Economic Recession in Nigeria: Causes and Solution

recession in Nigeria

The causes and solution of economic recession in Nigeria has become the major topic of discussion on the lips of major actors in Nigeria and beyond. Recall, Bloomberg republished its report suggesting that South Africa took over from Nigeria as Africa Largest economy.

The International Monetary Fund (IMF), as well as the Central Bank of Nigeria (CBN), have all agreed that Nigeria economy has plunged into recession. They assert that Nigeria’s economy may not regain stability until early 2017 with low growth rate of 1.5%.

In this article, I will be highlighting few causes of Nigeria recession, a lesson to be learned from it, and the possible way out. Let start by quickly understanding what recession is about.

WHAT IS ECONOMIC RECESSION? The National Bureau of Economic Research (NBER) defined a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in a real gross domestic product (GDP), real income, employment, industrial production and wholesale-retail sales.”

Economics recession can also be define as a negative real GDP growth rate for two consecutive quarters (say first and second quarters). Judging by the above definition Nigeria is experiencing economic recession currently, since her first and second quarters growth in 2016 are -0.36% and -1.5%. Although, the second definition a times might be mis-leading because recession can quietly begin before the quarterly Gross Domestic Product reports are out.

Furthermore, Nigeria second quarter for 2017 is 0.55% growth rate. The country cannot say it have conquered recession because of the positive value. Unemployment is still high, inflation still above 15%, debt profile between 2015-2017 has increased by 67%, exchange rate still deteriorating,,,,, non of the economic indices of recession has been conquered except a positive margin growth, no policy change perse,,,,,,. 

HOW DID NIGERIA GET HERSELF INTO RECESSION?

I will try to be objective in this discussion as much as I can. Before I explain how Nigeria got herself into recession, let me explain the general causes of economic recession in any given economy.

Causes of Economic recession

The major cause of economic recession in any economy (lesson from great depression, 1981, 1991, 2004, 2008-2009 global economic recession) may include:

  • High inflation, a general rise in price of goods and services – leading to low purchasing power.
  • Accumulation of debt servicing especially foreign debts.
  • High-interest rate – discouraging investor
  • Fall in aggregate demand, fall in wages, income.
  • Mass unemployment, and general loss of confidence on the government due to economic indices.

 Nigeria Economic indicators

Causes of economic recession in Nigeria

  1. Poor economic Planning:

    Poor economic planning and no concrete implementation of her economic planning is the major cause of Nigeria current recession – budget delay, exchange rate policy. Yes the government has proclaimed the usual generalities that every government indulges itself in about

  • Diversifying the economy,
  • Improving manufacturing/mining sector,
  • Raising agricultural output,
  • Encouraging foreign investment, among others, yet no concrete evidenced strategic plan for growth.

No doubt, the government has taken some steps like the elimination of dollar purchase privileges for importers of 40 items such as – rice, cement, toothpicks, private planes, poultry, meats, margarine, wheelbarrows, textiles, and soaps.

The government has, on the other hand, caused serious poverty in the land by herself. Let me explain, the government through her policy widen the gap between the rich and poor – creating more economic hardship.

For instance, when the CBN was selling dollars at N315 and people were buying at N480, the highly placed individuals in the country were putting call across the banking industry to get dollar at the official rate. This they later resell at the parallel market rate of N480.

Think of how much some of them were making. An individual can make as much as N1billion naira without doing anything according to the former CBN governor (Lamido Sanusi).

The people that were profiting from this were people that were telling the government that if it didn’t devalue the Naira people would suffer. The poor paid the price of a devalued currency and the rich schemed off the profits. Remember, Nigeria currency was devalued when crude oil price in the international market was very low and crude oil export was largely affected by the activities of Niger-Delta militants as such the policy was useless since Nigeria is a mono-product economy.

For example, should you take dollars, for every $1 billion taken from the Federation Account and sold by the CBN at N200 to the dollar, the states were losing N100 billion that could have gone into salaries, agriculture, healthcare.

Yet, the states were going to borrow from the same government on a bailout when the government was selling dollars cheaply to a small group of people. This incidence is still ongoing and the government is doing nothing about it.

  1. High Inflation rate: Government banning the importation of certain essential agricultural products like Rice without considering gestation period is error.  Removal of fuel subsidy shouldn’t be simultaneous with the banning of these agricultural products. Major Causes of inflation; Speculation in stock market due to budget delay, rise in domestic oil price due to subsidy removal, fall in the global crude oil price deteriorating Nigeria exchange rate, almost the household price skyrocket as seen in the image below.

Inflation

Nigeria inflation rate currently stands at 18.63% that is extremely high the highest for past last decades.

