By Uche Amunike
Dear friends, as we have found out from recent statistics, our dear country Nigeria has taken the lead in the list of countries suffering from the scourge of Recession. I'm talking about global statistics, here.
However, even though we talk about recession all the time, the question is, do we really understand what it means? Do we understand the implications of being labelled a country undergoing recession? What are the causes of this national scourge? Are there any effects or impacts it may have on us as a people? How do we tackle the problems that come with it? Are their even solutions? My very good friend and buddy, Chinedu Nzeribe has looked at this problem and has tackled the issues in his article titled 'Recession'. I agree with him and hope you learn one or two lessons from it too.
The technical definition of a recession is two consecutive quarters of negative growth. It could also be defined as a period of significant decline in the general economic activities of a nation lasting longer than a few months visibly through the wholesale/retail sales, industrial production, increased unemployment, negative GDP growth and others. GDP is gross domestic product and it's the market price of all goods and services created within a country. GDP is basically the sum of Consumer Spending, Government Spending, Investments and then Net Exports
The country's gross domestic product (GDP) dropped by 2.06 percent in the second quarter of 2016 after falling 0.36 percent in the previous three months.
CAUSES OF ECONOMIC RECESSION
Drop in global crude oil prices which led to about 50% drop in revenue, and a resultant drop in importation of some critical consumer goods. Drop in oil prices leads to drop in government revenues and /or a drop in consumer /govt spending.
- Destruction of pipeline facilities by Niger Delta Militants leading to a decline in crude oil lifting.
- Poor planning over the periods of Oil Boom. Inability to save for the rainy days and squandamania.
- Total implementation of the TSA policy that mandated all Govt agencies to transfer their deposits in banks to the CBN. This stifled credit creation and reduced economic activities.
- The subsidy removal also contributed its toll
- The delay in forming a cabinet . This govt was run like a Sole administrator in its 1st 11 months which gave way to leakages in the economy as they was no direction. The international best practice recommends 3 months for govt to be formed.
- Excessive taxation and borrowing. Multiple taxes especially on Small Medium Enterprises and other infant industries led to difficulty in ease of doing business and collapse of these Small Medium Enterprises.
- Borrowing to finance current expenditure.
- Servicing of accumulated bad debts sickened the economy.
- Holistic corruption.
- The body language of the current govt that scared especially foreign investors away.
- Policy Somersault/ Inconsistencies especially the replacement of the fixed exchange rate with floating exchange rate. This led to various dollar rates at the Interbanks and parallel markets. As an import dependent economy, these rates led to stagflation(stagflation is stagnant economic growth, high unemployment and high inflation)
- The ripple effects of subsidy removal. Everything revolves around oil so any increment affects the economy badly.
- Delay in signing the 2016 appropriation bill into law which also contracted the economy and stifled growth.
IMPACTS OF THE RECESSION
- Rising inflation as cost of goods and services skyrocket
- Increase in crime waves and youth unrest
- Rising NPL (Non performing loans)
- Low levels of domestic and foreign investment
- Rising unemployment
- Increased job loses
- Declining industrial capacity
- Low domestic output.
- Increasing and deepening levels of poverty.
- Currency crisis and scarcity of foreign currency
- Perennial energy shortages from electricity providers.
- Increased family frictions.
- Loss of opportunities as a result of diminished funds to grab emerging business opportunities
- Closure of Small/Medium Enterprises and some other businesses especially those in key sectors of the economy such as manufacturing, financial services and insurance and Industries that also rely heavily on government expenditure.
- Decline in income and profits reported by businesses.
SOME SUGGESTED SOLUTIONS OUT OF RECESSION
- Initiating export oriented mass industrialization policy.
- Reducing and downsizing public sectors and political appointees
- Increasing tax drive without multiple taxation
- Securing the North East Central and returning all IDPs.
- Restructuring the present political system that has so much powers concentrated at the centre.
- Review of the TSA Policy Implementation should be phased.
- Immediate resolution of the crises in the Niger Delta Region.
- Govt incentives to stop human capital flight and brain drain.
- Resolution of national budgetary issues timely.
- Reduced lending/interest rates especially to start ups and other Small/ Medium Enterprises.
- Government to quickly assemble a strong formidable economic team and clear cut policy direction to come up with fiscal and monetary policies to stimulate the economy back to status quo. Priority should be given to the real sectors of the economy –Manufacturing, Agriculture, Solid Minerals etc. The govt should avoid propaganda and blame games.
- Family Relationship: Families are to synchronise and work together to tackle the damaging effects of economic hardship. This may positively help family ties. Families may jointly visit local parks for picnic or have cheap dinner in a decent low profile restaurant around.
- Some families must change their plans, sell their homes, switch schools, and cancel vacations.
- In other households: Lifestyle changes, adjustments, educate children on the implications of recession, realistic expenditures. Use savings/investments wisely.
- New Businesses: This is likely not the right time to start a new business, and the business idea may need to be put on hold. Continue to research new ideas and look for investors or business partners, but focus efforts on earning an immediate income to support the family.
- Job losses: Taking a lower paying job would reduce short term pressure in meeting basic obligations. This is a short term measure to stay afloat while looking for high paying jobs. You may consider borrowing from friends and families but this may not bring a desired short-term relief as envisaged. Long term strategies may include registering with professional job finder organisations for effective job search. You may also consider change of career path or acquiring new sellable skills during the economic recession. Do not write off relocation as this may reposition you competitively.
- Priority setting: Families are expected to know when to draw a thick line between needs and wants and prioritize accordingly. This is highly considered necessary during this period as income has shrunk and might still be shrinking. The needs like shelter, health care, feeding clothing and schooling should be treated as priority over any other wants. Families should pay bills in order of importance. Some bills can be paid late, but other bills must be paid on time in order to avoid foreclosure, eviction, or property repossession.
- Financing education: Many families are already switching to cheaper schools around with same qualities and standards, which I consider a good step in the right direction. But this may not work for university students. For undergraduates, we suggest on a campus business or total switch to part-time schooling programme, which allows students to combine work and learning for self financing purposes.
The effects of a recession on families last a lot longer than the duration of a recession. Ultimately, almost everyone suffers during an economic downturn. Families can survive by adapting to a new lifestyle, working together, and making changes to improve their future.
Chinedu Nzeribe is the Senior Special Assistant to the Governor of Anambra State on Finance.