Something strange happens on Saturday mornings on Bourdillion Road, Ikoyi, the UNILAG campus in Akoka, and Bode Thomas in Surulere is not exempted from this phenomenon.

If you look intently, you may observe it like David Attenborough filming the life of a baby elephant. Scores of differently sized people get on the road, some in lycra, some in garish pink, some in shorts, some on bicycles, and some with fanny packs.

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What are these people doing on the road? What do they want? Why would anyone wear reflective visors, 6 armbands, and ill-fitted long socks? It’s weight loss time, yeah! Excessive sugar is bad — it’s the work of the devil!

Chocolates, biscuits, and weight gain

You know deep down you shouldn’t eat these incredibly sweet things, but when you are down and tired, you can’t resist — it improves your mood. The World seems like a sweeter place suddenly, you smile a little bit, and you forget the problem.

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However, you get another urge for more sugar and eat again. Your problem is still not gone, but you feel alright. With time, you realize that you have gained weight and must face the hard truth — cut down on sugar or choke on it.

If you choose the latter, five years down the line, your weight has grown from 75kilos to 225kilos — an additional problem to your worries. A person weighing 225kilos is super morbidly obese and may have many health problems.

The Nigerian government is in a similar situation, it has a weight problem, a large debt load attached to it that it simply can’t afford or ignore any further. It’s time to hit the road, change its diet, and consult with the doctor. In orthodox economics, countries getting on a diet and hitting the gym is called Austerity. Austerity is never a popular route for governments.

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In Fela’s classic, “Teacher don’t teach me nonsense“, he lamented about the pain of austerity and included it alongside other pains felt by the citizenry some 30 years ago. Whether we like it or not, government finances must be put on a diet; at best, a delay can ensue.

The longer the delay, the fatter the debt pile gets, and many more problems will emerge. People will feel even more pain without austerity. Austerity is not unique to developing countries, it is important to mention that in 2010, post the global financial crisis, the UK’s Chancellor of the Exchequer, George Osborne, introduced austerity measures on government finances to enable its future sustainability. This after all is an economically developed country mindful of its finances. If the UK government can do it, why not Nigeria? Could it be the do-it-yourself economic ideas?

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What does austerity diet involve?

A significant cut in government spending and largesse. It entails saying goodbye to the sweet-looking jeeps and furniture, the not so large civil service a.k.a government jobs, and to an ever-increasing attempt at collecting more taxes from poor Nigerians.

Recall, more than half of Nigeria’s population is living below the bread line. It’s unclear from whom any tax increase will emerge. There is debate amongst orthodox economists about the timing of austerity diets — should it be during a crisis or during boom times? There is no clear-cut answer, but it’s easier to take the pain in a growing economy than one undergoing strain.

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It is sometimes possible to escape the diet. Some patients go for bariatric surgery and extensive liposuction and this helps them cut down in a very short space of time, without the attendant pain via the organic process. Nigeria did this in 2005 by securing debt forgiveness from the G8 countries to the tune of thirty billion dollars. Interestingly, this is roughly what Nigeria owes today.

Borrowing into unsustainable debts

It is unlikely anyone will cancel Nigeria’s debt again. So, why does the government keep borrowing when it’s apparent the country can’t afford it?

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Well, if one keeps getting cheap biscuits and chocolates, then it’s easy to eat more. Reviewing the basic debt stats can be deceptive without a good enough grasp of the stats for sustainable and non-explosive debt.

In my last article, I discussed how DIY economics or homegrown economic ideas have done damage to price stability in Nigeria. Without a critical review of how best to adjust an explosive debt path, countries are bound to stay the destructive course. Considering indicators used by George Osborne as a benchmark for Nigeria, Nigeria is on an explosive and unsustainable borrowing path.

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There is absolutely nothing wrong with leverage or borrowing. In many instances, especially with businesses and corporates, it helps them achieve their financial goals. However, there is a proverb from the South Western part of Nigeria that translates to, “one ought not to live an extravagant life, whilst in debt”.

The statistics show that Nigeria continues to borrow extravagantly, without the impact being felt on the streets.

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What is the near term solution?

A selective increase in government revenue may be the way. Tax increase is highly unpopular but selective taxes on businesses that have benefitted from historical tax cuts and waivers may be the place to start.

OPEC will miss Trump, its ‘companion’, and would be careful about strains under Biden.

