Nigerian economy may not recover as soon as several people expect it to, as some economic and financial analysts have projected that it may take a longer period for it to survive the lull, which was birthed by 2016 recession and worsened by the Coronavirus pandemic.
This was disclosed by some experts at the just-concluded third quarter Economic Outlook organised by Nairametrics tagged ‘Projecting Nigeria’s Economic Recovery.’
At the webinar, the experts argued that the recession would take a longer time to fizzle out, as it has a less-clearly defined shape. According to them, the recovery will take a U-shape. The panelists were Partner & Chief Economist, PwC Nigeria, Andrew Nevin; Group Executive, Energy & Infrastructure, FirstBank, Bashirat Odunewu; Head of Research, Coronation Asset Management, Guy Czartoryski; Chief Commercial Officer, Mixta Africa, Rolake Akinkugbe-Filani, and Senior Vice President & Head of Financial Advisory at Africa Finance Corporation, Fola Fagbule.
What is V, U, W and L shapes?
The V, U, W and, L shapes are the major recession shapes that are used by economists to describe different types of recessions. They are informal shorthand to characterize recessions and their recoveries. The shapes take their names from the approximate shape economic data make in graphs during recessions.
While the V-shaped recession means the economy suffers a sharp but brief period of decline with a clearly defined trough, followed by a strong recovery, a U-shaped recession is longer than the former and has a less-clearly defined trough.
The W-shaped recession, which is also known as a double-dip recession, means the economy falls into recession, recovers with a short period of growth, then falls back into recession before finally recovering, giving a “down up down up” pattern.
An L-shaped recession or depression occurs when an economy has a severe recession and does not return to trend line growth for many years, if ever.
So, why did they choose a U for Nigeria?
Nevin projected that there will be a lot of pressure on the economy due to states taking over the responsibilities of their economic destiny and the forced nature of the COVID-19 disaster. To break forth, the PwC boss insisted that a great level of investment, unlocking of idle assets must be considered.
“I am not trying to be an alarmist but if the country does not take advantage of the period to accept some truth, there will be pressure. So, I will call it a U shape recovery or Rocket shape,” he added.
For Odunewu, some factors would hinder the nation’s recovery as desired by the government. Some of them are oil price that hovers around N$40-$45 PB, 90% of the national revenue still comes from the commodity and low compliance of Nigeria to the OPEC cut deal, which forced the nation to reduce oil production for the next few months.
She said, “If you look at the combination and the fact that the economy is also opening up now globally and by the end of September, we believe Nigerian economy will be better. I will say it is a U-shape recovery. But the second wave of COVID-19 could be a threat. I hope that never happens but if it does, we may end up in a W shape, which will be worse. If vaccines are available as promised by some nations by the end of October, the recovery may change from U to V shape.”
Akinkugbe-Filani chose a different part. According to her, the reality is that the nation will run out of the letters of the alphabets of the recovery. Why? It is because she sees the nation as one that lives above its means like seeking to borrow in a way that is not sustainable and seeking an economic construct that may not be sustainable.
She said, “I wonder the type of recovery we are looking at when the fundamentals of the economy have not changed. Regardless of the pandemic, we have always been a cyclical economy because of the oil price and the export-driven oil and the lack of value creation.
“The recovery for me, in order to be sustainable, we have to learn from the past. The overall spending of the nation is about 7% of the GDP. There is still a lack of integration and focus strategy in terms of infrastructure. For recovery from the pandemic, we need to create local demand for our consumption, so that we are not so vulnerable. I will love to see a U-shape recovery but the reality on the ground will lead me to say that the recovery is between U-shape and W-shape.”
In his own case, Czartoryski is an optimist. He voted for a U-shape recovery. His reasons: “On the foreign exchange, it is not as bad as it was in 2016. By the beginning of 2017, we had an official rate of N317 and a parallel rate of over N500 but today is not so bad with an interbank rate of about N388 and the parallel rate was N477 last week. That is not even 30% away. The forex distortions are not as large as they were.
“There is light at the end of the tunnel though with some complications. Foreign Portfolio Investment is massively down due to the oil price and we should not have to rely on the FPI at all. We are also living beyond our means. We need to create domestic savings like looking into the pension funds, money market, and fixed income funds.”
To Fagbule, AFC is optimistic about Nigeria’s recovery. “I would love to be on U-shape. Based on fact, Nigeria never came out of the last recession, as it was only at the beginning of recovery, which never held.”
According to the Senior Vice President of AFC, the nation cannot recover without working on her Trade and investment, as it is the only way out from the economic lull. He emphasized that government expenditure is never going to be sufficient to take Nigeria out of the woods and it is time for the West African nation to emulate countries like Gabon, China and India, whose Investments contribute 30%, 40% and 31% to their GDPs when Nigeria only does 14%.
Click here to watch the 3rd quarter Economic Outlook