Business - Economy
Updated: August 24, 2020

Economy Decline Pushes Nigeria Towards Worse Recession In Decades

By Olalekan Fakoyejo
August 24, 2020
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The Minister of Finance, Zainab Ahmed, had stated that the misery of Nigerians will be worse in 2020 following the pandemic that struck the economy. The World Bank had also stated that Nigerians should prepare for the worse economic recession in the history of the country.

Nigeria has gone on recession twice under Buhari as a Military ruler in 1982 and as a democratic President in 2016. There have been a series of recession projections for Nigeria in 2020. Ahmed projected that Nigeria's economy could contract as much as -8.94% in 2020.

The World Bank projected Nigeria's economy will shrink by -3.2%, while the Managing Director, Kristalina Georgieva, said Nigeria's economy will contract by -3.4%, International advisor company, McKinsey stated that Nigeria's economy will contract by -2.5% if the outbreak is contained.

But according to McKinsey, the economy will decline by -8.8% if Nigeria is unable to contain the virus - even though businesses have started, Nigeria is still struggling to contain the coronavirus. Note that recession is officially declared once the economy declines for two consecutive quarters; so the second-quarter economic decline is the first step towards recession.

Why Nigeria Experienced The First Economy Decline?

Four years after Nigeria experienced its last recession - within the quarters after 2016 - the economy has been recording slow growth, until COVID-19 was detected within the control. While the previous recessions were due to government policies, the impending recession is caused by external factors (COVID-19) that the Nigerian government has little or no control over.

NBS, also confirmed this in its report, “The decline was largely attributable to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the COVID-19 pandemic,” the report read.

“The domestic efforts ranged from initial restrictions of human and vehicular movement implemented in only a few states to a nationwide curfew, bans on domestic and international travel, closure of schools and markets, etc., affecting both local and international trade.

“The efforts, led by both the federal and state governments, evolved over the course of the quarter and persisted throughout,” NBS reported.

Can Nigeria Avoid The Worse Recession?

Before the COVID-19 pandemic struck the economy, Nigeria's economy was initially projected to grow by 2.1% this year, but the pandemic and lockdown measure threw a spanner in the works, affecting the growth, dragging it down by -6% in the second quarter of 2020.

But Nigeria's chance of avoiding the worse recession depends on the effectiveness of President Buhari. While Nigeria might be unable to avoid recession, it can reduce the extent of the recession. According to the World Bank Country Director for Nigeria, Shubham Chaudhuri, the government's response will determine the speed, quality, and sustainability of Nigeria's economic recovery.

Also, Ahmed had stated that "The economic growth in Nigeria, that is the GDP, could in the worst-case scenario, contract by as much as –8.94% in 2020. But in the best case, which is the case we are working on, it could be a contraction of –4.4%, if there is no fiscal stimulus.

"But with the fiscal stimulus plan that we are working on, this contraction can be mitigated and we might end up with a negative –0.59%,” Ahmed said. So while Nigeria can't avoid the imminent recession, the country can reduce the rate of its economy shrinking in 2020.

Nigeria On Brink Of Collapse?

With the impending recession, Nigeria is in a delicate situation as the country currently uses most of its revenue to pay its debt. 97.5% of the revenue generated by Nigeria was spent on debt servicing by the Federal Government. This further reveals the extent of Nigeria's revenue and debt problem.

This is despite Nigeria struggling to generate NGN1.62 trillion as total revenue, out of the NGN2.62 trillion projected for the first five months. But within the period, NGN3.98 trillion was spent by the Nigerian government.