The National Bureau of Statistics, NBS will be releasing the second quarter GDP which will show that the country is officially in recession because the economy shrank by -2% in the second quarter of the year.
Key indices that let to this result includes the sharp drop in Nigeria’s soverign revenue. This led to a mass shortage of Forex for imports of goods and key raw materials for Nigeria’s struggling and small manufacturing sector.
The consequence of the huge increase in fuel prices as a result of subsidy removal has also led to a high inflation rate in mostly food and commodity prices. Nigeria has also witnessed massive lay-ogfs in the services, banking, maufacturing and aviation sectors just to mention a few. A high unemployment rate, low productivity can only bring out a growth rate of -2% which seems like a conservative figure given the impact of the recession on everyday Nigerians.
However, some of these problems are self-inflicted.
It took the new APC government five months before choosing ministers. The executive and legislative rancour delayed the 2016 budget by another five months. The government also pussy-footed on the devaluation of the currency which was an inevitable measure to ensure foreign investors come back to invest after a period of massive sell-off.
However, Nigeria would not get out of a recession this year. The International Monetary Fund, IMF has already revised Nigeria’s growth outlook to -1.8% in July. According to Maury Obstfeld, IMF Economic Counsellor and Director of the Research for the IMF said:
“Growth projections were revised down substantially in sub-Saharan Africa, reflecting challenging macroeconomic conditions in its largest economies, which are adjusting to lower commodity revenues.
“In Nigeria, economic activity is now projected to contract in 2016, as the economy adjusts to foreign currency shortages as a result of lower oil receipts, low power generation, and weak investor confidence”.
The IMF also cited the impact of Brexit on the global economy whic by extension affected Nigeria’s growth forecast saying:
”This revision incorporates projected effects of Brexit, but also other developments since April that lead us to adjust the outlook,”
“Naturally, the direct effects specifically due to Brexit are greatest in Europe, especially the United Kingdom. Our projections for other areas are little changed by Brexit.”
“These revisions for the largest low-income country are the main reason for the downgrade in growth prospects for the low-income developing countries group” he said.
In all of the rationale by the World Bank, some variables might work in the favour of the country. Nigeria is already in talks with the Niger Delta Avengers who have halted hostilities and destruction of pipelines, some which are supplying gas to power stations. All other things being equal, power generation is expected to improve for the rest of the year.
A higher interest, a weakened Naira (NGN) and a fully floated currency with a transparent market will further bring back investors who can now see the fair value of the currency vis-a-vis the Dollar (USD).
Nigeria’s maniufacturing sector should also be given the opportunity to access Forex as an increase in production will further shrink importation that depletes Nigeria’s Forex reserves.