Some OPEC members are worried that strains in the OPEC+ union could reappear with the administration of the newly elected US President, Joe Biden, as the outgoing President Donald Trump went from criticizing the ‘cartel’ to aiding and abetting, in order to achieve a record oil yield cut.

Biden could examine political relations with three members from OPEC – Saudi Arabia, Iran and Venezuela, just as with key non-OPEC member, Russia.

Severe US sanctions on Iran and Venezuela has kept large number of barrels of oil free, every day in the market, and if Biden loosens up measures on the sanctions in the nearest future, it will lead to increased supply in the market.

In some of his statements, Biden said he would lean towards multilateral discretion to the one-sided sanctions Trump has forced, even though that may not necessarily mean removing any sanctions any time soon. In his mission, Biden said he would revisit Iran’s 2015 atomic arrangement if the leaders keep their part of the bargain.

Trump quit the agreement in 2018, reemploying sanctions that cut Iran’s oil trades. Some in OPEC dread that the arrival of Iranian volumes will add to oversupply, without reductions somewhere else and stress over Moscow’s proceeds, with investment in OPEC+.

“Iran sanctions can be re-evaluated and then Iran will be back to the market, so again there would be oversupply and the current cut deal will be at risk,” an OPEC source said before the result of the political decision was known.

There are also fears Russia would leave OPEC+, as their ally leaves the White House. “There is the danger of Russia leaving the OPEC+ bargains too, which implies a breakdown of the arrangement, as it was Trump who welcomed Moscow,” the source said.

Diplomatic threat

Biden has named Russia as Washington’s most genuine worldwide danger. In his campaign, he additionally vowed to rethink relations with Saudi Arabia.

In contrast, Trump liaised with Saudi Arabia and Russia to end a fiasco that brought oil prices down. The outcome was a record global arrangement to cut oil to around 20 million bpd or around 20%. OPEC+ alone consented to cut 9.7 million bpd.

Trump connected more with the oil markets, regularly taking to Twitter to comment on supply and the American energy industry. Biden is viewed as bound to avoid meddling in OPEC matters as much as possible. He would depend more on advisers and not micromanage as Trump usually did.

“Biden would not have the comfortable relations with Putin that Trump seems to have,” said Chakib Khelil, a previous OPEC President.

Critical Implications

Trump built up a good relationship with top OPEC producer, Saudi Arabia’s ruler Mohammed Salman, who depends on the United States for weapons and security against territorial opponents.

Although, there were certain times Trump tried to bully OPEC+ into bringing prices down, as it was affecting gasoline prices in America; his continuous support for Shale oil also affected OPEC’s dominance in influencing and managing global oil supply. It is highly improbable that Joe Biden would make that type of interference.

Furthermore, it is highly unlikely that Iranian oil would get sanctions lifted quickly. Hence, this means OPEC+ individuals would have a sufficiently long time to change their arrangement to prepare for more Iranian oil.

The National Bureau of Economic Research defined a recession as a significant decline in economic activities spread across sectors, lasting more than a month, normally visible in real gross domestic product (GDP), real income, employment, industrial production and wholesale/retail sales.

According to the just-released data by the National Bureau of Statistics, Nigeria’s Gross Domestic Product (GDP) declined by -3.62% (year-on-year) in Q3 2020, thereby marking a full-blown recession and second consecutive contraction from -6.10% recorded in the previous quarter (Q2 2020).

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The year 2020 has been a trying time, not only for Nigerians but for the world generally; this is as a result of the novel coronavirus, which has impacted the economy negatively.

The Nigerian economy over the years has been striving to be stable because of the mismanagement of funds, high debt rate and unemployment, etc. However, the recent recession compounded Nigeria’s socio-economic challenges caused by the COVID-19 Pandemic and Post #Endsars Violence.

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Furthermore, to curb the spread of the pandemic, a lockdown was imposed nationwide, during the period of March to August 2020 and a lot of families found it challenging to survive the impact of disruptions to daily commercial activities.

Some had to dip into their savings to remain stable during that period. Jobs were lost as some companies could not afford to pay salaries, while some companies had chosen salary reduction as a way of sustaining their businesses.

Prices of goods and services also increased astronomically during this period. On the other hand, economic activities, religious and social gatherings were limited to contain the pandemic across the nation and the negative effects on the economy.

