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Recession: Nigeria's Economic Crisis Requires a Political Solution

Nigeria Economy	3925 VIEWS
Nigeria Economy
3925 VIEWS

Monday November 23, 2020 / 10:03 AM / by Kingsley Moghalu / Header Image Credit: Fortune/Ecographics

It is no surprise that Nigeria has entered its second severe economic recession in five years since 2015. According to Dr. Yemi Kale, Chief Executive and Statistician-General of Nigeria's National Bureau of Statistics, Q3 2020 Real GDP contracted for a second consecutive quarter by -3.62 per cent. Cumulative GDP for the first nine months of 2020 stood at -2.48 per cent. This decline was led by the oil sector, which contracted by 13.89 per cent in Q3, while the non-oil sector contracted by 2.51 per cent in the same period.

Leading inclusive growth for economic transformation in Nigeria now requires far-reaching actions in the political realm. No amount of "defensive" approaches to economic management, akin to the labors of the mythical Sisyphus, can adequately reverse Nigeria's worsening economic crisis and put the country on a path to real development if the underlying issues that have created our weak economic framework are not addressed.

Chief among these structural factors is the urgent need for a constitutional restructuring of Nigeria to true federalism. Nigeria's economy cannot make real progress as long as it is organized on the basis of the 1999 Constitution. The existing constitution contains no incentives to economic production that creates wealth, as it centralizes excessive power in the central government. On the contrary, it creates massive incentives for a "sharing" economy based on earnings from crude oil sales, which belong primarily to the Federal Government of Nigeria.

This in turn creates an embedded incentive to rent-seeking as economic activity, an absence of deep reflection by the political leadership on the nuances of competing economic frameworks as a basis for economic policy, and the commodity dependence that has created frequent economic distress through externally induced oil price shocks. Our distress is now further entrenched with extreme levels of foreign borrowing that have essentially mortgaged the future of Nigeria's youth.

While the Covid-19 pandemic and associated lockdowns imposed in the early months of the pandemic contributed significantly to this recession, it is not a valid excuse to avoid confronting the more important causative factor of the longstanding, weak fundamentals of the Nigerian economy. Our economy was distressed long before Covid-19, as demonstrated by the recession of 2016-2017 and the fragile recovery.

Moreover, the Nigerian government's already-weak fiscal position left it unprepared and unable to support its citizens adequately during the Covid-19 pandemic. While South Africa's government announced a $26 billion fiscal stimulus package in April 2020 in response to the pandemic, the Nigerian government's budgetary response was N500 billion ($1.3 billion) and Central Bank of Nigeria intervention funds of N1 trillion ($3 billion). This fiscal and monetary-authority response was grossly inadequate to meet the magnitude of the challenge, and, in my estimation, at least 95 per cent of the 100 million Nigerians living in extreme poverty did not receive any support from the government during the lockdowns and the pandemic more generally. This indicates extremely weak state capacity.

The second political response to Nigeria's longstanding and escalating economic crisis should be the conscious selection and election of intellectually competent leadership for our country. Such leadership, with political will and visionary politics backed by sound economic thinking, will identify and work with the best minds among our compatriots to create economic transformation. It is the duty of Nigerian citizens to ensure the emergence of this kind of leadership at the ballot box, while holding the government in office accountable for the performance of the economy as is the case in every democracy.

About the Author

Kingsley Moghalu is a former Deputy Governor of the Central Bank of Nigeria from 2009-2014 and a Presidential Candidate in the 2019 General Elections. He led the execution of extensive reforms in the Nigerian banking system after the global financial crisis. He was a member of the Bank's Monetary Policy Committee that brought inflation down into single digits.