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SUNDAY VANGUARD, NOVEMBER 29, 2020, PAGE 9<br />
RECESSION:<br />
Quick implementation<br />
of fiscal policies<br />
needed for recovery<br />
—Prof.Uwaleke<br />
By Peter Egwuatu, Assistant Business Editor<br />
Professor Uche Uwaleke, a Financial Economist, is<br />
the President of Association of Capital Market<br />
Academics of Nigeria. In this interview, Uwaleke<br />
speaks on Nigeria’s plunge into recession and the<br />
likely paths to recovery<br />
Do you agree with the reasons<br />
given as being responsible for this<br />
recession?<br />
Unlike the recession of 2016 chiefly<br />
caused by the sudden crash in crude oil<br />
price resulting in a significant fall in<br />
government revenue to the extent that<br />
several state governments could not pay<br />
salaries thereby weakening aggregate<br />
demand, the current economic recession<br />
in Nigeria is the result of twin shocks<br />
coming first from the health crisis<br />
occasioned by COVID-19 and government<br />
attempts to contain it by imposing<br />
restrictions in movements and lockdowns.<br />
As you know, international flights were<br />
banned by most countries including all<br />
forms of public gatherings.<br />
Expectedly, there were disruptions in<br />
supply chains, production and exchange<br />
which hurt several sectors of the economy<br />
such as manufacturing, agriculture,<br />
transport, trade, construction, hospitality<br />
and education to name just a few. You<br />
recall that even schools were shut due to<br />
COVID-19.<br />
The second shock came from the<br />
collapse of crude oil price given the<br />
country’s dependence on the oil sector. I<br />
must equally mention that the OPEC+ cut<br />
agreement in response to the fall in crude<br />
oil price, led to a reduction in the country’s<br />
daily oil production.<br />
You recall that the 2020 budget was<br />
predicated on an oil output of about 1.8<br />
million barrels per day. The real GDP<br />
contraction of -3.62 per cent recorded in<br />
Q3 of 2020 was partly caused by the poor<br />
performance of the oil sector which<br />
witnessed a reduction in average daily oil<br />
production to 1.67 million barrels per day.<br />
So, in summary, this recession was caused<br />
by COVID’19 and collapse in crude oil<br />
price. I say this because before the<br />
pandemic, the economy was already on<br />
the path of growth recording about 2.27<br />
per cent in 2019.<br />
What is the implication of the<br />
recession for the ordinary Nigerians<br />
and the country as a whole?<br />
Recession as you know is simply the<br />
downturn in economic activities. Even<br />
before the release of the NBS report, it was<br />
obvious even to government that the<br />
economy, like many other economies of<br />
the world, was in a recession.<br />
The NBS report merely gave it an<br />
official status since the economy had gone<br />
through two consecutive quarters of<br />
negative growth in GDP. Unlike in many<br />
other countries also in a recession, that of<br />
Nigeria is made worse by the fact that the<br />
inflation rate is also on the rise. So, in the<br />
Nigerian context, it is actually stagflation.<br />
Against this backdrop, the implication is<br />
grave for the common man and for<br />
Nigerians in general who have been<br />
grappling with high cost of living, lower<br />
living standards, and for firms’ high cost<br />
of production and weak productive<br />
capacity. I wish to note that the<br />
disappointing performance of the<br />
agriculture sector in Q3 2020, at a mere<br />
1.39% growth, worse than the Q2 growth<br />
rate, gives cause for concern. The negative<br />
impact of food prices is capable of<br />
worsening poverty and the health crisis<br />
occasioned by poor nutrition.<br />
So, by and large, the twin<br />
impact of recession and<br />
rising inflation otherwise<br />
known as stagnation will<br />
only impoverish the<br />
common man.<br />
Inflation is on the<br />
rise, a foreign reserve is<br />
dropping and the<br />
manufacturing sector is<br />
shrinking. How can<br />
government encourage<br />
production and exports<br />
to earn foreign<br />
exchange to boost the<br />
economy?<br />
Inflation rate was on the<br />