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The following are the major causes of recession in any given economy as drawn from the past Nigeria economic recessions:

• A general rise in price of goods and service which leads to low purchasing power.
• Increase of debt, especially foreign debts.
• High-interest rates discouraging investors
• Importation bans in Nigeria which increased poverty rate in Nigeria.
• Mass unemployment and general loss of confidence in the government due to the challenging economic indices.

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In a recession, families with little or no barriers to resist the effect of recession are most likely to be hit severely. Though there are some families who may not be able to avoid the effects of the recession, they can make changes that can improve their situations and help them prepare for the future, while they wait for an economic upswing,

Nigeria’s Q3,2020 Recession, below are the implications on families and households

• Rising food inflation of over 17% will impact the cost of food prices as the festive season beckons.
• Purchasing power parity of Nigerian households is challenged due to the economic situation.
• Marital issues crop up, as financial pressures can damage mental health which can lead to depression and frustration in marriages.
• The low-interest yield environment in the Nigerian capital market also affects appetite for savings in the fixed income market.

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The unfortunate condition could be managed by families with these measures:

• Families are advised to cut down costs ruthlessly, especially in this festive period. Have a reasonable festive celebration.
• They should have a budget/financial plan put in place for the year 2021 as no one knows how things will unfold.
• There is a need to have another stream of income or work overtime to sustain your family during this period and this can be achieved if you are skillful.
• It is also advisable to purchase all you need for the festive season now, as prices of goods and services might triple because of the festive period.
• It is crucial for some families to switch to cheaper schools around with the same qualities and standards to reduce expenses.
• FMCGs are already tailoring the sachet-economy to the lower-class families whose earnings have dropped this year.
• Households experiencing financial difficulties during this period are advised to position themselves to see how they can benefit from the various interventions from the Government for citizens.
• Couples should have conversations around their finances and prioritize expenses while adapting to the new economic realities and coping with necessary adjustments

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What Government can do to enhance the economy

• Tax rates should be reduced on individuals, corporation, and small businesses. This high tax rate is affecting many small-scale businesses. Foreign investors will also be encouraged by the reduction in tax rate. This will increase inflow of dollars to Nigeria’s economy, and ultimately increase investment and standard of living. It will solve the problem of high exchange rate.
• It is important for the government to curtail any unnecessary expenditure and focus more on expanding her export earnings and production through wise investment. Putting funds into the economy is a good idea, but there is need for diversification, allowing the free flow of naira and stabilizing the oil sector, modernizing agricultural sector. By this, Nigeria can spend her way out of recession wisely.
• Enhanced Access to Credit: Here, the Nigerian government, especially the federal and the state government, should grant soft loans to small and medium scale enterprises, to enable them boost gross domestic product (GDP) of the country. In the same vein, agricultural credit should be given to farmers to enhance adequate food production and reduce the bike of farm produce in the country (Nigeria).
• Nigerian Government should increase its expenditure on skills. It is only skills that lead to productivity and competitiveness as a nation. So, government should invest in skills acquisition in ICT, Telecommunications, Agro-allied, Sports, Vocational training among others. The training should be 80% free practical. There is need for multiple competence, particularly among youths as a measure to curb increase in global joblessness. The greatest challenge today in Nigeria is unemployment. The government should partner with private organizations, to organize entrepreneurship and skills acquisition programs for the youths. There should be a high level of transparency in the program to ensure the best candidates are picked. This way, Nigeria will soon see herself on top of the fastest-growing economy in Africa.
• Increased Agricultural Production: There is need to reposition agriculture as a major driver of the economy, like in the 1960s when it was the major revenue earner in the country. Today, Nigeria spends billions of US dollars a year on the importation of agricultural products. The youths, as earlier stated, should be encouraged to go into Agri-business covering the entire value chain.

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Conclusion

For families, this will be a challenging time, and it will require a lot of sacrifice, adjustments and prudence in the management of resources to navigate the economic storm.

Financial institutions should be encouraged to support the real sector playing the intermediation role.

In the Fiscal Policy space from the Finance Bill 2020 the government has taken some key steps in taxation and duties to reduce the burden on families and companies, but the process must be followed through effectively for implementation.

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The Government should demonstrate its seriousness in policy by cutting down costs from the Federal to State, and block all the leakages ensuring that funds are invested in infrastructure, healthcare, education and security.

Nigeria is a nation with resilient people. Families should remember that this is just challenging period to navigate what has been an unprecedented year in the nation’s socio-economic space.

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