It is no secret that Nigeria has faced experienced some economic hardship, especially in recent times. In the Q3 of 2016, it was officially confirmed by the National Bureau of Statistics, that Nigeria was in a recession, with annual inflation of 17.1% in July, food inflation of 15.8%, and an economic contraction of 2.06%. This was confirmed as, “Nigeria’s worst economic recession in over a decade”. By now, it is equally no secret how we got to this point. Our over-dependence on Crude Oil sales – amounting to 70% of government’s revenue – put us in a precarious situation when the price fell from $112/barrel, to well below $50/barrel. This of course had a ripple effect, leading to the crash in the value of the Nigerian Naira, stalled productivity across most sectors, and the general hardship endured by all.
However, as the saying goes, “There is always light at the end of the tunnel”. Reports have it that Nigeria is beginning to see shimmering glimpses of light regarding her economic status, and we are well on our way out of this economic fix. In a Town Hall meeting held in Abuja in May 2017, the Minister of Finance, Mrs Kemi Adeosun reportedly said, ‘’Nigeria is coming out of recession; we are beginning to see the signs and we will come out to become stronger”. She was also reported to have said the Federal government is working to block wastages, increase Gross Domestic Product (GDP) and embark on single window project execution.
However, it would appear we are not completely out of the woods just yet. World Economics – a London-based organisation dedicated to producing financial analysis – recently declared that while Nigeria’s economy is out of recession, businesses may still struggle for a while. According to their analysis, the April 2017 Sales Managers’ Index (SMI) data suggests that the Nigerian economy is continuing to grow out of the recession, considering that for the first time in 10 months of contraction, the Market Growth Index grew to 58.5 in April 2017 as the monthly Sales Growth Index ticked up to 56.7. While this is representative of rapid growth, the bi-annual analysis of the state of African economies conducted by the World Bank, showed that recovery has been slow due to insufficient adjustment to low commodity prices and policy uncertainty.
It is, therefore pertinent that we create the right environment to increase productivity, prove better jobs and being to win the war against poverty in Nigeria, as advised by The World Bank Chief Economist for the Africa Region, Albert G. Zeufack. Certainly, we need to experience more inclusive growth by utilising proven methods of bolstering an economy out of recession, as obtains in the Keynesian model. In adopting this model, our focus should, therefore, be on reducing tax rate and increase aggregate demand.
Contrary to steps the government may want to take to increase its own revenue, tackling recession will require a lowering of tax rates on individuals, small businesses and corporations by at least 10%. One may be tempted to ask why; but the reason is simple: increasing tax rate reduces purchasing power, thereby killing the market – in terms of cost and revenue – for small-scale businesses before they can even get off the ground. Foreign investor will be encouraged with reduction in tax rate. However, creating an environment for businesses to thrive is more likely to increase inflow of Dollars to Nigeria economy, and ultimately increase investment cum standard of living, which is just one of the attendant benefits.
“But how does the government then increase its own productivity?” you might ask. A noteworthy answer would be effective spending. Mere increase in government spending will clearly not solve the problem. However, strategic spending in areas with high multiplier effect such as agriculture and manufacturing that increase aggregate demand will help us expand export earnings and production base through wise investment. This will, therefore, ensure that we have ample resources to support the society, there is free flow of currency, and that we have stable and modernised sectors and offerings that can compete in international markets.
Other measures that should be put in place include enhanced access to credit, diversification of the economy – through investments into capacity building, import substitution, and export stimulation. Of course, it will not take one miraculous solution to speed up the recovery, or build a Nigeria that will come out stronger on the other side of these trials. Rather, a mix of solutions that will simultaneously manage resources efficiently while boosting productivity will be the key to survival now, and eventual steady growth and development. If we will be part of the economies that will contribute to the projected rise in aggregate growth of the African continent to 3.2% in 2018, and 3.5% in 2019, we must pursue definite changes in the foundational policies and actions in our economy now.