rise even before the pandemic<br />
hit the economy primarily due to the<br />
continuous border closure, increase in<br />
Value Added Tax, VAT, and pump price of<br />
fuel as well as the scarcity of forex. As you<br />
know, inflationary pressure is coming<br />
more from food index due in part to<br />
insecurity in the food-producing areas of<br />
the country. As you rightly noted, the<br />
country is experiencing foreign reserves<br />
depletion. This is due largely to the point I<br />
mentioned earlier about the collapse in<br />
oil revenue as well as the exit of foreign<br />
investors and reduction in capital<br />
importation. Not<br />
surprising, therefore, the<br />
manufacturing sector, in<br />
particular, challenged by<br />
lack of forex to import raw<br />
materials,<br />
is<br />
underperforming. For<br />
several months now, except<br />
for this month, the<br />
Purchasing Managers<br />
Index, which is an<br />
indication<br />
of<br />
manufacturing activity, has<br />
been below the 50 point<br />
threshold.<br />
Therefore, to answer your<br />
question against this<br />
backdrop, government can<br />
encourage production and<br />
exports by investing in<br />
infrastructure, especially<br />
power, roads, rail and IT<br />
infrastructure in<br />
partnership with the private<br />
sector. The current plan by<br />
the government to have a<br />
N15 trillion Infrastructure<br />
Fund to be financed by the<br />
Central Bank of Nigeria,<br />
CBN, AFC, Sovereign<br />
Wealth Fund, SWF, and other private sector<br />
players, is a step in the right direction. It is<br />
also important that the insecurity which<br />
hampers production, especially in the<br />
agriculture sector should be tackled.<br />
Doing so will help diversify the revenue<br />
sources and attract foreign investments<br />
which will ultimately shore up foreign<br />
reserves.<br />
Was this recession avoidable?<br />
Regarding what the government could<br />
have done to avert the economic recession,<br />
it is my opinion that given the structure of<br />
I would like to<br />
see speed<br />
and a sense<br />
of urgency,<br />
especially<br />
concerning<br />
the<br />
implementation<br />
of fiscal<br />
policies<br />
•Uwaleke<br />
the Nigerian economy, which you well<br />
know is a legacy issue, the present<br />
economic recession was inevitable.<br />
No one doubts the fact the pandemic and<br />
the sudden collapse of oil prices were<br />
unexpected. In particular, the pandemic<br />
caught many countries including Nigeria<br />
unawares. Expectedly, these countries,<br />
both developed and developing, have<br />
recorded bigger contraction in real GDP<br />
growth.<br />
I think government through the Central<br />
Bank responded swiftly<br />
with various stimulus<br />
packages and<br />
interventions which have<br />
gone a long way in<br />
reducing the size of the<br />
recession below<br />
projections by<br />
international agencies<br />
including the<br />
International Monetary<br />
Fund,IMF.<br />
I must mention that a<br />
number of economic<br />
policies being<br />
implemented now, such<br />
as the increase in VAT<br />
could have been deferred<br />
till 2021 due to its impact<br />
on aggregate<br />
consumption and<br />
inflation.<br />
Recall that I said earlier<br />
that the real challenge the<br />
economy faces now is<br />
stagflation. There is also<br />
the issue of insecurity<br />
bedevilling the country,<br />
which I think could have<br />
been better dealt with. On<br />
the part of monetary policy, I think the<br />
right steps were taken.<br />
Can our monetary and fiscal<br />
policies yield positive GDP?<br />
I think, overall, fiscal and monetary<br />
policies are in the right direction. In<br />
response to the pandemic, government has<br />
scaled up the social investment<br />
programmes. It has also provided cash<br />
support to some households that were<br />
seriously affected by COVID-19.<br />
In addition, government came up with<br />
an Economic Sustainability Plan, outlying<br />
bold measures aimed at helping economic<br />
recovery including mass agriculture,<br />
housing and investment in infrastructure,<br />
especially solar energy.<br />
The major challenge now is its<br />
