddenly be halved because Nigeria is out of recession.
Exiting recession does not mean that millions of Nigerians that have lost their jobs in the last one and half years due to the contracting economy will have their jobs back.
Most significantly, exiting the recession does not mean that the exchange rate of the Naira to the dollar will suddenly become N199 to the US$ like it was pre-recession. We are still stuck with an exchange rate of N366 to the US$ and that is unlikely to get better. Getting out of recession may mean it would not get worse though.
What it means
It means that the economy is no longer falling into a deep hole. Practically, this means that less jobs are going to be lost and more companies are expanding their production than closing down
It indicates that we are getting some policies right. For example, the peace efforts in the Niger Delta is paying off resulting in the first positive growth in the oil and gas sector. Also, the manufacturing sector showed the second consecutive positive growth since 2015, which is linked to the improvement in access to foreign exchange by manufacturers
The psychological benefits of exiting recession could also result in expanding business spending which will further help boost economic growth.
It is still possible to fall back into recession if policies that enabled us to get out of recession are not sustained. For example, if crude oil prices drop suddenly or there is a spike in militancy in the Niger Delta that result in a decline in crude oil production, then the country could see itself falling back into recession.
Also if the Central Bank of Nigeria (CBN) is unable to sustain its interventions in the foreign exchange market, which has helped boost manufacturing activities, that could also push the country back into a recession
This growth is still too low. Nigeria’s population is still growing at an average rate of two percent to three percent. This basically means that for Nigeria to ensure that more people are not being born into poverty, it would have to ensure that its GDP growth rate, at the minimum, matches the population growth rate. Therefore, while a 0.55 percent growth rate is positive, it is still too low compared to the average growth in population. Economists have actually argued that for Nigeria to make any dent on the level of poverty in the country, it must be able to achieve a minimum GDP growth rate of 10 percent, a figure that Nigeria is yet to achieve.
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