  1. High-Interest Rate: Interest rate is between 26.77-27%. Is extremely high for investors. This high interest rate is discouraging investors. The poor investment culminate into high rate of unemployment in the country, reduction in aggregate demand especially from the households.
  2. High Taxation: It is only in Nigeria that I see government charging high tax rate during economic recession. Small businesses are slaughtered with high interest rate. Both high interest and tax rate has lowered Nigeria aggregate demand.
  3. Policy conflict: The economic policies appears conflicting. How? High-interest rate, high tax rate are tight monetary policy measures. But government told the public it is adopting expansionary policy – budget deficit.

Below is President Buhari economic policy evaluation

It should be noted that the fall in oil price and production is not the major cause of Nigeria economic recession. Yes! Oil only account for 15% of Nigeria GDP. And an economic recession is measured on the basis of GDP growth and some other economic performance indicators, though is part of the cause. For the want of details, I won’t go further on that analysis.

Possible Economic Policy Measure to End Economic Recession in Nigeria

Given the high level of economic pain, policymakers need to pursue stimulus policies that work. Keynesians school has suggested measure of ending economic recession. The major measure which is to reduce tax rate and increase aggregate demand. Let elaborate on this.

1. Reduction in tax rate: Government should reduce tax rates on individuals, small businesses, and corporations by lowering the tax rate by at least 10 percentage points.

 

The government instead of reducing tax rate to increase purchasing power, rather increased the tax rate killing so many small scale business who cannot meet up with the cost of doing business. Foreign investor will be encouraged with reduction in tax rate. This will increase inflow of dollar to Nigeria economy, and ultimately increase investment cum standard of living. And this will solve the problem of high exchange rate.

2. Effective Spending:

Mere increase in government spending will not solve the problem of recession. Yeah! It is strategic spending in area with high multiplier effect such as agriculture and manufacturing sector that increase aggregate demand.

Nigeria need to expand her export earnings and production base through wise investment.  Otherwise might likely end up in a classical Malthusian situation, where the resources cannot support the population.

Injecting more funds into the economy is not bad, but there is need for diversification, allowing free flow of Naira and stabilizing the oil sector,   modernizing agricultural sector. Yes, Nigeria can spend her way out of recession wisely.

3. Enhance access to credit. 

For instance, total consumer credit in Nigeria stands at less than $10 billion dollars in about $500 billion economy, this corresponds to about 2% of her GDP.  Look at some developed economies, consumer credit ranges from about 20% (USA) to 50% of GDP (Brazil).

South Africa, Africa’s largest economy by PPP has a consumer spending to GDP ratio of 66%. Nigeria should aim for a consumer credit to GDP ratio of about 10% over the next 5 years. This would be the equivalent of injecting a stimulus of $50 billion per year into the economy.

Consumer access to credit will speed up the economy. The CBN recently raised the real interest rate of Nigeria. Am of the view that this policy should be evaluated. The max interest rate at 26.93% is too high. The economic policy indices should be re-evaluated.

4. Nigeria government should increase her expenditure on skills:

This is one point that most Africa countries had always neglected. It is only skills that lead to production. People are looking for problem solver.

So the government should invest in skills acquisition in IT, telecommunication, agro-allied, sports among others. The training should be 80% practical. There is needs for multiple competences, particularly among youths as a measure to curb increasing global joblessness.

The greatest challenge today in Nigeria is unemployment. The government should partner with private organisation to organise entrepreneurship and skill acquisition programme for the youth. Read my popular post on Causes and solution to Nigeria unemployment.

There should be high level of transparency in the programme to ensure the best candidates are picked. This way Nigeria will soon see herself on top of the fastest growing economy in Africa. You may want read my post On Africa fastest growing economies 2016.

5. Increase agricultural produce and export 

In the 1960’s, agriculture is the main base of Nigeria, in terms of GDP, foreign exchange earnings, and employment. Today, Nigeria spends about $10 billion a year on the importation of agricultural products.

Nigeria government led by Buhari should stop talking and start working. Enough of talk, people want to see actions. The youth like I earlier stated should be encouraged to go into farming. They should be trained free on various agricultural sector.

Yes the government major policy is on agriculture development but a better mechanism should be put in place to grow the sector, the government should empower the youth to go into the sector, government should bumper harvest store to store agriculture product excess. Government should also go into farming on the many lands lying fallow.

Agriculture should be all year round, irrigation programme pursued in all the states in Nigeria.

You want to read the Impact of agriculture on Nigeria economic growth

6. Increase manufacturing produce and export

Sanusi Lamido (2016) during the economic submit on “The Search For A New Growth Model,” noted that Nigeria should learn from country like Ethiopia and then Meles Zenawi, the late Prime Minister.

Ethiopia keeps growing year after year at 11-12 percent. And what did Meles do?