implementation to ensure a quick return<br />
of the economy to the growth path.<br />
On its part, the CBN has been deploying<br />
its development finance function, beyond<br />
the use of the traditional monetary policy<br />
tools, to support economic recovery.<br />
I think the policies are in the right<br />
direction. I would like to see speed and a<br />
sense of urgency, especially concerning the<br />
implementation of fiscal policies.<br />
Do you agree with federal government<br />
that Nigeria will get out of recession in<br />
the first quarter 2021?<br />
I am quite optimistic the Nigerian<br />
economy will weather the storm and pull<br />
out of recession by the first quarter of next<br />
2021.<br />
My optimism is predicated on the fact<br />
that unlike in Europe and America, the<br />
country may not have to grapple with a<br />
second wave of COVID’19 on a scale<br />
similar to what was experienced in Q2<br />
2020.<br />
Consequently, I don’t foresee another<br />
round of nationwide lockdowns and<br />
movement restrictions.<br />
Secondly, the economy is fast opening<br />
up and business confidence is gradually<br />
returning. I am sure you are aware of<br />
relative improvements in the Purchasing<br />
Managers Index which has now crossed<br />
the 50 point threshold. You must equally<br />
be aware of the current boom in the stock<br />
market, especially in recent times. Indeed,<br />
the entire financial sector has been<br />
resilient with positive performance as<br />
indicated in the NBS Q3 2020 report.<br />
Again, the early submission of the 2021<br />
budget proposal and the expectation that<br />
its implementation will commence in<br />
January hold a lot of promise for<br />
economic recovery.<br />
As I mentioned earlier, the impact of the<br />
raft of COVID-19 interventions by<br />
government should begin to manifest from<br />
the first quarter of 2021. Also, the<br />
implementation of the government<br />
Economic Sustainability Plan will go a<br />
long way in assisting economic recovery.<br />
It is equally important to mention that a<br />
critical assumption in all these is that the<br />
economy will not experience any major<br />
shock either coming from the external<br />
sector such as another crude oil price<br />
shock or another crisis in the magnitude<br />
of the one witnessed during the #End<br />
SARS nationwide protests.<br />
Is government getting it right in<br />
the area of diversification since the<br />
petroleum sector still accounts for<br />
the huge revenue earned?<br />
With respect to diversification of the<br />
export base and creating multiple sources<br />
of revenue for the country, this<br />
government, like many others before it,<br />
has articulated the roadmap in the<br />
Economic Recovery and Growth Plan.<br />
The key challenge has been the<br />
implementation of the lofty ideas<br />
contained in that plan especially in the<br />
area of diversification especially through<br />
Agriculture, Solid minerals and Tourism.<br />
This is not unconnected with bottlenecks<br />
in revenue generation for the purpose of<br />
executing developmental projects.<br />
In what ways do you think<br />
government can do better to take<br />
the country out of recession?<br />
Government projects the economy to<br />
recover next year with a real GDP growth<br />
rate projected at three percent. While I<br />
have no doubt a positive GDP growth rate<br />
will be recorded in 2021, I think a growth<br />
rate of three percent, though desirable,<br />
appears a little ambitious given the<br />
present state of the economy.<br />
To quicken economic recovery, the<br />
implementation of the 2021 budget,<br />
especially the capital component must<br />
start quite early next year. A lot more<br />
attention should be paid to the<br />
agriculture sector, which contributed<br />
about 30 percent of GDP in Q3 2020 but<br />
recorded a very weak performance. The<br />
CBN can also scale up its interventions in<br />
the agriculture value chain as doing so<br />
will not only bring down food prices but<br />
will also support economic recovery.<br />
Above all, government should move fast<br />
to tackle insecurity in the country, which<br />
is detrimental to the production and<br />
exchange of goods and services.