Moshood Isah
In September, Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele threw many economists and government officials into near panic when he warned of a looming economic recession following two consecutive quarters of stagnancy. His concerns followed the significant drop in Nigeria’s real Gross Domestic Product (GDP) from 6 per cent last year to 3.9 per cent and 2.35 per cent in the first and second quarters 2015 respectively.
Speaking after the Monetary Policy Committee (MPC) meeting, Emefiele said “The overall macroeconomic environment remained fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-than-expected performance. Having seen two consecutive quarters of slow growth, the committee recognized that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors of the economy.”
Notwithstanding, the Governor observed that business confidence would continue to improve as the Government continues to unfold its economic plans. “Some of the reassuring measures of the administration, including efforts aimed at resolving fiscal challenges at the sub-national levels, and the fight against corruption and improving the business environment, would unlock the inflow of foreign direct investment.” MPC itself in a communiqué underscored the imperative of growing and protecting the country’s foreign reserves and building fiscal buffers in the process of strengthening confidence in the economy, which is essential for promoting growth and stability.
Even then, many economists and business persons disagreed with Emefiele’s postulation, insisting that any serious observer knew that the direction of the economy was nowhere near recession.
Economists argued that an economy can only be said to enter into recession if it experiences negative growth in two quarters consecutively. In the case of Nigeria, the economy can only experience recession next year if its economic growth rate, which was 2.35 per cent as of the second quarter, falls gradually to zero and then to say -1 or -2 per cent for two consecutive quarters. Some of the analysts, who spoke on this issue, see this as very unlikely. Others, however, said this was only possible if the government fails to take adequate measures to mitigate the declining growth trend.
They agreed that the only viable option was for the fiscal and monetary authorities to stimulate growth in critical sectors of the economy. Head, Investment Research, Afrinvest West Africa, Mr. Ayodeji Ebo, said that this can be averted if the Ministry of Finance comes up with ideas and policies that will drive growth in the manufacturing sector. “There are plans by the government to reflate the economy, and this will be partly done by identifying non-oil sectors that can drive growth. Before next year, we should have had in place policies that will drive investment and improve the economy. I don’t think the economy will go into recession; if nothing is done, it may; but I don’t think the government will fold its arms and allow this to happen.”
Another economist and Head, Asset Portfolio Management at Meristem, Taiwo Yusuf, believes the economy may enter into recession faster than expected if the fiscal and monetary authorities fail to stimulate growth in certain critical sectors. He mentioned power as one of the sectors the government might need to focus on due to its multiplier effect on the economy. “Government is already trying to establish development finance institutions, which will provide long-term funding for businesses and this will fuel investment and growth. We expect power supply to improve as well. I don’t think this growth focus will come with inflation because we have yet to reach our optimum productive capacity as a nation,” Yusuf stated.
Fortunately however, data from the National Bureau of Statistics shows the economy expanded at a slightly faster pace in the third quarter. The country recorded Gross domestic product (GDP) growth of 2.84 percent year-on-year in the third quarter of 2015 compared with 2.35 per cent in the second quarter. During the quarter, aggregate GDP stood at N24.3 trillion (in nominal terms) at basic prices. Compared to the third quarter 2014 value of N22.9 trillion, nominal GDP was 6.02 per cent higher.
Although the global oil prices didn’t record any significant increase during the period under review, Nigerian oil output jumped to 2.17 million barrels per day in the third quarter compared to 2.05 million barrels in the preceding quarter. The real growth of the oil sector which represented 10.27% of total real GDP increased by 1.06 (year-on-year) in third quarter (Q3) of 2015. This is higher by 4.65% points compared to the corresponding quarter of 2014, and higher from the second quarter when growth declined by 6.79%.
Meanwhile the non-oil sectors which represent 90 percent of GDP were largely driven by the activities of crop production, financial services, telecommunications, and trade amongst others. In real terms, the non-oil sector contributed 89.73% to GDP, marginally higher from shares recorded in the third quarter of 2014 (89.55%), but marginally lower from the second quarter of 2015, which is 90.20%.
Despite the growth, unemployment rate rose from the 8.2 percent rate recorded in the second quarter of this year to 9.9percent in the third quarter. The report by NBS indicated that the country had over the past four quarters experienced increasing trend of unemployment, rising from about 6.5 per cent in the last quarter of 2014 to 7.5 percent in Q1 this year and 8.2 percent in the second quarter. This contradiction according to the NBS was due to the fact that working age population (persons within ages 15-64) increased from 102.8 million in early this year to 103.5million in middle of the year and then to 104.3milion in the quarter under review.
Furthermore, even as the economy recorded an increase in jobs creation from 333,812 jobs in the second quarter to 475,180 jobs in the third quarter of this year, this was inadequate to match the over 1.9 million new entrants into the labour market in the quarter under review. The agency disclosed that the labour force population, that is those within the working age population willing, able and actively looking for work, rose to 75.9 million from 74 million in Q2, representing an increase of 2.60 per cent. This implies from July to September, at least 1,929,800 economically active persons entered the labour market.
Increase in job creation was driven mainly by informal sector, which accounted for 90.2 percent (428,690) of total jobs. Employment generation in the formal sector recorded an 18.4 percent (9,398) declined due to the drop in the availability of better paying white collar formal jobs. The public sector also witnessed a slight decline as it was able to generate 4,818 jobs, representing only 1.01 percent of jobs in the quarter under review.
It was not so surprising that over 70 percent of the informal sector jobs created was related to rural agriculture due to the beginning of the farming season where rural and subsistence farmers become fully engaged on their farms. New planting season in Nigeria has historically recorded higher job numbers when compared to other quarters, as farmers employ more hands to assist on the farms.
