The output numbers for the January-March 2017 period released last week had something in it for everyone.
Is the Nigerian economy on its way out of recession, as most key functionaries of the Buhari administration insist? According to the Nigerian Bureau of Statistics (NBS), the economy shrank by 0.52% in the first quarter of this year. This is not just down on the 1.73% by which the economy shrank in the fourth quarter of last year; but confirms a southward trend in negative output growth that has been in place, since the economy shrank by 2.34% in the July-September 2016 period. Additionally, the NBS’ release shows that in the first quarter of this year, more activity sectors (we have 46 of these) grew than has been the case over the last one year. Extrapolate off these numbers, and suggestions that the economy may exit the recession it was in all of last year do not look like a stretch anymore.
And for those who think the economy has been so lousily managed by the incumbent administration? Well, it is enough that with the release of Q1, 2017’s output numbers, we have had five back-to-back quarters of falling growth in the gross domestic product (GDP) under its watch. And with both consumer and business confidence down, it is doubtful how strong any recovery this year will be. In all likelihood, having undergone the welfare losses which were the hallmarks of last year, most consumers would save this year rather than spend. Even then, the naira’s continuing loss of value will make saving a difficult proposition — except for those with a larger pool of discretionary income, who may more easily convert such savings into dollars. The poor and vulnerable may, thus, spend all they have for fear that inflation may leave them with even less, but their combined spend might not do it for the economy.
The well-paid may also parlay their savings into treasury bills. These at least guarantee a return about 100 basis points above inflation. But then, the central government’s appetite for domestic borrowing — which is driving TB yields up — is not exactly without cost to the economy. Indeed, the central bank’s policy committee noted last week that as at April this year, “credit to government continued to outpace the programmed target of 33.12% for fiscal 2017, while credit to the private sector declined far below the programmed target of 14.88%”.
As predicted by the literature, we are thus seeing government borrowing crowd out the private sector. No chance then of the private sector being able to invest in new capacity over the current plan cycle. In addition to which, most businesses will have difficulty running down current inventory. Demand at the premium end of businesses’ respective markets will continue to soften, following a build-up of savings by more affluent customers. If the clientele at the bottom of the pyramid are not overly weighed down by the need to pay off their debts, then businesses that can make the transition to value brands, should see profit hold up since margins here are fatter.
What these mean, however, is that much of the expectations of a recovery in the last three quarters of this year will be riding on government spending its way out of the recession. Thankfully, OPEC and its non-member collaborators have extended till March next year, their arrangement for stitching up global oil production in support of higher prices. This should translate into additional funds into government’s coffers. Hopefully, that should mean far fewer cases of sub-national governments not paying salaries — helping hold up consumer spending.
An improvement in government’s fiscal position ought also to mean some money with which to support the structural changes that the economy needs, especially through improving the ease of doing business in the economy, and making the public expenditure management system more efficient across the three tiers of government.
The greater likelihood, is that as we near the end of the current electoral cycle, “business as usual” would be the safer choice; as is evident in the monetary authority’s management of the foreign exchange market. This would be an unfortunate choice, however, for as the NBS’ revisions to last year’s output numbers indicate, the recession was slightly deeper than we all thought. And by extension, what we must do to get out of it will take far more introspection than is on the table, thus far.