eading economic indicators highlight that by the end of 2015, Nigeria may be faced with an economic recession. This development has mostly been attributed to the lack of decision-makers driving the country, which has caused the economy to come close to a standstill. Nigeria recently surpassed South Africa to become Africa’s largest economy, and the 21st largest in the world, following the release of Knoema’s World GDP Ranking 0f 2015. In March 2015, Price Waterhouse Coopers forecasted the country to be among the top 10 in the world, on the condition that Nigeria diversified its economy.
The Financial Derivatives Company Chief Executive Officer, Mr. Bismarck Rewane, gave a presentation at the Lagos Business School on September 2 concerning question of recession in Nigeria. Rewane drew attention to how two consecutive quarters of negative growth equal a recession, in addition to a 3.8 percent year-on-year contraction for a consecutive second quarter (Q2) in Nigeria’s manufacturing sector. Significantly, the sector accounts for 10 percent of the country’s gross domestic profit.
Recent events such as currency devaluations, power cuts, Boko Haram’s insurgency, and the drop in oil prices have impacted Nigeria’s economy, causing a recession to loom over it. The Nigerian government owes 70 percent of its generated revenues to the sale of oil, and oil prices fell to a worrying amount of about $40 per barrel last month. The Central Bank of Nigeria is finding it difficult to support the economy due to issues arising from exceeding money borrowing and lending limits, and its struggle with macro stability.
The country’s current negative per capita growth also sheds more light on its economic situation. If the country faces a recession, international trade, foreign investments, aid, and reserves will feel the impact, and the economy will naturally bear the brunt. Exportation will be drastically reduced and investors will withdraw, among other negative outcomes.
On a ‘brighter’ note, all hope does not necessarily have to be lost in the event of a recession crisis. Following the economic ‘boom’ witnessed in 1973, Nigeria went through a period of ‘doom‘ from the mid-1980s until 1997. It recovered from that event between 1997 and 2007. Countries around the world have come out of recessions before. South Africa, who is Africa’s most advanced economy, was feared to be heading towards a recession last month due to a contracted GDP in the second quarter. Earlier this month, it was reported by Moody’s that despite SA’s struggling economy, it can avoid a recession this year.
On the other hand, the Nigerian government is yet to present the federal budget for 2016, amidst current delays in providing the necessary expenditure and fiscal policy data to the Senate. Failure to have the proper plans in place to tackle issues such as the crude prices drop and struggles in other sectors could contribute to placing the Nigerian economy in a debt crisis not unlike the affected Eurozone countries.
If after a federal budget has been presented for the year 2016, Nigeria is unable to balance out its domestic budgets, foreign policy could be key to redirecting the economy to growth.
