Nigeria has not had a recession (defined as two consecutive quarters of negative growth) since 1999.
However all that may change in the coming months as a result of a combination of factors (domestic and global) that have converged to hit the country’s economy hard.
Nigeria’s Consumer price inflation rose for a fifth month in June to 9.2 percent and growth in the first quarter of 2015, slowed to about 4 percent, on an annual basis compared with 5.9 percent a quarter earlier.
Investors are dumping stocks and consumer confidence is low.
Anecdotal evidence suggests that growth in recent months may be grinding to a halt as everything from Government spending, consumption and corporate earnings slump.
When looking at GDP by expenditure: consumption, fixed investment and net exports (X-I), there is cause for alarm.
This is exacerbated by inadequate policy responses from the Buhari administration till date.
Federal, States and local governments are currently not engaging in much infrastructure spending, meaning there is no trickledown effect for the economy as such spending often serves as a stimulus.
On the recurrent side of the equation the late payment of salaries by states is also a drag on consumer spending.
Recent results from listed FMCG, Banking and other firms on the Nigerian Stock Exchange shows the decelerating trend in economic activity as profits are mostly down from the earlier period.
Most private firms are cutting costs and hoarding cash as the economic outlook becomes more uncertain.
The recent protest about unpaid salaries by construction workers in the ‘high end’ Eko Atlantic city project is a sign that the private sector will not be picking up the slack of public spending anytime soon.
The prospects for an improvement in government finances are also beginning to look bleak, at least in the short term.
OPEC member Iran (which just struck a deal to resume oil sales with global powers) says it plans to ramp up output to 4 million barrels a day within seven months once sanctions are removed and 4.7 million as soon as possible after that.
This would be a 65 percent increase in output or nearly 2 million barrels in new supply to the market from current levels of 2.85 million bpd that Iran produced in June amid talks of a current glut.
If countries want to escape a recession they find ways to replace the lost output by countercyclical spending or pump priming like the U.S and China did in 2009, Japan has been attempting with Prime Minister Abe’s 3 arrows and the Europeans are doing through the ECB’s QE.
While I am not much of a Keynesian, I do believe that this a particularly fragile period in Nigeria’s economic history (since 1999) with its current political transition occurring at the same time as a domestic economic crises.
With the prospects of a further slide in oil prices and an increase in U.S interest rates (now that Greece is resolved), it is probably necessary for the Government of the day to begin to understand that it has a narrow window to act.
We have proposed on Nairametrics before about the need to raise some $25 billion (5% of GDP) in external financing via a combination of Eurobonds, DFI loans and country to country agreements (e.g. with China).
The Government of the day should commit to raising these funds between now and December 2015 and use same funds to plug the spending hole the country has now found itself in as well as reignite a virtuous cycle of economic activity.
This will be in stark contrast to the current vicious circle of self re-enforcing negative growth that we are about to embark on.
The Nigerian President Muhammadu Buhari is currently in Washington meeting with President Obama.
It is hoped that either he or some of his advisers will be learning economic lessons and asking for tips from Obama as to how he (Obama), brought America out of the worst economic recession since the great depression of 1929, and in the process triggering the second longest bull market run in American history (2009 – till date).
Fig 1: A tale of 2 charts