By; Moshood Odunayo Olajide – ILE IFE, Osun State
ECONOMIC RECESSION; WHAT IS THE WAY OUT OF THIS MESS?
According to the National Bureau of Statistics, the economic numbers for the month of June, 2016 showed that domestic output in the first quarter of 2016 contracted by -0.36 per cent, the first negative growth in many years. This represents a drop of 2.47 percentage points in output from the 2.11 per cent reported in the last quarter of 2015,and 4.32 percentage point lower than the 3.96 per cent recorded in the corresponding period of 2015.Only agriculture and trade grew by 0.68 per cent and 0.40 per cent respectively, while industry, construction, and services recorded negative growth of -0.93, -0.26 and -0.08 respectively. With this insalubrious statistics, economic recession has become inevitable.
Everyday has been bringing a barrage of woeful economic reports. One major cause of this is the crash in the stock exchange market, plunging commodity prices while the sharp drop in oil revenues has drastically reduced government revenues, weakened the national currency, and forced the economy in to tumbling over. Oil prices have been in a free – fall since mid – 2014, when crude oil traded at about $110 a barrel. It dropped under $30 early in the year, but later nudged to $50.
A cocktail of mismanagement of financial resources, incompetence and institutional failures drove the economy in to this sorry mess. Early this year, the economy suffered from severe shocks related to energy shortages, and price hikes, scarcity of foreign exchange, and depressed consumer demands. Consequently, economic agents could not undertake new investments or procure needed raw materials. Shortage of foreign exchange arising from low crude oil prices manifested in low replacement levels for raw materials as well as other inputs and new investments. In addition, the energy crisis experienced in the first four months of the year, resulted in increased power outages and higher electricity tariffs as well as fuel shortages; which led to factory closure in some cases.
But the fact remains that the cobwebs of problem facing the country is far deeper than all these. According to media reports, an upsurge in militant attacks since early February has sent production of crude oil, which accounts for 70 per cent of government revenue, plummeting in to an almost 35 year low.
Corruption and depletion of fiscal buffers also left the economy bare – footed. Legislative fisticuffs and power tussle in the National Assembly as well as President Muhammadu Buhari’s refusal to weaken an overvalued currency until recently, have caused foreign investors to flee and look for elsewhere in the African continent to invest their hard earned cash. Also, Foreign Direct Investment (FDI) fell to the lowest last year since the 2007 – 2008 global financial crisis.
Certainly, Nigeria is taking a cue from other countries crushed by corruption, leadership failure and falling oil prices like Russia that contracted by a hefty 3.7 per cent last year, and Venezuela which is predicted to contract by 10 per cent this year. The present economic crisis can be attributed to the mismanagement of the gargantuan accidental windfall of oil revenue accruable to the country since the dark days of the military junta and since the return to democratic dispensation in 1999.
The renewed insurgency in the Niger Delta is also something to worry about as it may drag the country even further than the road recession. More so, the Niger Delta Avengers, the criminal and monstrous group claiming responsibility for most of the attack in the Niger Delta region appears determined to ground the mono cultural oil dependent economy of the country.
Nigeria under the current administration of President Muhammadu Buhari is certainly in for a make or mar battle. The slow but steady recovery of crude oil prices is lost to the drastic cut in daily production, while a steeper drop in oil prices will worsen the economic crisis. A price war between Saudi Arabia and Iran appears to be getting fiercer as the Saudi oil giant, Aramco, is about to further reduce its price to its European customers. This itself is enough to make the Nigerian economy hit the brick wall.
The first critical step to take in getting Nigerians out of the current mess will require deep – seated institutional frameworks, complex structural reforms in both the economy and the political system, something the federal government should muster the political will to demonstrate to the Nigerian people. Corruption should also be fought with more vigour by placing the Financial Intelligence Unit (FIU) of anti – graft agencies on red alert while the forensic team of the Economic and Financial Crimes Commission (EFCC) should also be strengthened and training of independent prosecutors to handle corruption cases should be given serious attention.
Finally, the possibility of a deep and persistent recession in terms of worsening unemployment, falling incomes, and reduced economic activity is real. Without major changes, the economy will not recover anytime soon. Part of the solution will be how to make the economy less dependent on natural resources. Tackling the raging Niger Delta violence will require innovative and technological strategy, including security intelligence through spy networks and dialogue. Economic reforms that will roll back the state from direct participation in business should also be pursued without further delay.
Moshood Odunayo Olajide Is Currently A Student Of Sociology and Anthropology At The Obafemi Awolowo University, A Social And Political Activist, He Is The Convener Of OAU Wikileaks.