The latest prediction of the International Monetary Fund (IMF) that a third of the global economy will enter another recession in 2023 is unsettling news for Nigeria’s economy, which has consistently wasted chances to achieve growth and sustainable development.
The World Bank has also decreased its projection for numerous regions. It estimates the rise in per capita income in sub-Saharan Africa over 2023–2024 at 1.2 percent in its most recent Global Economic Prospects study. This is problematic for Nigeria.
This would make poverty, which already affects 133 million people, worse in an economy that needs sustained double-digit growth to avoid collapse.
Before IMF Managing Director, Kristalina Georgieva issued her warning, Nigeria’s economy had been plagued by problems, including high inflation, the foreign exchange crisis, sharp unemployment, and shoddy infrastructure. The enigma of energy is persistent. The grim situation is further compounded by uncertainty, a protracted petrol shortage, and rising loan rates.
From a negative gross domestic product growth rate of -1.8 percent in 2020, mainly attributed to the COVID-19 lockdowns, Nigeria attained 3.6 percent growth in 2021. GDP growth rate was 2.25 percent in the third quarter of 2022, slowing from Q2’s 3.54 percent expansion. That missed the estimates of a 2.95 percent rise. In December, the World Bank downgraded Nigeria’s growth rate from an earlier 3.2 percent to 2.9 percent for 2023.
“Even countries that are not in recession, it would feel like a recession for hundreds of millions of people”, said the IMF chief. She bases her prognosis of a fresh global recession on Russia’s war in Ukraine, higher interest rates, a new surge in the spread of COVID-19 in China, and the deceleration of the United States, European Union, and Chinese economies.
The World Bank report warned that another fresh wave of recession in 2023 would mean that for the first time in 80 years, two global recessions occurred within the same decade. “Small states are especially vulnerable to such shocks because they relied on external trade and financing, limited economic diversification, elevated debt, and susceptibility to natural disasters”, the report said. This applies to Nigeria.
In June 2022, the development lender had forecast the global economy at 3.0 percent in 2023. It has reviewed this downward with a new estimate of 1.7 percent. It is reckoned that this is the slowest projection outside the 2009 and 2020 recessions since 1993.
Nigeria’s economy is on the razor’s edge. Inflation rose for 10 straight months to 21.47 percent in November, falling slightly to 21.34 percent in December. The naira exchanges at the parallel market at close to N800 for $1. The debt profile is projected to hit N77 trillion should the National Assembly securitize the N22.7 trillion ‘Ways and Means’ advances and approve the new N5 trillion planned borrowing by the Federal Government. Plainly, Nigeria is ill-prepared for a global recession and lacks the economic buffers to alleviate its impact.
This is unlike the 2008-09 global economic meltdown, which plunged many Western economies into recession. Then, Nigeria had a buoyant $64 billion in foreign reserves, a GDP of 6.29 percent, a performing non-oil sector, and low external debt that helped it to escape a downturn. Sadly, these indicators have disappeared. Now, the macroeconomic indices have worsened under the regime of President Muhammadu Buhari.
On Buhari’s watch, the economy has witnessed a sharp fall in Foreign Direct Investment into Nigeria by 81.46 percent from $8.49 billion in Q1 2019 to $1.57 billion in the corresponding quarter of 2022, per the National Bureau of Statistics. Twice (2016 and 2020), it fell into recession. The country’s debt burden, from N11 trillion in 2015, has ballooned to N44.3 trillion. There is little to show for the humongous borrowing.
The result is the loss of investor confidence, increased capital flight, and a surge in production cost. According to a report by South Africa’s Rand Merchant Bank, Nigeria has dropped from Africa’s top 10 investment destinations to 14th.
At 12 percent, industry, the third largest employer of labour (after services [53.03 percent] and agriculture [34.97 percent]), has been plagued with a high cost of production, making it difficult to thrive. Electricity and the difficulty in accessing forex to pay for imported machinery and raw materials have stifled its growth. Member companies of the Manufacturing Association of Nigeria reportedly spent N639 billion on alternative energy sources between 2014 and 2021 due to poor supply.
Since 2015, Buhari has squandered the opportunity bequeathed to him to tackle corruption, revitalize, and diversify the economy, and end insecurity. The thrust of his economic policy is to borrow at pace. Consequently, debt servicing is gulping a high percentage of revenue. At the 2023 World Economic Forum in Switzerland, the Minister of Finance, Zainab Ahmed, said Nigeria planned to reduce the debt servicing-to-revenue ratio from 80 percent to 60 percent in 2023.
To reverse the dire projections, Buhari should do things differently. Swiftly, he should work on the climate of insecurity. Terrorism, banditry, kidnapping, and oil theft on a grand scale should be addressed holistically. This will allow farmers and commercial activities to thrive, and FDI to flow in again.
The President should overcome the energy crisis. Rather than depending on imports, he should target the domestic production of petroleum products. This can be achieved by privatizing the four moribund public refineries and initiating competition among the emerging local refineries headlined by the 650,000 barrels per day Dangote Refinery. It should resolve the issue of feedstock for the local crude refiners.
Deliberately, the Federal Government should collect its taxes. Tax dodgers should be prosecuted, and the cost of governance crashed.
The 36 state governments should stop depending on the monthly federal allocations and engineer their states to be at the forefront of economic activities and become independent economic units.