Nigeria now in recession, economy down 2.06%

• Inflation at eleven-year high of 17.1%

Nigeria has slipped into recession, with the latest growth figures showing the economy contracted by 2.06 per cent in the second quarter between April and June.

Going by the data released today by the Nigerian Bureau of Statistics (NBS), the country has now seen two consecutive quarters of declining growth, the usual definition of recession.

The statistics office also said annual inflation rose to 17.1 percent in July from 16.5 percent in June, and food inflation rose to 15.8 percent from 15.3.

The major problem of the economy was crude oil sales which account for 70 per cent of government income and has been declining steadily. The price has fallen from highs of about $112 a barrel in 2014 to below $50 at the moment.

In addition to the problem in the oil industry, there is a substantial declining in the nation’s currency and this has also hurt the economy. It was only allowed to float freely in June to help kick-start the economy, but critics argued it should have been done earlier.

Nigeria, which vies with South Africa for the mantle of Africa’s biggest economy, is also battling an inflation rate at an 11-year high of 17.1 per cent in July.

The NBS said the non-oil sector declined due to a weaker currency while lower oil prices dragged the oil sector down. Output shrank by 0.36 in the first quarter.

The nation was last in a recession, for less than a year, in 1991, and experienced a prolonged one that started in 1982 and last until 1984, NBS data showed.

Some analysts believe that government policies made a bad situation even worse. The decision to delay devaluing Nigeria’s currency meant many businesses struggled to get foreign currency to pay for imports, which had serious negative impacts on the entire economy.

In an exclusive interview with Business247 News Online, the Director General of Lagos Chamber of Commerce and Industry (LCCI), Mr.  Muda Yusuf, among other things, said that many industries before now were servicing their systems from offshore credit lines they got. “As a producer for instance, your customers can give you raw materials and ask you to pay in 90 days so that you don’t have to look for dollars immediately. You import the raw materials and produced and sold the goods and when it was time to send the money back to your benefactors, CBN said there was no foreign exchange. That led to the closure of many of those lines. That facility is no longer there and everybody now has to depend on CBN and CBN surely cannot cope.

“Again, because the exchange rate at that time, inflows from other sources are not coming because if you know as foreign investors  or  Diaspora Nigerians that the parallel market exchange rate is about N300 and government is saying  that official rate is N200 or N197 that is if you are bringing any money officially to this economy you have to exchange it at N197, nobody will  look at government side when you know it is about N300 outside and that shut out many people who  would have come in to augment CBN’s funds either from Diaspora remittance, export proceeds or capital importation to invest  because if you are bringing money to invest in this economy you have to convert it officially at official rate but there is a big gap between government rate and market rate.

“So, all those inflows also dried up and that is what led us to the crisis. At that time Buhari was saying that no, no, they should not devalue the currency that in 1986 it was devalued what was the outcome, we became poorer and all that. They call all sorts of people like Oshiomole to be supporting the position of course; the Lagos Chamber was consistent that you can’t give what you don’t have. You don’t have foreign exchange and if there is a shortage the best way to handle is not to allocate administratively because there will be corruption, there would be favouritism there would not be level playing field that is why we said let the market do the allocation which flexible exchange rate is all about. They resisted that view until we got to the tipping point before they now said okay let us do it and all of that.

 “The thing is this. It is confidence issue. For somebody to bring money to your system, first and foremost, there must be confidence. Now CBN is still trying to clear the arrears because they did forward payment, they spread it over a period and many of these arrears are offshore payment and as an adage says ‘once beaten, twice shy’. All those people that had that experience once they get their money, they will think twice before coming back especially when you have other off shores where you can take your money to”.

He, however, said that all hope is not lost, but that it would take some time before the confidence can be restored in our economy.