Like Nigeria Ethiopia is facing insecurities; yet took advantage of her resourses. For instance, coffee originated from Ethiopia in the world. But, Ethiopian farmers, before Meles, would get 10 percent of the value of coffee from their crops“.

The Etiopia would just produce the coffee and sell to companies, and the companies will take their coffee into Latin America and have it improved and dried and packaged. And Zenawi just asked: “Why can’t we produce coffee in Ethiopia that would go straight from Ethiopia to the coffee shops in Europe?”

And all sorts of responses came. “Well, you know your weather is good for growing coffee. Your coffee is very good, but your farmers have bad farming practices.”

So he said: “Why don’t you teach them?” So, he got in touch with the IFC (International Finance Corporation), got a loan, organised Ethiopian coffee farmers into cooperatives, taught them how to grow the coffee, how to dry, prepare and package it.

Today, if you go to coffee shops in Europe and take a cup of coffee that came straight from Ethiopian farm. And Ethiopian farmers are now getting 70 percent of the value of the coffee, from the former 10 percent.

So, he tells Aliko Dangote, come and build a cement manufacturing plant here. I am going to give you electricity at three cent per kilowatt hour. For a cement manufacturer, that is all the incentive that you need.

So, Dangote goes, builds the most sophisticated cement plant in Ethiopia, gets electricity almost for nothing and cost of cement drops by 60 percent. Wow!

The construction industries gets boosted. Roads are being built with cement. Jobs are created. And new industry has taken off.

He said to the Chinese, “I don’t like this your idea of coming to buy hides and skin and leather from Ethiopia and sell us shoes. Why not set up the factory here.”

Is Nigeria the only country experiencing economic recession? No! As seen in the image above, but Nigeria is not doing much to resolve its own. government should:

  • Invest in the energy sector to reduce power outage,
  • Engage the Niger-Delta militants in a dialogue,
  • Reduce the tax rate or regulate same to avoid double taxation,
  • Borrowing from both domestic and foreign should be invested more on infrastructure, funds should be sourced more from the domestic economy than the foreign investor to avoid the incidence of capital flight,
  • The government should work with the legislative body to endure speed execution of her project,
  • Commodity price and raw material price should be regulated through consumer protection agency to avoid further inflation,
  • The government should learn from Ethiopia and other developed countries.
  • The government should grow Nigeria economy and should kindly allow the naira to be. Let the forces of market control the value of the naira.

You can reference the article using this format: Noko, J. E (2016) Economic Recession in Nigeria: Causes and solution. Retrieved online from http://educacinfo.com/economic-recession-nigeria/

Call us today to make special request for any research term paper, projects, journal work and proposals. 07069321463

educacinfo

You can also read Strategies of reducing the effect of economic recession on Low income earners in Nigeria.

Please, don’t forget to share this article to others, and remember to drop your view on the solution to Nigeria economic recession.

Facebook Comments
(Visited 204,695 times, 275 visits today)

46 thoughts on “Economic Recession in Nigeria: Causes and Solution”

  1. Seriously, Nigeria government is not sincere in his economics policy. They are making policies that will benefit them only. They careless about the wellbeing of an average Nigerian. What stop the government from partnering with some private firm to establish industries producing local goods? This for sure will improve employment opportunities.

  2. What a shamble economy. Blind people leading people with sight, what do you expect when you made an illiterate with no knowledge of how the economy works the president of a country. I hate commenting like this but am angry with what am seeing in Nigeria.

  3. The problem of our country is well stated but the “word cabbage in, cabbage put”. The government needs competent, selfless economists who can move this country to where it is meant to be. Nigeria have many talents, skills and resources to explore but all need certificate which majority isn’t on merit just for white colar jobs

  4. it is a palatable palasia situation that Nigeria has gotten herself into like this. Even IMF said they can,t borrow Nigeria money because Nigeria really need to come up with a better Macroeconomics frame work. God should should help this country it is really sinking into the drain. Papa Buhari please handover if you can’t cope please.

  5. But come to think of it are there no economist in Nigeria who are knowledgeable enough to work with Mr President? The situation is becoming more unbearable to an average Nigerian. This government should wake up and provide working group solution to the issues in this country.

  6. The economic situation of Nigeria is really a pathetic one. The government should wake to its responsibility, get profound economists involve in policy analysis. The government should make agriculture attractive to the teaming youths, interest rate should be reduced to encourage borrowing for real investment. A measure should be taken to engage the population in the real sector; manufacturing, mining, construction, engineering,…. Like the author said, skill should be encouraged and many more.

  7. The economy of Nigeria indeed is really in shamble. What I don’t understand is why the government can engage the help of top Nigerian economist in the country with proven record in decision making. The government should look more on modernizing agriculture to be attractive to the teeming populations. The interest rate currently at 26% should be lowered to encourage investment in the country. Skills acquisition should be encouraged even in the school and other areas of the economy.

  8. This issue of recession is really getting out of hand God should help this country. Indeed a wonderful analysis.

  9. Thanks for this wonderful post, I wish the government read this kind of post. The government should learn from the economic recession of US in 1981, 1991, and general stock market crash of 2008. The lesson: increase spending in real sector, manufacturing sector, agricultural sector, reduce the interest rate, build the confidence of the populace on the state of the economy.

    The confidence of the masses and investor has to be restored on the economy otherwise people will keep on being scared to invest on the economy. If there is no investment, sure the economy will surely collapse. Empower the youth with skills, encourage the investor through reduction of interest rate and tax rate.

  10. To be sincere, Nigeria government used their hand to purchase recession. This current economic recession would have been averted had the government been sincere in his policies. The government instead of working for the general goods of the masses was busy trying to make name for himself by painting the past government black and white.

    What happen to agriculture, like the author suggest innovating the agriculture to appeal to the youths, what happen to sincere youth empowerment programme that will be properly evaluated and monitored. What about reducing the incidence of high tax and high interest rate. It is really bad that Nigerians are sufferings like this even in the face of many abundant resources endowed on her by nature.

  11. The word economic receseion ie now a household name in Nigeria. Everyone is now suggesting measures but to think of it, is it that govt is not getting good advice? NO I DON’T THINK SO. the problem is that of implementation.

    Agriculture should be revisted youth empowerment and reduction of tax especially small firms. The problem is that politician are always liers.

  12. What an article. I sincerely find your article so useful for my project topic: Impact of Economic recession on business strategy planning in Nigeria. Thank you.

  13. I love your articles sir! You really hit the point at the key issues, I think I will need your assistance in my research work. Sir why not help us with information on the current state of Nigeria renewable energy, its problems and prospects. Thanks a lot for the good work.

  14. A wonderful and thought provoking article. Investing in agriculture -training the farmers in agriculture mechanism by way of giving them loans, tools will boost agriculture. Also the government should make provisions for storage otherwise wastage might discouraged farmers.

  15. You are really a genius, and i hope you will be remembered some day to hold a fantastic position in Nigeria, because you are one out of the outstanding personalities that we take the nation to its promised land.
    Please i would appreciate it Emmanuel, if you can send your write up(Publications), including the Nigeria economic recession, for my academic purpose. Meanwhile, you will always be acknowledged, where ever your publications are.
    please this is the email address:ijeabor2000@gmail.com.
    Thanks for your understanding.

  16. What an amazing write up, it is very interesting to note that Nigeria problem is not that we don’t have the resources : human and natural resources but we have selfish leaders who only seek for their benefits and that of their allies. It is well. Once again thank you sir for this wonderful advice.

  17. This author just said it all. What else can than to add that over dependence on oil revenue is also the problem of Nigeria economy.

  18. @ John Esonu, I hope you have seen the full article sent to your email and some other great post from this blog? Be free to come around again and make request. Sorry for the inconveniences, best regards!

  19. i like you article,its apt.kKndly send it to my email and hint me on how i can protect my work to.Thank you

  20. Insightful! “Poverty is not the lack of money but lack of Wisdom/insight”.
    I just wonder the kind of leads that we have. Better to plan for ourselves than waiting for those who do not have a structured plan for themselves.

  21. Well, our country Nigeria is in God’s hands….and ah want to use this opportunity to tell u that Jesus Christ is knocking at ur heart to enter….so surrender your life to Christ before its too late.

  22. your articles is very rich, Nigeria needs strong economic policies to pull of the recession.

  23. Enter your comment here…What a great expository insight! we need nothing but an information such as this in such a time like this. more power to your elbow. kindly send the comprehensive copy of this write up and others beneficial and relevant research papers on Nigerian economy to my e-mail: olukayodeakinmoladun06@gmail.com. I shall be looking forward to receiving your reply. Thanks.

  24. “Critically examine the causes and impact of Economic recession in modern day Nigeria” I was told to write a 10paper/Assignment on that issues, please I don’t know if you can help me out with it? my email address is hillarymchenry25@gmail.com

  25. Well my own opinion, is that ont that we don’t ve credible persons to implemente this genuine n workable economy policy, d main challenge is most of our leaders do not ve the political will.again most of them re benefiting frm this quagmire d country is facing.

  26. Agriculture is indeed the best way out of this recession. But the issue is that our government don’t encourage agriculture. As long as they don’t, we are going nowhere

  27. We need to expand our credits as a country now and spend more on capital goods and encourage technical knowledge at all level. Finally cut down expenses on consumption.

Add your comment here